The Effects Main Debtor Groups Regulation on Audit Quality, Audit Hour and Audit Fee
Asian Tax Journal Vol. 18 No. 2 (2017), pp. 9-32
Abstract
In this study, we investigate whether there is a difference in the audit quality, audit fees and audit hours under the Main Debtor Groups regulation. Auditors can judge that dependence of external information users is higher when enhanced by an external monitoring. In such cases, It is possible to increase risk of lawsuits against auditor. Therefore, auditors will increase the audit hours and audit fees so as to decrease tolerable audit risks. The results of this study are as follows. Audit hours and audit fees of companies under the Main Debtor Groups regulation as well as their audit quality are higher than their counterpart not subject to the regulation. This could be resulting from the facts that the companies under the Main Debtor Groups regulation are more closely monitored by the main creditor banks, and the auditors are required to carry out more stringent audits on the financial statements in order to achieve the lower tolerable audit risks as intended. Consequently, the quality of the audit can be improved. As a result of analysis by firm size, audit hours and audit fees of companies with large firm size under the Main Debtor Groups regulation as well as their audit quality are higher than their counterpart not subject to the regulation. Also, as a result of analysis by leverage, it is reported that firms with high leverage under the main debt group regulation have higher audit time and audit fees then firms with low leverage. This study contributes to new knowledge about the effect of the Main debt Group regulation on auditing and suggests that external monitoring affects audit risk. This can be interpreted that audits can be done effectively by auditors to increase the reliability of financial statements when the acceptable audit risk level is low.
Keywords
- Main Debtor Groups regulation
- Audit quality
- Audit hours
- Audit fee
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