Abstract

This study analyzes the effect of the auditor conformity in the consolidated entities, using the adjustment of preliminary earnings rather than the discretionary accruals in the prior study as a measure of audit quality. The results of the analysis of the impact of the audit conformity on the audit quality, focusing on companies listed on the KSE and the KOSDAQ market from 2014 to 2019, are as follows. The higher level of auditor conformity is positively related to the higher degree and frequency of adjustment. To test of proper proxy of audit quality of adjustment of preliminary earnings, we follow Phillips et al. (2003) to analyze the relationship between the degree of adjustment and loss－evasion. The degree of adjustment is positively related to loss－evasion companies, accordingly the degree of adjustment is used as a proper proxy of audit quality. Besides, the analysis relation of auditor conformity with audit hour and audit fee using samples of this study shows a negative relation, in common with previous research. Our research results can be interpreted that the higher conformity provides higher audit quality with less audit effort resulting from the auditor's understanding of the group entity. In conclusion, the group auditor conformity enhances the efficiency and effectiveness of the audit of consolidated entities. This study contributes that it shows not only the effect of the consolidated entities’ auditor conformity on audit quality but the usefulness of the adjustment of preliminary earnings as an audit quality on behalf of the discretionary accruals that have the threshold.

Keywords

• Auditor Conformity
• Adjustment of Preliminary Earnings
• Audit Quality
• Consolidated Entites

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