Date of Award
PhD in Accountancy
Department of Accountancy
Gopal V. Krishnan
South Korea is one of the first countries to enact audit transparency disclosure, requiring public accounting firms to file an annual report containing information on audit production, governance, operations, on-going litigations, and regulatory inspection results. In this dissertation, I make use of this rich information setting to address issues concerning audit quality management systems, audit-firm governance, and resource allocation in audit productions.
Motivated by the recent call from the PCAOB (Public Companies Accounting Oversight Board) for better understanding of audit-firm quality control system, the first chapter (sole-authored) examines the determinants of and return on firm-level investment in quality management. I find that investment in human resources dedicated to quality management is positively related to the proportion of partners who are responsible for managing quality control systems and the hours invested in training of auditors during the fiscal year, and that audit-firm size, economic interest in assurance business and training of novice auditors are positively associated with investment in quality management.
In the second chapter, coauthored with Gopal Krishnan, I investigate whether and how the timing of engagement quality review is associated with audit quality. Using the percentage of review efforts spent in interim review relative to the percentage of engagement-team efforts spent in interim audit, I find that an earlier involvement of engagement quality review is positively associated with engagement-team effort, and shorter audit reporting lag.
In the last chapter, coauthored with Gopal Krishnan, I examine the audit production implications of two audit-firm governance characteristics: the degree of shirking incentive among partners, measured by disparity in equity holdings of partners and delegation of control from non-managing partners to managing partners. I find that both equity disparity and control-ownership wedge are positively associated with total audit hours and partner involvement in audit engagement, and that while the equity disparity and control-ownership wedge are both positively associated with client retention, the equity disparity is negatively associated with client recruitment. My findings suggest that audit-firm governance attributes are important determinants of resource allocations in audit production and, that transparency on audit-firm governance can be informative to existing and new clients.
Choi, Jooanne, "Usefulness of Audit-Firm Transparency Disclosures". 2022. 4.