파트너 강제교체제도와 감사품질 향상에 대한 실증분석

Abstract

Under the Act on External Audit of Stock Companies, there is a rule about mandatory rotation of audit partner. The rule prohibits audit partners who have performed audit services for consecutive three years from providing additional audit work for next three years in order to prevent the violation of independence caused by the collusion between audit partners and audit clients. However, the adoption of this rule raises some questions. First, mandatory audit partner rotation has the possibility of audit failure due to the auditors’ lack of understanding about auditees’ operation. In addition, the rule raises question as to the inequities between Big 4 and Non-Big 4 auditors. Non-Big 4 can be exposed to more risk factors caused by audit partner rotation because they are smaller and have lower market shares than Big4 audit firms which allied with the foreign audit firms. Therefore, this study investigates whether the mandatory rotation of audit partner really improves audit quality through higher auditor independence. The results of this study are as follows. First, when audit partners are mandatorily rotated, the audit quality is improved than before. However, when we compare the results after dividing the sample of audit partner rotated firms into two groups: audit partner rotation in the same audit firms and audit partner rotation caused by audit firms change, we cannot find any difference in audit quality between after and before mandatory audit partner rotation in the sample of audit partner rotation in the same audit firms. On the other hand, in the case of audit partner rotation caused by audit firms change, audit quality after audit partner change is higher than audit quality before audit partner change. The results show that the improvement of audit quality by mandatory audit partner rotation is largely attributed to the effect of audit firms change. Second, this study also examines whether the before and after audit quality of auditor partner rotated firms are significantly different according to Big 4 audit firms or non-Big 4 audit firms. The results show that audit quality between after audit quality and before audit quality are not significantly different according to Big 4 audit firms or non-Big4 audit firms. In addition, when we test the difference in audit quality by dividing the sample into the audit partner rotation in the same audit firms and audit partner rotation caused by audit firms changes, there are not significant difference in audit quality between Big 4 audit firms and non-Big 4 audit firms. This is the first study to empirically test the effect of mandatory rotation of audit partners in the same audit firms. The prior studies about the effect of mandatory auditor change do not investigate the audit partner rotation in the same audit firm. As the name of the audit engagement partner, unlike the name of audit firm, is not publicly disclosed on audit reports in Korea, it is difficult to empirically analyze the effectiveness of mandatory audit partner rotation rules. The data used in this study covers 5,897 firm-years from 2005 to 2011 by combining Korean Security Exchange(KSE) market firms and the KOSDAQ market firms, the results from the analysis also have major political implications for those countries that have implemented mandatory audit partner rotation.