비상장기업의 전기 한정의견, 감사의견개선 및 감사보수와의 관련성 = The Association between Qualified Audit Opinion, Improvement of Audit Opinion and Audit Fee in Private Firms

다국어 초록 (Multilingual Abstract)

In this study, focused on private firms, we examine the association between qualified audit opinion and audit fee of firms which are subjected to external audit using 24,128 samples filed their audit fee to financial supervisory services(FSS) from 2005 to 2007. Also we examine the association between improvement of audit opinion and audit fee of current period. Most of prior studies that examine the relation between qualified opinion and audit pricing document audit fee increase for firms with qualified opinion. They interpret the qualified opinion raises the audit fee because it increases the uncertainty and induces the more investigation effort of auditors. However, most studies use only public companies which are under higher audit risk for auditors and benefits from audits for companies. This study examine the relation between qualified opinion and audit fees for private firm where less audit risk and benefits from audits exist. From the empirical results on private market, we can identify or extend the results of prior studies about the relation between qualified audit opinion and audit pricing with or without market pressure and auditors` responsibilities. and suggest implications for debates on whether the effectiveness of external audit in private market exists. In order to examine the relation between audit fees and qualified opinion, we test two hypotheses in alternative forms, using 20,048 firm-year observations from private market and 1,485 firm-year observations with qualified opinion. First, we hypothesize that audit fee of the private firms with qualified opinion in the previous period is lower than that of unqualified firms. Because private market is free from market pressure and more competitive among auditors, we argue that private firms with qualified opinion are able to penalize auditors without much costs by threatening auditors to switch and pay less audit fees than previous year. Auditors also can accept as long as the cost of total audit risk including additional audit risk identified in the previous audit does not exceed decreased audit fees. Second we argue that if privates firms with qualified opinion in the previous period get unqualified opinion, audit fee may be higher than those who receive the same audit opinion because external auditors will make more effort to investigate the financial information and require compensation for their efforts regardless with the type of market. The results of this study are as follows: First, consistent with the first hypothesis, we find that private firms with qualified audit opinion in prior year pay lower audit fee in current year while public firms pay higher audit fee. This implies differently from auditors who charge higher audit fee for public firms with qualified opinion in prior year to compensate increased audit risk due to market pressure, auditors of private firms with qualified opinion in the previous year charge less audit fees because of auditor switch possibility and the level of competitiveness in the private firm audit market. Qualified audit opinion is one of factors which induce the firms to change their incumbent auditors. Furthermore, private firms may change their incumbent auditor at any time. These facts make firms to have more audit bargaining power than incumbent auditors. If private firms do not change the auditors because of the possibility of negative reputation that frequent auditor switches may give, they may bid reduced audit fee to the incumbent auditors as an alternative. For this, incumbent auditors may accept the offer because they judge getting new audit clients under the competitive audit market. When private firms actually change current auditors, current audit fee can be discounted due to low balling effect because new auditors estimate higher positive value of incumbency from future engagement. Second, consistent with the second hypothesis, we find that improvement in audit opinion is positively related to current audit fee for private large firm samples. This finding implies that when audit opinion is improved for firms that have, benefits from external audit, auditors may get more compensations for their effort. In sum, our empirical findings suggest that private firms which consider external audit may give them benefits pay higher audit fee. Also these empirical findings suggest regulatory implications for the recent debates on the effectiveness of external audit in private market.

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