Title: Effect of the audit hours regulation on audit fees and scale efficiency in audit firms: Korean evidence

Authors: Jayoun Won; Sang-Lyul Ryu

Addresses: Division of Economics and International Trade, Sunchon National University, 255 Jungang-ro, Suncheon-si, Jeollanam-do, 57922, Korea ' College of Business, Konkuk University, 120 Neungdong-ro, Gwangjin-gu, Seoul, 05029, Korea

Abstract: Many countries have increased accounting transparency by imposing rules on external auditors. Korea amended the Act on External Audit of Stock Companies (EAA), which has been in effect since 2019. The amendments to the EAA have included the standard audit hours (SAH) rule that mandates auditors to spend a certain amount of audit hours determined by the regulation. Korea expected that the SAH rule would secure sufficient audit hours and improve audit quality. However, audit practitioners argued that the SAH hugely increased audit hours resulted in significantly raised audit fees. Our findings showed that though audit hours and fees increased, audit firms' scale efficiency improved from 2018 to 2019. Moreover, auditors spent more hours on skilled audit professionals than unskilled ones, which led to high audit quality. This paper's results may interest policymakers in other countries that reformed audit regulations to ameliorate audit quality.

Keywords: standard audit rule; scale efficiency; mix variance; yield variance; translog production function.

DOI: 10.1504/IJMEF.2023.131897

International Journal of Monetary Economics and Finance, 2023 Vol.16 No.3/4, pp.261 - 271

Received: 26 Jan 2022
Accepted: 29 May 2022
Published online: 04 Jul 2023 *

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