Audit Review and the Change of Audit Quality
Asian Tax Journal Vol. 22 No. 2 (2021), pp. 133-160
Abstract
This study analyzes whether the audit quality has changed since the audit review for D company. The audit review began in 2015 when the regulator raised suspicions about Company D’s accounting fraud, which disclosed massive losses. As a result of investigation and supervision, stern measures were taken against the audited companies and auditors. In addition, the overall business practice and audit market changed greatly as The Act on External Audit of Stock Companies was revised. Therefore, it is meaningful to investigate whether the audit quality has changed since the audit review for D company. Audit quality was measured using audit effort and discretionary accruals. Our empirical findings reveal that audit fee and audit hour in the post－audit review period is higher than that in the pre－audit review period. Also, the discretionary accruals in the post－audit review period are lower than that in the pre－audit review period. Meanwhile, further analysis using the change－in－differences method shows that the auditor of Company D significantly improved the audit quality. Besides, the audit quality of the construction－type order industry was significantly improved. These findings suggest that audit review for company D has a significant impact on changes of audit quality.
Keywords
- Audit Review
- Audit Quality
- Audit Fee
- Audit Hour
- Discretionary Accruals
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