감사품질과 감사인 강제교체 및 자율교체

Abstract

We examine the relationship between mandatory/voluntary auditor changes and audit quality. In particular, we investigate whether auditors changed by the mandatory auditor rotation regime improve audit quality for non-finance firms during our sample period, 2006-2007. Auditor-selection mechanism has been switched from an assignment rule to the market competition since 1982. Under the current auditor-selection mechanism, firms may undermine auditor independence because of a possible threat of auditor dismissal and/or friendly relationship from the long-term audit engagement. In order to improve auditor independence, the mandatory auditor rotation regime has been enforced since 2006. Under the mandatory auditor rotation regime, firms have to replace their incumbent auditors with new auditors if the firms are audited by the same auditors during the last 6 years. According to prior research, auditor changes are likely to occur due to different belief between auditors and managers in the free audit market. For example, auditor changes may occur when managers prefer to increase their earnings while auditors object it. If managers switch their incumbent auditors in order to positively manage their earnings, then the mandatory auditor retention regime would be more valuable as means of preventing managers' earnings manipulations and increasing audit quality. Successor auditors under the mandatory audit rotation regime may tend to provide lower audit quality because of the lack of experiences and expertises on new clients. However, the mandatory auditor rotation regime, implemented to improve the auditor independence, provides an additional benefit to newly engaging auditors in contrast to the voluntary auditor change regime. If the successor auditors expect an event that firms should replace incumbent auditors due to the mandatory auditor rotation regime, then the successor auditors are likely to seek information about the potential clients. That is, audit firms, knowing that firms should change auditors after 6 years audit engagements, will try to collect prior information of potential clients, identify industries trends, or compose task force teams in order to engage new audit contracts. In the process, the successor auditors under the mandatory audit rotation regime, have more information about new clients than the successor auditors changed by firms' voluntary decision makings. Therefore, we can expect that the successor auditors under the mandatory audit rotation regime will provide higher audit quality than the successor auditors changed by firms' voluntary decision makings. Our research hypothesis is that audit quality provided by the mandatorily changed auditors is higher than audit quality provided by the voluntarily changed auditors In this study, we use discretionary accruals as a proxy for audit quality and 388 firm-year observations during our sample period, 2006-2007. Specifically, we employ discretionary accruals based on Jones-model (Dechow et al. 1995) and Performance-Matched Discretionary Accrual (Kothari et al. 2005). The empirical results show that the level and change of firms' discretionary accruals audited by the mandatorily changed auditors are lower than those audited by the voluntarily changed auditors: The coefficients on the mandatory-change dummy variable (MCH) are significantly negative at least 1% level. The results of performance-matched discretionary accruals are qualitatively identical. In addition, the coefficients of the level and change of discretionary accruals in top 33.33 percentile are significantly negative at least 1% level. We also find that the level and change of firms' positive discretionary accruals audited by the mandatorily changed auditors are lower than those audited by the voluntary auditors at least 1% level. We conclude that the mandatory auditor rotation regime may provide the intented effect of improving audit quality, which is suggested by the negative relation between mandatory auditor changes and discretionary accruals. The empirical results on the mandatory auditor rotation regime provide an implication on evaluating the adequacy of the auditors' audit contract termination rights that is adopted since 2009.