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Audit Hours and Unit Audit Price of Industry Specialist Auditors: Evidence from Korea

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  • Gil S. Bae
  • Seung UK Choi
  • Joon HWA Rho

Abstract

Higher audit fees associated with auditor industry specialization could represent higher unit price charged by industry specialist auditors (ISAs) or the provision of a greater quantity of audit services. This study exploits a field setting in Korea, where the disclosure of audit hours is required in company annual reports, and finds that ISAs charge significantly higher total audit fees but also expend significantly greater audit hours than non†ISAs. When audit fees and hours are considered together, the unit audit price of ISAs is significantly lower than that of non†ISAs. This indicates that higher total audit fees associated with ISAs are likely to be attributable to greater audit hours associated with ISAs. However, greater audit hours for ISAs may suggest higher audit quality or may simply indicate that the additional audit work performed by ISAs is conducted by relatively cheaper junior auditors. Our work provides an alternative explanation for the higher total audit fees documented in the previous studies.

Suggested Citation

  • Gil S. Bae & Seung UK Choi & Joon HWA Rho, 2016. "Audit Hours and Unit Audit Price of Industry Specialist Auditors: Evidence from Korea," Contemporary Accounting Research, John Wiley & Sons, vol. 33(1), pages 314-340, March.
  • Handle: RePEc:wly:coacre:v:33:y:2016:i:1:p:314-340
    DOI: 10.1111/1911-3846.12145
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    Cited by:

    1. 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).
    2. Masaki KUSANO & Yoshihiro SAKUMA, 2019. "Recognition versus Disclosure and Audit Fees and Costs:Evidence from Pension Accounting in Japan," Discussion papers e-19-007, Graduate School of Economics , Kyoto University.
    3. Bills, Kenneth L. & Cobabe, Matthew & Pittman, Jeffrey & Stein, Sarah E., 2020. "To share or not to share: The importance of peer firm similarity to auditor choice," Accounting, Organizations and Society, Elsevier, vol. 83(C).
    4. Huh, Bong Gu & Lee, Sunhwa & Kim, Wonsin, 2021. "The impact of the input level of information system audit on the audit quality: Korean evidence," International Journal of Accounting Information Systems, Elsevier, vol. 43(C).
    5. Kyung-Hye Kim & Seung-Weon Yoo & Kyong-Soo Choi, 2019. "Information Asymmetry among Multiple Principals and Inefficiency within the Organization," Sustainability, MDPI, vol. 11(24), pages 1-14, December.
    6. Kusano, Masaki & Sakuma, Yoshihiro, 2019. "Effects of recognition versus disclosure of finance leases on audit fees and costs: Evidence from Japan," Journal of Contemporary Accounting and Economics, Elsevier, vol. 15(1), pages 53-68.
    7. Yang, Seunghee & Lee, Woo-Jong & Lim, Youngdeok & Yi, Cheong H., 2021. "Audit firm operating leverage and pricing strategy: Evidence from lowballing in audit industry," Journal of Contemporary Accounting and Economics, Elsevier, vol. 17(2).
    8. Gil S. Bae & Seung UK Choi & Phillip T. Lamoreaux & Jae Eun Lee, 2021. "Auditors' Fee Premiums and Low‐Quality Internal Controls," Contemporary Accounting Research, John Wiley & Sons, vol. 38(1), pages 586-620, March.
    9. Timothy B. Bell & David B. Bryan, 2021. "Effectiveness, efficiency, and fee premiums in audits led by industry specialist partners," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(3), pages 4513-4572, September.
    10. Minjung Kang & Jung‐wha Lee & Mihye Ha & Moon‐Kyung Cho, 2021. "Impact of IFRS adoption on audit pricing: evidence from audit hours and unit audit price in the Korean audit market," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(2), pages 3517-3564, June.
    11. Simon Dekeyser & Ann Gaeremynck & W. Robert Knechel & Marleen Willekens, 2021. "Multimarket Contact and Mutual Forbearance in Audit Markets," Journal of Accounting Research, Wiley Blackwell, vol. 59(5), pages 1651-1688, December.

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