Abstract

This study investigates the effect of mandatory auditor designation. Especially, certain characteristics of mandatory designated audit has been considered in this study. It’s more probable that mandatory designated audit becomes a last audit. In addition, a continuous audit－contract years will be shortened for mandatory designated audit and, there is more chance to be first year audit. We also include the effect of rule change, effective 2015, where regulator－designated auditor is prohibited to be an auditor for first year subsequent to mandatory audit(“the New Rule”). This can suggest the validity of rule change purpose of which is to improve the accounting transparency of financial audit. Results are as follows. Firstly, last audit can improve audit quality. Secondly, audit quality is improved as audit－contract years increase. Thirdly, first year audit negatively affects an audit quality. The effect of mandatory designated audit was directly reviewed additionally and no evidence was found that mandatory designated audit increased an audit quality. However, review of the effect of rule change reveals that the New Rule has positively affected an audit quality whereas old rule has not. The contribution of this study is to review firstly the effect on an audit quality of rule change where regulator－designated auditor is prohibited to be an auditor for first year subsequent to a mandatory audit. In addition, various natures of mandatory designated audit were reviewed in three characteristics including last audit, continuous audit years and first audit. This study reviews the effectiveness of rule change in mandatory audit designation, effective 2015.

Keywords

• designated audit
• audit quality
• last audit
• auditor tenure
• first audit

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