계속감사기간과 자본시장의 반응

This paper investigates how investors and information intermediaries perceive auditor tenure when they evaluate quality of earnings. There are two contradicting viewpoints, one argues that audit quality increases with longer audit tenure because of improved audit expertise from superior client-specific knowledge, but the other views that audit quality decreases with longer tenure because of auditors’ high dependence on the client firms. Financial Supervisory Service(FSS) made a policy, in 2003, that required all audit firms not to provide audit service longer than 6 years after 2011 in Korea. All auditors should end their audit service within 6 years. FSS views that mandatory limits on audit tenure will improve audit quality by reducing client firms’ influence over auditors and increasing auditor’s independence. However, all audit firms have strongly objected the mandatory auditor rotation system. They insist that longer tenure increases audit quality because auditors can get more client specific knowledge. After 5 years of enactment, FSS announced in 2008 that it would rescind the mandatory audit rotation policy after 2011. It turned over its former decision. There is few research in Korea that investigates the impact of audit tenure on the perception of market participants and on the audit quality. This paper analyzes the relationship between audit tenure and audit quality perceived by capital market participants. Capital market based approach is used because academics, regulatory institutions, and practitioners often emphasize the importance of capital market perception. The results of this paper are as follows. First, investors evaluate earnings quality more favorably as audit tenure becomes longer. This tendency manifests when audit tenure is more than 6 years. The result means that capital market participants give more credit to the financial statements audited by auditors with longer tenure. Second, credit rating agencies also perceive reported earnings more reliable for firms with longer audit tenure. They evaluate credit and bond ratings more favorably for firms with longer tenure. Third, using earnings coefficients from a regression of one year ahead earnings forecasts on reported earnings, financial analysts evaluate earnings quality higher with lengthy auditor-client relationship. Fourth, when we divide sample period into two sub periods, before and after mandatory regulation, we find that market participants perceive auditor tenure less favorable after mandatory auditor change policy than before the change. This means that the market investors view the audit tenure less reliable information when they evaluate earnings quality under mandatory change environment. Based on the research results, we can conclude that it is reasonable policy decision that FSS rescinds the mandatory auditor rotation after 2011.