The Determinants of the Difference between Standard Audit Hours and Actual Audit Hours
Asian Tax Journal Vol. 22 No. 4 (2021), pp. 97-127
Abstract
The New “Act on External Audit of Stock Companies” allows the Korean Institute of Certified Public Accountants(KICPA) to set standard audit hours to improve the audit quality and protect stakeholders. The purpose of this study is to investigate the factors affecting the difference between the standard audit hours and the actual audit hours(“the difference” hereafter). 6,322 company－year data from 2015 to 2019 of KOSPI and KOSDAQ listed companies were used for analysis. The empirical results of this study are as follows. First, the smaller the difference was in the case of higher audit fee, the first audit, the Big 4 auditors, and poor financial condition. Second, it was found that the difference was larger when the management performance is good and the complexity is higher. Third, when other variables affecting audit hours were included, then similar results were obtained in additional analyses, indicating that the study results are robust. The result that a large amount of actual audit hours is invested in the case of high audit fees, initial audits, Big 4 auditors, or poor financial status suggests that the standard audit hours needs to be set differently accordingly. The result that less audit hours is used as management performance is good suggests that the current standard audit hours system, which is added in case of net loss, is reasonable. In addition, the more complex the company, the more audit hours should be inputed, but in reality, the results suggest that it is necessary to pay attention when checking the actual audit hours in the future. This study is significant in that it analyzed the effect at the level of individual companies by estimating the standard audit hours for each company and comparing it with the actual audit hours. In addition, by identifying the factors that affect the difference, it gives implications for factors to be aware of when revising the standard audit hours, and provides information to companies, auditors, and supervisors who are interested in the standard audit hours.
Keywords
- Standard Audit Hours
- Actual Audit Hours
- Act on External Audit of Stock Companies
- Audit Fee
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