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The Association between Abnormal Audit Fees and Audit Quality after IFRS Adoption: Evidence from Korea

The Association between Abnormal Audit Fees and Audit Quality after IFRS Adoption: Evidence from... PurposeThis study examines how the relationship between abnormal audit fees and audit quality changed after adoption of the International Financial Reporting Standards (IFRS) in Korea.Design/methodology/approachUsing empirical data collected over the period from 2008 to 2013, this study analyze the association between abnormally high/low audit fee and audit quality. This study utilizes linear regression to test the hypothetical relation using discretionary accrual as a proxy for audit quality FindingsThis study finds that there exists no significant relationship between abnormally high audit fees and audit quality measured by the magnitude of discretionary accruals in the pre-IFRS adoption period. However, the relationship between abnormally high audit fees and the magnitude of discretionary accruals turns to be positive in the post-IFRS adoption period. These finding suggests that the IFRS enables some clients to engage more discretion in the choice of discretionary accruals and auditors charge higher audit fees in return for allowing the discretion for such clientsPractical implicationsThis study provides insight to regulators of the need to review carefully the financial statements of firms with abnormally high audit fees, and to investors to be more cautious when using financial information about these firms.Originality/valueTo the best of authors’ knowledge, this is the first study to assess IFRS impact on audit fee-quality relation. Also unique Korean audit market with intensifying competition and discounting audit fee provides interesting setting to review the impact of abnormal audit fee on audit quality. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Accounting and Information Management Emerald Publishing

The Association between Abnormal Audit Fees and Audit Quality after IFRS Adoption: Evidence from Korea

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References (90)

Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
1834-7649
DOI
10.1108/IJAIM-07-2015-0044
Publisher site
See Article on Publisher Site

Abstract

PurposeThis study examines how the relationship between abnormal audit fees and audit quality changed after adoption of the International Financial Reporting Standards (IFRS) in Korea.Design/methodology/approachUsing empirical data collected over the period from 2008 to 2013, this study analyze the association between abnormally high/low audit fee and audit quality. This study utilizes linear regression to test the hypothetical relation using discretionary accrual as a proxy for audit quality FindingsThis study finds that there exists no significant relationship between abnormally high audit fees and audit quality measured by the magnitude of discretionary accruals in the pre-IFRS adoption period. However, the relationship between abnormally high audit fees and the magnitude of discretionary accruals turns to be positive in the post-IFRS adoption period. These finding suggests that the IFRS enables some clients to engage more discretion in the choice of discretionary accruals and auditors charge higher audit fees in return for allowing the discretion for such clientsPractical implicationsThis study provides insight to regulators of the need to review carefully the financial statements of firms with abnormally high audit fees, and to investors to be more cautious when using financial information about these firms.Originality/valueTo the best of authors’ knowledge, this is the first study to assess IFRS impact on audit fee-quality relation. Also unique Korean audit market with intensifying competition and discounting audit fee provides interesting setting to review the impact of abnormal audit fee on audit quality.

Journal

International Journal of Accounting and Information Management – Emerald Publishing

Published: Aug 1, 2016

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