Abstract

This paper examines the effect of overvalued equity on interim review hours and audit hours. This paper employs a audit hours regression model proxy for overvalued equity and and controls for other known determinants of audit hours. We used a sample of 6,757 firm－year observations listed in KOSPI and KOSDAQ from 2014 to 2020. Findings show that auditors spend more interim review hours and audit hours for clients increasing audit risk because of overvalued equity. Especially, the effect of overvalued equity on interim review hours is more remarkable than on audit hours. And also, the effect of overvalued equity on interim review hours of partners and registered public accountants is greater than on audit hours. This study provide the implication to suggest the effectiveness of the interim review system that brings the efficiency of the year－end audit.

Keywords

• overvalued equity
• interim review hours
• audit hours

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