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

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  • Hwang, Seokyoun
  • Sarath, Bharat
  • Han, Seung-youb

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.

Suggested Citation

  • Hwang, Seokyoun & Sarath, Bharat & Han, Seung-youb, 2022. "Auditor independence: The effect of auditors’ quality control efforts and corporate governance," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 47(C).
    • Handle: RePEc:eee:jiaata:v:47:y:2022:i:c:s1061951822000258
    DOI: 10.1016/j.intaccaudtax.2022.100470
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    More about this item

    Keywords

    Auditor independence; Quality control; Audit hours; Corporate governance; Audit reporting;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation
    • M49 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Other

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