Abstract

This paper examines whether IACS has actually influenced enhancing the reliability of financial statements. This study specifically focuses on audit hours spent for external audit service and the effects of IACS non－unqualified review opinions. Furthermore, this paper investigates the effect of the non－unqualified review opinion regarding IACS and the audit hours together on Material Misstatements in Financial Statements. The results show, external auditors that expressed nonunqualified review opinion on a company’s IACS report usually spent more hours on financial statements audit, which means that external auditors considered the review opinion on the IACS in planning substantive audit scope and expected audit hours. Additionally, the analysis found that, although more audit hours were spent for external audit service considering non－unqualified review opinion on IACS, material misstatements in financial statements did not reduce, which may mean that external auditors could not increase audit hours enough to significantly reduce material misstatements in financial statements. The key root causes for this result might be that there is legally less responsible ‘review opinion’ on the IACS scheme and that the regulator restrictively allowed external auditor to provide advisory on IACS establishment for the audit client, which may impair independence of external auditor in expressing the review opinion on IACS. Lastly, for the company whose review opinion on IACS was non－unqualified, the more audit hours that were spent, the less the company is subject to FSS enforcement action due to material misstatement in financial statements. This result means, IACS could be effective to enhance the reliability of financial statements at least for the company whose review opinion on IACS was non－unqualified. <Key5)words> Internal Control

Keywords

• Internal Control
• IACS
• SOX
• Audit Hours
• Financial Statements

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