ATJ Asian Tax Journal

Asian Tax Journal

Print ISSN 1738-3323 Online ISSN 2733-9270

The Effect of the Average Audit HoursProvided by KICPA on Actual Audit Hours and Audit Quality

  • Hyun Geol Shin Department of Business Administration, Konkuk University

Asian Tax Journal Vol. 18 No. 2 (2017), pp. 193-223

Abstract

KICPA(Korea Institute of Certified Public Accountants) has provided the external auditors with the average audit hours data as a guide for fair audit hours since 2011. This study empirically examines whether the average audit hours provided by KICPA have influence on the actual audit hours and contribute to improve the audit quality. We measure AHR(actual audit hours divided by the average audit hours) by using the average audit hours data from 2012 to 2015 and analyze the annual changes in AHR. And we regress the AHR and other control variables on the audit quality measured by DA(discretionary accruals). Our results are as follows. First, during the test period the average of AHR has changed to close to 1 and the standard deviation of AHR has declined. It means that the average audit hours provided by KICPA has affected the actual audit hours to close to the average audit hours. Second, we find that AHR has a significantly negative correlation with DA. The result supports that the more audit hours the auditors spend, the higher is the audit quality, which means that the average audit hours provided by KICPA has played a positive role in improving audit quality. In addition, we classify the samples into two subgroups, the below group(the group with AHR less than 1) and the excess group(the group with AHR over than 1) and regress AHR on DA again. We observe that the below group has the more significant negative correlation with DA that the excess group. The finding shows that the average audit hours provided by KICPA has more contribution to the audit quality of the below group auditors rather than of the excess group auditors.

Keywords

  • KICPA
  • average audit hours
  • audit quality

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Asian Tax Journal

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