감사노력이 계속감사기간과 이익의 질의 관계에 미치는 영향 = The Effect of Audit Hour on the Association between Auditor Tenure and Earnings Quality

다국어 초록 (Multilingual Abstract)

This study examines whether the adverse effect of auditor short tenure on earnings quality is mitigated when auditors spend audit hours over and above the normal level of audit hours. Prior studies show that auditors with short tenure are associated with lower earnings quality because of the lack of client-specific knowledge (Johnson et al., 2002; Myers et al., 2003; Ghosh and Moon, 2005). The reason for this result is that it takes time for auditors to acquire knowledge about their clients` business. But, if auditors make additional efforts by spending abnormal audit hours, then auditors with short audit tenure may be able to make up their lack of knowledge about their clients, mitigating the adverse effect of short auditor tenure on earnings quality. Meanwhile, this mitigating effect of extra audit effort can be affected by auditor`s size or industry specialization. On the one hand, as BIG 4 auditors have superior training programs and standardized audit methodologies, these factors may enable BIG4 auditors to better understand their new clients with relatively small efforts. Similarly, industry specialist auditors have accumulated experience and knowhow in serving other clients in the same industry, thus the audit efforts of industry specialists relative to non-specialists may be smaller that is necessary to understand new clients` characteristics. One the other hand, non-BIG4 or non-specialist auditors may need relatively more audit efforts to enhance the understanding of new clients due to system problems or lack of audit experience. If the audit efforts of non-BIG4 or non-specialist auditors in the early years of the audit engagement are enough not only to overcome lack o client-specific knowledge but also to make up for their deficiency in reputation or industry specialization, then the mitigating effect of extra audit effort can be observed even in the non-BIG4 or non-specialist auditors. Otherwise, it can be observed only when auditors are either BIG4 or industry specialists. It is the empirical question whether the audit efforts of non-BIG4 or non-specialist auditors are enough to mitigate the negative relation between short audit tenure and lower earnings quality. We build up the hypotheses as follows. We first test whether the negative relation between auditor tenure and discretionary accruals is attenuated when auditors make additional efforts. Second, we allow the interaction between Big 4 affiliation/industry specialization and audit hours to examine its effect on the negative relation between auditor tenure and discretionary accruals. To test these hypotheses, we use 9.518 firm-year observations with no missing data on audit hours and audit fees from the firms listed on Korea Stock Exchange and KOSDAQ for the period 2003~2010. We employ discretionary accruals estimated by the Kothari et al. model as a proxy for earnings quality. Abnormal audit hours are measured by the difference between actual audit hours and the expected audit hours estimated from the audit hour model. The positive audit hours implies that auditors make additional effort than expected, controlling for clients` business complexities and audit risk. The results of this study show that the negative relation between auditor tenure and discretionary accruals is weakened when firms are audited by either Big 4 or industry specialist auditor and auditors make additional effort. This indicates that the relation between auditor short tenure and the impairment of audit quality is mitigated when client firms are audited by either Big 4 auditors or industry specialist auditors and/or auditors make extra effort. But, the mitigating effect of extra audit effort on the relation between auditor short tenure and the impairment of audit quality is only observed when auditors are Big 4 auditors or industry specialist auditors. This suggests that the deterioration of audit quality due to auditor short tenure is attenuated by auditor reputation and industry specialization, not by auditors` spontaneous audit effort.

참고문헌 (Reference)

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