파트너 투입시간과 감사품질 사이의 관계

In this study, we examine the relationship between partner hours and audit quality measured by signed discretionary accruals and meet/beat benchmarks. Audit firms appoint audit partners selectively after a careful and long observation of their employees. To the extent that such a partner selection process works as intended, partners in audit firms likely have professional insights into the important matters concerning auditing (e.g., risks associated with clients). Such insights will help partners design effective audit programs, appropriately allocate staff efforts and hours, and analyze audit risks, This in turn suggests that partner hours likely positively associate with audit quality. Despite this important predicted relationship, little empirical evidence is currently available about the relation between partner hours and audit quality. The primary reason for this conspicuous absence is that researchers usually lack the audit partner hour information as it is proprietary. However, the Korean government requires audit firms to disclose the partner hour information in the audit report starting 2014 fiscal year. This disclosure requirement makes it possible to examine the relation between the number of audit partner hours and audit quality. We hand-collected the partner hour information from the company annual reports and investigate its relation with audit quality. Using 1,417 partner hour observations from the 2014 annual reports, we find that the audit partner expected hours are positively associated with audit quality proxied by both signed discretionary accruals and performance-matched discretionary accruals. The company annual reports split partner hours into partner review hours of interim financial statements and partner audit hours of annual financial statements, both of which are positively associated with audit quality. Moreover, when discretionary accruals are split into the observations that are greater than or equal to 0 and the observations that are smaller than 0, we observe a positive relationship between partner hours and audit quality in both sub-samples, suggesting that partner hours tend to reduce discretionary accruals irrespective of their signs. In addition, although we use the expected partner hours in order to control for potential endogeneity involved in partner hour choice decisions, the results are qualitatively similar if acutal partner hours are used in the analysis. This finding indicates that the main results that we report using the two-stage method are not sensitive to the potential misspecification of the estimation model that is used to measure the expected partner hours in the first-stage. Further, the positive relationship between partner hours and audit quality is observed in the subsamples that are consisted of partners from Big 4 audit firms and non-Big 4 audit firms, suggesting that the main finding is not driven by either Big 4 or non-Big 4 audit firms alone. However, when audit quality is proxied by meet/beat benchmarks using both zero profit and analysts’ earnings forecasts, we find no relationship between partner hours and audit quality. Further, our finding is sensitive to the definition of partner hours. In particular, when partner hours are defined using ratios, we find no significant systematic association between partner hours and audit quality. This indicates that it is too early to definitely conclude that partner hours are positively associated with audit quality. That is, although some of our findings constitute intial evidence that disclosing partner hours will provide useful additional information to market participants about audit quality consistent with the regulator’s assertion, this finding should be interpreted with care. Our study is subject to several limitations. First, partner hours used in our study were collected from only 2014 fiscal year. Although it might be possible that the results are sensitive to time specific economic events, we are unable to test the robustness of our finding to the time varying events. Such robustness tests will be feasible as the number of years of data availability increases. Second, the current requirement splits total audit hours into partner hours and hours of all other ranks of auditors. Given that there are several different ranks that are lumped together as “all other ranks”, our analysis is reasonable. However, it is plausible that there are auditors who are included in all other ranks but are quite close to partners under the current disclosure format. Despite these limitations, our study contributes to the literature by providing initial evidence that partner hours are positively associated with audit quality measured by signed discretionary accruals.