Auditor independence: The effect of auditors’ quality control efforts and corporate governance

Seokyoun Hwang; Bharat Sarath; Seung youb Han

doi:https://doi.org/10.1016/j.intaccaudtax.2022.100470

Auditor independence: The effect of auditors’ quality control efforts and corporate governance

Seokyoun Hwang, Bharat Sarath, Seung youb Han

Research output: Contribution to journal › Article › peer-review

Abstract

This paper investigates whether audit firms’ quality control (QC) activities, which are generally viewed simply as an internal review process of engagement work-papers, are related to auditor independence. Using a sample of Korean firms, we find a significantly positive relationship between the ratio of QC hours to total audit hours (QC hour ratio) and the auditor's propensity to issue a going concern opinion. This relationship is more pronounced for economically important clients. We also find that audit firms’ QC efforts are effective in maintaining independence only when client firms have better governance systems. These results suggest that audit firms’ QC efforts, especially in interaction with governance, are effective in maintaining auditor independence.

Original language	American English
Article number	100470
Journal	Journal of International Accounting, Auditing and Taxation
Volume	47
DOIs	https://doi.org/10.1016/j.intaccaudtax.2022.100470
State	Published - Jun 2022
Externally published	Yes

ASJC Scopus subject areas

Accounting
Finance

Keywords

Audit hours
Audit reporting
Auditor independence
Corporate governance
Quality control

Access to Document

https://doi.org/10.1016/j.intaccaudtax.2022.100470

Cite this

@article{3a2a7855d5a34a13992bc5d063be21ef,

title = "Auditor independence: The effect of auditors{\textquoteright} quality control efforts and corporate governance",

abstract = "This paper investigates whether audit firms{\textquoteright} quality control (QC) activities, which are generally viewed simply as an internal review process of engagement work-papers, are related to auditor independence. Using a sample of Korean firms, we find a significantly positive relationship between the ratio of QC hours to total audit hours (QC hour ratio) and the auditor's propensity to issue a going concern opinion. This relationship is more pronounced for economically important clients. We also find that audit firms{\textquoteright} QC efforts are effective in maintaining independence only when client firms have better governance systems. These results suggest that audit firms{\textquoteright} QC efforts, especially in interaction with governance, are effective in maintaining auditor independence.",

keywords = "Audit hours, Audit reporting, Auditor independence, Corporate governance, Quality control",

author = "Seokyoun Hwang and Bharat Sarath and Han, {Seung youb}",

note = "Funding Information: We are very grateful to Ann Medinets, Jeomho Cho, Yuna Kim, and Keejae Hong for valuable discussion and comments on the paper. We also would like to thank participants at the Korean Accounting Association Annual Global Meeting 2020 and two anonymous referees for helpful comments and suggestions. Data Availability: Data are available from the public sources cited in the text. Publisher Copyright: {\textcopyright} 2022 Elsevier Inc.",

year = "2022",

month = jun,

doi = "https://doi.org/10.1016/j.intaccaudtax.2022.100470",

language = "American English",

volume = "47",

journal = "Journal of International Accounting, Auditing and Taxation",

issn = "1061-9518",

publisher = "Elsevier BV",

}

TY - JOUR

T1 - Auditor independence

T2 - The effect of auditors’ quality control efforts and corporate governance

AU - Hwang, Seokyoun

AU - Sarath, Bharat

AU - Han, Seung youb

N1 - Funding Information: We are very grateful to Ann Medinets, Jeomho Cho, Yuna Kim, and Keejae Hong for valuable discussion and comments on the paper. We also would like to thank participants at the Korean Accounting Association Annual Global Meeting 2020 and two anonymous referees for helpful comments and suggestions. Data Availability: Data are available from the public sources cited in the text. Publisher Copyright: © 2022 Elsevier Inc.

PY - 2022/6

Y1 - 2022/6

N2 - This paper investigates whether audit firms’ quality control (QC) activities, which are generally viewed simply as an internal review process of engagement work-papers, are related to auditor independence. Using a sample of Korean firms, we find a significantly positive relationship between the ratio of QC hours to total audit hours (QC hour ratio) and the auditor's propensity to issue a going concern opinion. This relationship is more pronounced for economically important clients. We also find that audit firms’ QC efforts are effective in maintaining independence only when client firms have better governance systems. These results suggest that audit firms’ QC efforts, especially in interaction with governance, are effective in maintaining auditor independence.

AB - This paper investigates whether audit firms’ quality control (QC) activities, which are generally viewed simply as an internal review process of engagement work-papers, are related to auditor independence. Using a sample of Korean firms, we find a significantly positive relationship between the ratio of QC hours to total audit hours (QC hour ratio) and the auditor's propensity to issue a going concern opinion. This relationship is more pronounced for economically important clients. We also find that audit firms’ QC efforts are effective in maintaining independence only when client firms have better governance systems. These results suggest that audit firms’ QC efforts, especially in interaction with governance, are effective in maintaining auditor independence.

KW - Audit hours

KW - Audit reporting

KW - Auditor independence

KW - Corporate governance

KW - Quality control

UR - http://www.scopus.com/inward/record.url?scp=85132400798&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=85132400798&partnerID=8YFLogxK

U2 - https://doi.org/10.1016/j.intaccaudtax.2022.100470

DO - https://doi.org/10.1016/j.intaccaudtax.2022.100470

M3 - Article

SN - 1061-9518

VL - 47

JO - Journal of International Accounting, Auditing and Taxation

JF - Journal of International Accounting, Auditing and Taxation

M1 - 100470

ER -

Auditor independence: The effect of auditors’ quality control efforts and corporate governance

Abstract

ASJC Scopus subject areas

Keywords

Access to Document

Other files and links

Fingerprint

Cite this