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Audit Effort and Market-perceived Risk: Evidence from South Korea

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  • Sung Hwan Jung

Abstract

type="main"> Auditors incur a loss of credibility and/or status or litigation costs only when investors recognise audit failures. In this respect, auditors may be concerned about an increase in market-perceived risk even though the total amount of audit risk is constant. Consistent with this reasoning, I find that auditors increase audit effort in response to increases in market-perceived information risk. This suggests that the expected costs of audit failures are a function of investors’ recognition, and thus increased market-perceived risk causes auditors to become more concerned about their audit failures and to increase audit effort. Further, this study shows that audit effort is effective in reducing market-perceived information risk, suggesting that auditors contribute to the information environment.

Suggested Citation

  • Sung Hwan Jung, 2016. "Audit Effort and Market-perceived Risk: Evidence from South Korea," Australian Accounting Review, CPA Australia, vol. 26(3), pages 255-270, September.
    • Handle: RePEc:bla:ausact:v:26:y:2016:i:3:p:255-270
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    1. Dafydd Mali & Hyoung‐joo Lim, 2018. "Conservative Reporting and the Incremental Effect of Mandatory Audit Firm Rotation Policy: A Comparative Analysis of Audit Partner Rotation vs Audit Firm Rotation in South Korea," Australian Accounting Review, CPA Australia, vol. 28(3), pages 446-463, September.
    2. Hyoung-Joo Lim & Dafydd Mali, 2024. "An analysis of the effect of audit effort (hours) on stock price volatility: evidence of increasing demand reducing uncertainty," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 21(3), pages 359-375, September.
    3. Dafydd Mali & Hyoung‐joo Lim, 2021. "Do Relatively More Efficient Firms Demand Additional Audit Effort (Hours)?," Australian Accounting Review, CPA Australia, vol. 31(2), pages 108-127, June.

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