감사인의 감사보수 및 시간당 감사보수의 증가가 정보이용자에게 문제가 되는가? 신용평가기관과 채권투자자로부터의 실증적 증거

Abstract

We examine whether the increase in audit fees and audit fees per hour are perceived as audit quality improvement or increase in audit risk by credit rating agencies and creditors, who are the key users of accounting information. Increase in audit fees is considered as the increase in audit efforts (greater amount of audit hours), which in turn improves audit service quality. Thus, firms paying higher audit fees are expected to have higher credit ratings and lower interest rates. However, we recently have seen conflicting views on the audit fee increase between auditors and client firms. While client firms respond negatively to the audit fee increase, mostly due to the burden of extra audit costs, auditors argue that fee increase is inevitable to achieve certain level of audit quality and to provide transparent accounting information to information users. Therefore, the aim of this paper is to empirically examine whether firms with a significant increase in audit fees and audit fees per hour experience increase (or decrease) in credit rating and decrease (or increase) in cost of debt. In addition, we consider whether the effect of audit fee increase on credit rating (cost of debt) is more or less pronounced in the subsamples of Big 4 and non-Big 4 auditors. This study draw empirical results from a data of manufacturing firms listed on Korean Stock Exchange (KOSPI and KOSDAQ) during the period of 2011-2020. Specifically, we focus on the notion of the increase in audit fees and fees per hour, which are the proxies for the audit service profitability. For our tests, the test variable is measured by the percent change in audit fees and audit fees per hour. Our empirical results are as follows. First, we do not find that the change in audit fees and in audit fees per hour have a significant effect on credit rating. Second, we do not find that the change in audit fees and in audit fees per hour have a significant effect on the cost of debt, on average. However, when we divide our sample into firms audited by Big 4 and non-Big 4 auditors, we find that the increase in audit fees per hour is associated with a lower cost of debt for firms audited by Big 4 auditors. On the other hand, firms audited by non-Big 4 auditors do not exhibit the negative relationship between the increase in audit fee per hour and cost of debt. These results suggest that the creditor of firms audited by Big 4 audit firms do respond positively to increase in audit fees per hour, because the increase in audit fees indicate the greater amount of audit efforts. Increase in audit fees per hour is beneficial for firms audited by Big 4, because it reduces the cost of borrowing. The results are robust to using indicator variables in place of continuous variables. Third, the negative relation between the increase in audit fees per hour and cost of debt for firms with audited by Big 4 auditors, is mainly driven by the post-period of the disclosure on the revised Act on External Audit of Stock Companies (hereafter New Act) in 2017. Thus, these results suggest that the effect of disclosure on the New Act in 2017 differs by auditor size. Specifically, New Act seems to be more effective for firms audited by Big 4 auditors whose audit quality is considered to be high, compared to those with non-Big 4 auditors whose audit quality is considered to be low. Finally, in the additional tests where we employ the level of audit fees instead of the changes in audit fees, we find that high audit fees per hour is significantly and positively related to the credit rating for firms audited by Big 4 auditors. In contrast, we show that high audit fees per hour is a significantly and positively related to the cost of debt for firms with audited by non-Big 4 auditors. In sum, we find no evidence that the increase in total audit fees by auditor directly affect the credit rating, but we do find that it decreases the cost of debt, especially among firms audited by Big 4 auditors. This suggests that the firms audited by a Big 4 auditor when the change in audit fees per hour is higher, which creditors perceive as the enhancement of audit quality. Therefore, there are differences in perception of audit quality enhancement (driven by increase in audit fee per hour) across information users (e.g., credit rating agencies vs. creditors), and across the auditor size (Big 4 vs. non-Big 4 auditors). This is the first study that examines whether there are differences in the association between the change in audit fees per hour and perceived audit quality between credit rating agencies and creditors. Our results also suggest that from an investor’s perspective (e.g., lenders), audit quality differences exist across the change and level in audit fees per hour depending on the auditor size. Thus, our study contributes to policy debate on accounting reform of Korea in 2017. In particular, our finding provide policy implications for the regulatory authorities and KICPA concerning the standard audit hours policy. Furthermore, our findings provide new evidence on the extent to which the increase in audit fee per hour directly affect firm’s credit rating and cost of debt.