주기적 감사인 지정 가능성이 재무제표의 보수성에 미치는 영향

Abstract

In this paper, we suggested the evidence that when the possibility of auditor’s client firms being subject to auditor periodic designation was high, current auditors increased the level of conservatism for their client’s financial report. According to the revision of ‘Act on External Audit of Stock Companies etc’ in 2018, the Securities and Futures Commission, a subsidiary of the Financial Supervisory Service, designates an external auditor for all listed companies and unlisted companies whose ownership and management are not separated. With the enforcement of the revised‘Act on External Audit of Stock Companies etc’, listed and unlisted firms that have been audited by freely contracted auditors for more than six years are audited by an external auditor designated by the financial authorities for the next three years. The initial complement of the‘External Auditor Designation Rule’ would increase the risk of disagreement between the current auditor and incoming designated auditor and of restatement of the financial statements, caused by this disagreement. The designated auditors who are directly assigned to the firms by the regulatory authorities may conduct strict audits based on high independence, which may increase the audit risk of existing auditors before the designation. The strict audit by the designated auditors will lead to an increase in the audit risk of the existing auditors due to the possibility of disagreement between the existing auditors and the designated auditors, the risk of financial report restatement, and the risk of litigation. The current auditors who expect their client firm to be designated within a few years will consider the implementation of ‘External Auditor Designation Rule’ as an audit risk and this increased audit risk will affect the quality of the current financial report. Because current auditors have incentives to alleviate the future risk caused by audit failure, they would require firms to report more conservatively, right before a year of complementing the ‘External Auditor Designation Rule’. Using a sample of firms listed on the KOSPI and KOSDAQ security market from 2016 to 2019, we found evidence that is consistent with this argument. The firms expected to be designated in 2020 reported more conservative financial statements in 2018 and 2019 than before. In particular, among the firms expected to be designated within few years, those having been audited by auditors with which firms had freely contracted for under 6 years reported even more conservatively than those audited by auditors freely contracted for over 6 years. This result means that the preliminary effect of the auditor designation rule is remarkable when the free contract period is relatively short, and the independence of the existing auditors is maintained high. These results indicate that the current auditors perceive their client firms being designated as an audit risk and increase the level of conservatism in financial reports of client firms to alleviate the audit risk. This study is meaningful in that it verified the pre-emptive effect of the periodic designation rule by presenting empirical evidence that the level of conservatism of financial reporting can be improved by the possibility of auditor designation.