The Effect of Rank－specific Audit Hours on Initial Audit Quality
Asian Tax Journal Vol. 20 No. 3 (2019), pp. 43-75
Abstract
This study analyzes the effect of rank－specific audit hours on initial audit quality by using the newly disclosed rank－specific audit hours data according to the amendment of the ‘Act on External Audit of Corporations’ in May 2014. In this paper, we propose additional evidence on the initial audit quality debate with the perspective of rank－specific audit hours. From 2014 to 2017, audit hours were collected and classified as partner CPA, registered CPA and trainee accountant. Audit quality was measured by the modified Jones model discretionary accruals(Dechow et al. 1995) and the performance matched discretionary accruals(Kothari et al. 2005). With the criteria of non－financial listed companies and December year end, our final sample is 3,108 observations. The multiple regression results are as follows. First, rank－specific audit hours and total audit hours showed negative significant correlation with discretionary accruals. In other words, the increase of audit hours leads to the increase of audit quality. Second, when the initial audit, audit hours of partner CPA and trainee accountants were not significantly related with discretionary accruals. However, there was a significant positive relation between discretionary accruals and audit hours of registered CPA. It means that the registered CPA is lack of understanding about initial auditing. Or it may be due to the economic interests with initial client. According to the literature, there is no consistent conclusion about initial audit quality. So, this study contribute to the literature with additional factors on initial audit quality by examining the effect of audit hours on initial audit quality and the effect of rank－specific audit hours on audit quality. Also, this study suggest meaningful results of the initial audit quality under auditor designation system.
Keywords
- rank－specific audit hours
- audit hours
- audit quality
- initial audit
- auditor designation system
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