The effect of mandatory auditor assignment and non-audit service on audit fees: Evidence from Korea

Woo, Jeong， Seok; Jung, Kyueon; Lee, Suk Jun

doi:10.1016/j.intacc.2005.06.005

Cited by 27 publications

(28 citation statements)

References 13 publications

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“…Other research utilizing accounts receivable and inventory as a percentage of total assets has been undertaken in other countries, time-periods and sample sizes (Caneghem 2010;Iyer and Iyer 1996;Jeong, Jung, and Lee 2005;Wang and Sewon 2009). Results are generally consistent with Simunic (1980).…”

Section: Financial Balances Of a Firmmentioning

confidence: 68%

“…Researchers have also used a wide range of liquidity/solvency ratios to proxy for firm risk: including current ratio (Caneghem 2010;Chaney et al 2004;Francis 1984;Hay et al 2008;Low et al 1990); quick ratio (Al-Harshani 2008; Antle et al 2006;Chaney et al 2004;Dunmore and Shao 2006;Francis 1984;Mitra et al 2009); leverage ratio (Antle et al 2006;Choi et al 2005;Clatworthy and Peel 2007;Felix et al 2001;Givoly and Hayn 2002;Ho and Hutchinson 2010;Hoitash et al 2007;Jeong et al 2005;Karim and Moizer 1996;Naser and Nuseibeh 2007;Redmayne et al 2010;Simon et al 1986;Thinggaard and Kiertzner 2008;Venkataraman et al 2008); and debt ratio (Al-Harshani 2008; Chaney et al 2004;Dunmore and Shao 2006;Firth 1997;Goodwin-Stewart and Kent 2006a;Singh and Newby 2010).…”

Section: Liquidity/solvency Ratiosmentioning

confidence: 99%

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Auditor Attributes and Their Association with Audit Fees in Australia: An Empirical Study

Singh

Zahn²

2011

SSRN Journal

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This study investigates the existence of cartel pricing and anticompetitive behavior by the Big4 international providers of auditing services (resulting from the halving in the number of such providers from the Big8 to Big4). Increased audit market concentration, both globally and in Australia, together with the focus by the Big4 in servicing primarily large clients, raises concern about a lessening of competition in the audit marketplace. Using both a composite and dis-aggregated measure for auditor attributes (namely, auditor reputation, industry specialization, provision of non-audit services and auditor tenure), this study provides a comprehensive analysis of the association between four pivotal auditor attributes and the quantum of audit fees and changes in audit fees paid by Australian publicly listed firms during a five-year time frame. The final usable sample includes 600 firm-year observations as data points for the 2001, 2003 and 2005 calendar years (200 firm-years for each year in the aforementioned observation window) and is obtained entirely from publicly available sources, specifically annual reports. Main results from both cross-sectional and longitudinal multivariate analysis indicate that there is no significant association between the four auditor attributes utilized in this study with both audit fees and variation in audit fees. Robustness and sensitivity testing completed also largely support the non-significance of the association between both constructs. This study, therefore, finds no evidence of cartel pricing and anti-competitive behavior by Big4 auditors resulting from increased audit market concentration. Results from this study have clear implications for regulators, investors, scholars, corporate management/firms and auditors.iii ACKNOWLEDGEMENTS

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Section: Financial Balances Of a Firmmentioning

confidence: 68%

Section: Liquidity/solvency Ratiosmentioning

confidence: 99%

Auditor Attributes and Their Association with Audit Fees in Australia: An Empirical Study

Singh

Zahn²

2011

SSRN Journal

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“…Prior studies investigating auditor designation show that mandatory auditor assignment positively affects audit quality (e.g., Jeong et al. ). As a robustness test, we exclude designated auditors and reexamine the second hypothesis.…”

Section: Resultsmentioning

confidence: 99%

The Effect of Litigation Risk Increase on Big N Auditor Exits and Audit Quality in the Korean Savings Banking Industry

Jung

Kim

2018

Australian Accounting Review

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This study investigates whether an increase in litigation risk results in Big N auditors leaving the industry and examines the impact of this increase on audit quality. Using a sample of Korean savings banks from 2009 to 2015, the study finds that the proportion of Big N auditors sharply decreases after a savings bank crisis, suggesting that Big N auditors are likely to reject riskier clients, while audit quality is unchanged. The results provide new evidence that an increase in litigation risk does not necessarily increase audit quality. The findings have academic and practical implications, as they suggest that policies for improving audit quality should consider auditors’ strategies in response to litigation risk.

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“…In addition, Jeong et al. () argue that auditors that provide NAS to their audit clients are not highly paid for their audit fees. An economic bond between an auditor and an audit client could compromise the auditor's independence.…”

Section: Hypothesis Developmentmentioning

confidence: 99%

“…If an auditor provides NAS and audit services simultaneously, it could be increasingly difficult to suppress the client's preferred accounting practices as the auditor's economic dependence on the audit client increases. In addition, Jeong et al (2005) argue that auditors that provide NAS to their audit clients are not highly paid for their audit fees. An economic bond between an auditor and an audit client could compromise the auditor's independence.…”

Section: Hypothesismentioning

confidence: 99%

Non‐audit Services and Auditor Independence Depending on Client Performance

Kang

Hwang

Hur

2018

Australian Accounting Review

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We posit that the effect of non‐audit fees on auditor independence in Korea is based on audit client performance. Further, we suggest that an audit client with low performance has an incentive to purchase non‐audit services (NAS) from an incumbent auditor to facilitate earnings management and steer accounting practices in a preferred direction. We find evidence that as non‐audit fees in Korea increase, auditor independence is reduced only for low‐performing audit clients. Thus, unconditional prohibition of NAS seems unnecessary. Regulators and policymakers should examine the motivation for purchasing NAS, particularly among audit clients with poor performance.

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The effect of mandatory auditor assignment and non-audit service on audit fees: Evidence from Korea

Cited by 27 publications

References 13 publications

Auditor Attributes and Their Association with Audit Fees in Australia: An Empirical Study

Auditor Attributes and Their Association with Audit Fees in Australia: An Empirical Study

The Effect of Litigation Risk Increase on Big N Auditor Exits and Audit Quality in the Korean Savings Banking Industry

Non‐audit Services and Auditor Independence Depending on Client Performance

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