Korean Accounting Review (KAR) is the official journal of the Korean Accounting Association. The Korean Accounting Association (KAA) is the largest and oldest academic organization of accounting scholars and practitioners in Korea. It aims to create a fertile environment for innovation and collaborative research, to foster and improve research for the development and the promotion of accounting, and to develop a powerful network among scholars, practitioners, and authorities concerned with political decision making in this field.
Frequency of Auditor Turnover and Audit Quality 외부감사인의 교체 빈도와 감사품질
선우희연 Hee-yeon Sunwoo , 이유진 Eugenia Y. Lee
DOI: KAR Vol.46(No.1) 1-40, 2021
This study examines how the frequency of auditor turnover in an industry affects audit quality. Despite the great interest of regulators and academia, the effect of audit market competition on audit quality is yet inconclusive. This study attempts to provide an answer to this controversy by introducing a novel proxy for audit market competition. Frequent changes in a firm’s external auditor are evidence of fierce competition among auditors to attract new clients. Basing on this observation, we use auditor turnover frequency within an industry-year as a proxy for audit market competition and reexamine the effect of competition on audit quality. Using 20,971 observations of Korean public firms from 2002 to 2018, we find, on average, no significant association between the frequency of auditor turnover and the magnitude of discretionary accruals. However, for the subsample of firms audited by Big 4 auditors, auditor turnover frequency is associated with higher audit quality. In contrast, for non-Big 4 auditors, we find no evidence of audit quality changes associated with auditor turnover frequency. These contrasting findings suggest that only Big 4 auditors respond to fierce competition by enhancing audit quality. Our study contributes to the literature by providing evidence on the effect of competition using a novel proxy. More importantly, this study provides implications to the recent debate on the potential impacts of the adoption of the mandatory auditor rotation policy in Korea.
권수영 Soo Young Kwon , 기은선 Eunsun Ki , 김효은 Hyoeun Kim
46(1) 41-82, 2021
Audit Fee Premiums and Audit Quality of Global Industry Specialist Auditors 글로벌 산업전문 감사인의 감사보수 프리미엄과 감사품질
권수영 Soo Young Kwon , 기은선 Eunsun Ki , 김효은 Hyoeun Kim
DOI: KAR Vol.46(No.1) 41-82, 2021
The literature suggests that national industry specialist auditors provide high-quality audits and charge higher audit fees. This study expands prior research using auditor industry expertise at the global level. The global audit firm networks enable auditors to share industry knowledge with foreign members, which promotes them to develop global industry expertise. Global industry specialist auditors have competitive advantages from the participation in the global audit firm network, and as a result, their clients are willing to pay premiums in return for specialized audit services. To test the impact of global industry expertise on audit fees and audit quality in the Korean audit market, we use a sample of 4,766 firm-year observations from 2015 to 2017. We identify an audit firm as the global industry specialist auditor if the market share based on client sales across the world is the highest in a particular industry. Also, we use performance-matched abnormal accruals as a proxy for audit quality. Our results show that global industry specialist auditors provide high-quality audit services, even though they do not achieve audit fee premiums. On the other hand, national industry auditors receive audit fee premiums but do not deliver high-quality audit services. These results indicate that global industry expertise in the Korean audit market has a positive effect on audit quality, but the value of this global industry expertise is not adequately reflected in the audit fees.
산업전문 감사인, 글로벌 산업전문 감사인, 감사보수, 감사품질, industry specialist auditor, global industry specialist auditor, audit fees, audit quality
Does Gender Budget System Improve Government Fiscal Accountability? Evidence from Municipal Governments 성인지예산제도와 재정책임성 간의 상관관계에 관한 연구: 기초지방자치단체를 중심으로
정선문 Sun-moon Jung , 한승엽 Seung-youb Han
DOI: KAR Vol.46(No.1) 83-136, 2021
Gender budgeting system aims to promote gender-equality through a process of analyzing and incorporating gender-specific policy impacts on government budgets. In this study, we examine the association between gender budgeting system and fiscal accountability of municipal governments. Drawing upon a database of municipal governments of seven metropolitan cities, we find an insignificant association between total gender budgets and fiscal accountability. However, when we divide gender budgets into two project types (Direct vs. Indirect Gender Budgets), we find that Direct (Indirect) Gender Budgets have a significantly negative (positive) association with fiscal accountability. Unlike Direct Gender Budgets targeting only females with relatively simple fiscal planning, Indirect Gender Budgets are based on in-depth gender impact analysis and performance management process that can contribute to improvement of fiscal performance. In particular, Indirect Gender Budgets show a stronger association with fiscal accountability in such sub-dimensions as fiscal transparency and operational efficiency. In our cross-sectional tests, we find that the positive association of Indirect Gender Budgets with fiscal accountability is more pronounced when the municipalities have a relatively longer history of operating gender budget system. Overall, our results suggest a possibility that gender budget system plays a positive role of improving fiscal accountability through more sophisticated budget and performance management system, as opposed to negative perceptions on its inefficient operation among the public and regulators.
The Effects of the Adoption of New Audit Reports on Audit Quality 새로운 감사보고서의 도입이 감사품질에 미치는 영향
마희영 Heeyoung Ma
DOI: KAR Vol.46(No.1) 137-169, 2021
This study investigates the association between the adoption of a new audit report revised in 2017 and audit quality. The new audit report is expected to increase the information value of the audit report and external audit fidelity as it can check not only the audit results but also information about the audit process. Audit quality measures audit fees, audit hours and discretionary accruals. And it furthermore subdivided audit hours which represent the auditor's efforts into audit timing and audit labor mix. The results of the empirical analysis are as follows. First, a new audit reports increase audit fees and audit hours, decrease discretionary accruals. Second, key audit matters, the most important content of new audit reports, increase audit fees and audit hours, decrease discretionary accruals. Third, a new audit report and key audit matters increase the end-of-year final audit time and the review time for the quarter or semi-annual. Fourth, a new audit report and key audit matters increase the input time of quality control reviewers, engagement partners and registered accountants. However, the input time of trainee accountants decrease with a new audit report but increase with the key audit matters. The results of this study show that the adoption of new audit reports and the disclosure of key audit matters overall improve audit quality over all. This study is meaningful of that the effects of the adoption of new audit reports were verified using various audit quality measures.
새로운 감사보고서, 핵심감사사항, 감사품질, 감사시간, new audit report, key audit matters, audit quality, audit hour
Controlling Shareholders in a CEO Position and Audit Fees: Evidence from Large Business Groups 대규모 기업집단 총수일가의 경영 참여와 감사보수
하원석 Wonsuk Ha , 한승엽 Seung-youb Han
DOI: KAR Vol.46(No.1) 171-207, 2021
Focusing on large business groups in Korea, this study examines audit pricing for firms in which founding family members controllin g the business groups serve as CEOs. Based upon a sample of public firms of large business groups in Korea during 2013-2019, the study reveals the following. First, audit fees are lower for firms whose CEO positions are retained by founding family members of the business groups, which is primarily driven by decreased audit fees per hour, not by reduced audit hours. In addition, this association is more pronounced when firms belong to larger business groups such that the firms’ auditors have relatively lower bargaining power. Consistent with the results of the effect on audit fees, further analysis shows that firms with founding family CEOs are less likely than those without to be audited by industry specialist auditors. This evidence suggests that these firms with founding family CEOs have a low demand for high-quality audit service. In addition, this study finds a non-significant difference in audit quality between firms with founding family CEOs and those without. Collectively, the results suggest that founding family members’ engagement in management decreases agency conflicts between managers and shareholders and thus reduces audit fees in general, but it potentially increases agency conflicts between major and minor shareholders and, consequently, leads auditors to internalize the downward pressure of audit fees by reducing audit premiums rather than audit hours.
대규모 기업집단, 친족 경영자, 감사보수, 감사시간, 시간당 감사보수, audit fees, audit fees per hour, audit hours, founding family manager, large business group
손재성 Jaeseong Son , 이용규 Youngkyu Lee , 박경호 Kyoungho Park
46(1) 209-243, 2021
An Empirical Study on Target Ratcheting and the Ratchet Effect: The Role of Relative Performance Evaluation and Office Rotation 톱니현상 및 톱니효과에 관한 실증연구: 상대평가와 순환근무의 역할
손재성 Jaeseong Son , 이용규 Youngkyu Lee , 박경호 Kyoungho Park
DOI: KAR Vol.46(No.1) 209-243, 2021
The empirical study analyzes branch office-level target and actual performance data of a commercial bank in Korea to find whether target ratcheting and the ratchet effect exist, and more importantly how relative performance evaluation and branch office rotation system of the bank affect them. The analysis shows there exists target ratcheting, but the degree of ratcheting appears to be calibrated downward with temporary high performance due to a favorable business environment and, also with relatively high performing branch office. On the ratchet effect, it is found that even the branch offices performing above target or better than other branches in the first half period still do well in the second half, which implies no reduction of their effort. These results suggest relative performance evaluation and branch office rotation effectively control adverse effect due to target ratcheting. The recent revision of performance evaluation system which was supposed to fit with newly adopted strategy for internet-oriented banking environments appears to strengthen target ratcheting and the ratchet effect. This implies a possible misalignment between business environment, strategy and performance evaluation system.
The Effects of CEO Type and Ownership Structure of the Chaebol on the Behavior of R&D Expenditures 경영자 유형 및 재벌기업의 소유구조가 연구개발(R&D)지출 행태에 미치는 영향
류지호 Ji-ho Ryu , 조성표 Seong-pyo Cho
DOI: KAR Vol.46(No.1) 245-288, 2021
Because R&D activities are characterized by high uncertainty and information asymmetry, there may be the agency problems in determining R&D expenditures behavior. Previous studies have examined the relationship between R&D expenditure behavior and the characteristics of individual firm CEOs. However, since Korean firms have a unique governance structure called the chaebol group, the governance structure at the individual firm level cannot fully explain the R&D expenditure behavior. We examine whether the R&D expenditure behavior of firms differs according to the CEO types, and whether the chaebol's ownership structure affects these differences. The results show that the firms run by the professional CEOs have lower R&D intensity than the others. However, the professional CEOs’ firms in chaebol group have higher R&D intensity than other professional CEOs’ firms, suggesting that the chaebol group has a moderating effect on the agency problems in R&D expenditures. We also find that expensed R&D expenditures could be significantly reduced to achieve the profit goal. However, while owner CEOs in chaebol firms did not reduce expensed R&D expenditures to achive the profit goal, professional CEOs in chaebol firms were adjusting expensed R&D expenditures. This study has an academic contribution that suggests the moderating effect of the ownership structure of chaebol group as well as the influence of the managerial characteristics of individual firms on the R&D expenditures behavior. In addition, there is a pratical contribution that the chaebol group mitigates the reduction in R&D expenditures of professional CEOs to avoid the risk through control and support.
R, D지출 행태, 재벌기업의 소유구조, 조절효과, 소유권 및 소유지배괴리도, R, D expenditure behavior, chaebol ownership structure, moderating effect of chaebol group, cash flow rights, difference between cash flow rights and control rights
Substantial CEO and Disclosure Quality of Executive Pay Disclosure 실질적 최고경영자의 존재와 임원 보수의 공시품질
안정인 Jungin An , 서윤석 Yoon Suk Suh
DOI: KAR Vol.46(No.1) 289-321, 2021
In 2013, the company‘s annual report began to disclose executives’ pay information if executives receive compensation more than 500 million won a year. Most of prior studies have defined CEO as explicit CEO in the annual reports, whereas this paper identifies CEO who exert substantial influence based on executives’ pay information. Using executives’ pay information which is publicly disclosed in Korea under the capital market act of 2013, the number of disclosing executives’ pay has been increasing year by year. Also the percentage of the inside director of the top pay receiver has declined since 2015, while it has increased significantly in 2018. When looking at the top 10 companies with two or more executives who receive compensation more than 500 million won per year, most of the top pay receiver are the controlling shareholders. On the other hand, the second-level compensation receiver is professional managers. Also, we find that there are differences in executives’ compensation disclosures among companies. The above results indicate that there is a possibility that there is substantial CEO who would likely to avoid the legal responsibility for the company’s business activities and is more likely to receive compensation than explicit CEO in the company. We find that substantial CEO is less likely to disclose executives’ pay disclosure. This result suggest that substantial CEO has an incentive to comply the law at least associated with his or her executive pay disclosure by hiding the details of pay information.
최고경영자, 실질적 최고경영자, 개별 임원 보수공시, 공시품질, chief executive officer, substantial CEO, executive pay disclosure, disclosure quality
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