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The Effect of Initial Audit Fee Discounting on Audit Quality: Using Rank－Specific Audit Hours

이유진|박선영|선우혜정
한국국제회계학회 (Korea International Accounting Association)|2022.08|국제회계연구 (Korea International Accounting Review)|제104호|pp. 1-32|DOI 10.21073/kiar.2022..104.001

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키워드

감사품질초도감사보수할인audit quality직급별 감사시간initial audit fee discountlow－ballingrank－specific audit hours.

초록

[Purpose]This study reexamines the audit quality effect of audit fee discounting of initial－year audit fees (“low－balling”) and delves into the reasons behind it using rank－specific audit hours. While prior studies examine the relation between initial－year audit fee discounts and audit quality, the results are inconclusive. The availability of information on rank－specific audit hours provides an opportunity to conduct more in－depth analyses on the reasons for the documented results on the audit quality effect of low－balling in Korea. [Methodology]For the period 2005－2015, we use a final sample of 11,676 firm－year observations to analyze the effect of low－balling of audit fees on audit quality. Audit quality is measured by (performance－matched) discretionary accruals, and the level of audit team experience is measured by audit hours of various ranks of audit engagement team personnel, such as quality reviewers, audit partners, licensed accountants, unlicensed staff, and specialists. [Findings]We find weak evidence that audit quality is significantly lower in the first year of an audit engagement compared to continuing engagements. However, among initial－year audit engagements, we find no evidence of any incremental impairment in audit quality for engagements with fee discounts. To examine how auditors secure the level of audit quality, we further examine the characteristics of the engagement team of low－balling auditors. We find that low－balling auditors do not exhibit any systematic tendency to spend lower audit hours or assign less experienced personnel to the engagement. [Implications]The finding suggests that auditors internalize temporary losses from initial－year fee discounting to attract new audit contracts, rather than transferring the cost to clients by exerting less effort, and thus are able to maintain their audit quality. This study demonstrates how auditors tackle the regulatory concerns over audit fee low－balling causing low audit quality.

Abstract

[Purpose]This study reexamines the audit quality effect of audit fee discounting of initial－year audit fees (“low－balling”) and delves into the reasons behind it using rank－specific audit hours. While prior studies examine the relation between initial－year audit fee discounts and audit quality, the results are inconclusive. The availability of information on rank－specific audit hours provides an opportunity to conduct more in－depth analyses on the reasons for the documented results on the audit quality effect of low－balling in Korea. [Methodology]For the period 2005－2015, we use a final sample of 11,676 firm－year observations to analyze the effect of low－balling of audit fees on audit quality. Audit quality is measured by (performance－matched) discretionary accruals, and the level of audit team experience is measured by audit hours of various ranks of audit engagement team personnel, such as quality reviewers, audit partners, licensed accountants, unlicensed staff, and specialists. [Findings]We find weak evidence that audit quality is significantly lower in the first year of an audit engagement compared to continuing engagements. However, among initial－year audit engagements, we find no evidence of any incremental impairment in audit quality for engagements with fee discounts. To examine how auditors secure the level of audit quality, we further examine the characteristics of the engagement team of low－balling auditors. We find that low－balling auditors do not exhibit any systematic tendency to spend lower audit hours or assign less experienced personnel to the engagement. [Implications]The finding suggests that auditors internalize temporary losses from initial－year fee discounting to attract new audit contracts, rather than transferring the cost to clients by exerting less effort, and thus are able to maintain their audit quality. This study demonstrates how auditors tackle the regulatory concerns over audit fee low－balling causing low audit quality.

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관련 논문AI추천

Auditors’ Response to Audit Fee Lowballing: The Change in Audit Hours and Hourly Audit Fees박선영, 이유진, 최종학경영연구소 · Seoul Journal of Business2021 · 제27권 제2호초도감사의 감사보수 할인 현상에 대한 실증연구박재완, 이상철, 정갑수한국공인회계사회 · 회계ㆍ세무와 감사 연구2011 · 제53권 제2호Audit Committee Characteristics and Low-balling of Audit Fees송보미, 최보규, 최종학한국공인회계사회 · 회계ㆍ세무와 감사 연구2015 · 제57권 제2호한국공인회계사회 감사숙련도가 재량적 발생액에 미치는 영향김남헌, 이용규경영경제연구소 · 아태비즈니스연구2019 · 제10권 제4호Does Korea’s Seminal Audit Reform Improve Audit Quality?김효진, 윤순석, Charles R. Pryor한국세무회계학회 · 세무회계연구2024 · 제81호저가수임으로 인한 감사품질 감소에 미치는 영향김정교, 신찬휴한국디지털정책학회 · 디지털융복합연구2017 · 제15권 제11호

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