Do relatively more efficient firms demand additional audit effort (hours)?

Mali, Dafydd ORCID: https://orcid.org/0000-0003-3582-2429 and Lim, Hyoung-joo (2021) Do relatively more efficient firms demand additional audit effort (hours)? Australian Accounting Review, 31 (2). pp. 108-127. ISSN 1035-6908

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Abstract

We examine whether firms with higher relative efficiency (operational performance) require additional audit effort (hours) to signal audit quality to demonstrate that their financial reporting systems are robust. Therefore, we use a Korean sample of publicly listed firms because of the Korean audit hour policy which mandates that audit hour information be made available for market participants. We find that client firms with higher relative efficiency have higher audit hours, suggesting that management has an incentive to demand additional audit hours for signalling purposes, and that shareholders, amongst other stakeholders, have an incentive to demand external monitoring to reduce potential agency problems. The results show that relative efficiency is a unique measure of firm performance that can provide insights into a client firm's business and audit risk. We also find evidence suggesting that audit firms do not subject clients to a fee (fee per hour) premium based on relative efficiency, supporting our finding that client firms require audit effort for signalling purposes. Thus, our results have important implications for policymakers about audit effort demand.

Item Type:	Article
Additional Information:	Publisher Copyright: © 2020 The Authors. Australian Accounting Review published by John Wiley & Sons Australia, Ltd on behalf of CPA Australia
Uncontrolled Keywords:	accounting ,/dk/atira/pure/subjectarea/asjc/1400/1402
Faculty \ School:	Faculty of Social Sciences > Norwich Business School
Related URLs:	http://www.scopus.com/inward/record.url?...
Depositing User:	LivePure Connector
Date Deposited:	23 Aug 2024 08:30
Last Modified:	25 Sep 2024 18:03
URI:	https://ueaeprints.uea.ac.uk/id/eprint/96337
DOI:	10.1111/auar.12327

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