Abstract

The purpose of this research, in connection with audit performance, is to review the effect of designated audit where the scope of designated audit is discussed to be expanded recently, and also review whether new designation enhance the audit quality as compared with old rule where new rule prohibit designated auditor from being appointed as auditor for the first fiscal year subsequent to auditor－designation period. The effect of last audit is also reviewed as the intent of new rule is to improve audit quality by attaching last audit feature to existing designated audit. In addition, the reason of auditor－designation is also reviewed for purpose of identifying the cause of designation－audit effect. This paper selects 1591 firms listed in KOSPI and KOSDAQ for the period of 2011－2015. The results of the paper are following. Fist, designated audit improve audit quality whereas last audit does not. Second, whether or not it is last audit, designated－audit improves audit quality as compared with free－contracted audit, designated－audits in 2015 when new rule is firstly effective, are more effective than other designated－audits in other years in this paper’s scope (2011－2014). Third, in connection with designation reason, only designated－audits for IPO are effective where designated－audits due to non－IPO purpose are not effective. This results suggest that, although designated－audit improve audit quality in general, there are certain cases where designated－audit is not effective. This paper contributes to the literatures in several ways. First, this paper reviews the effectiveness of current rules in connection with auditor designation. Specifically, this is the first study where, in reviewing designation audit effect, new designation rule with being firstly effective since 2015 are reviewed separately from old designation rule up to 2014. Additionally, this paper reviews the effectiveness of last audit and find out the different effects of designation audit according to respective designation reason. This results suggest designation audit due to not－IPO reason should be improved to achieve its intended objective.

Keywords

• designated audit
• last audit
• audit quality

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