감사인의 감사노력은 수주산업의 이익조정을 억제하는가?

The production-to-order industries’ percentage-of-completion based revenue recognition relies on estimation of uncertain future events; therefore it is affected by managements' arbitrary judgments. Inaccurate estimates may lead to future losses, causing the “accounting cliffs” phenomenon and the earnings management scandals which triggered recent changes in regulations. The estimation-based revenue recognition of production-to-order industries crates recognition gab between companies and clients and the differences accumulate in the unbilled revenue account. The unbilled revenue account reflects managements’ optimistic bias in estimation, in order words the earnings management, and therefore an effective audit effort should reduce the level of the unbilled revenue. In this study, we tested whether the auditors in the production-to-order industry have properly evaluated the appropriateness of the managerial estimations and judgments, by testing the relationship between audit efforts and unbilled revenue accounts. Along with the management optimism and intention to increase reported profits, the account naturally occurs because of the contractual conditions and future economic changes. Therefore, it is critical to distinguish between normal and abnormal portions. The normal portion represents the natural accumulation of the account due to the contractual and economic situation; the abnormal part captures the management bias to report an increased profit. We used Kang et al. (2011)’s five cost determinants in the productionto- order industry and assumed that those five determinants will also determine the unbilled revenue because in the production-to-order industries revenue estimation is based on how much the company estimates its total and current costs. In the percentage-in-completion method the cost directly decides how much earnings the company will recognize for a period. As the proxy for audit efforts, we used the partner hours and registered CPA hours from 2014 to 2016. Because prior studies showed that lower-level auditors were less effective than high-level auditors in detecting earnings management, we limited our tests to the high-level auditors. Our empirical findings are as follows. We found that the partner and CPA total audit hours have no significant effects on the unbilled account. For any industry subgroups or dependent variables, we failed to discover any evidences that the audit efforts reduce the unbilled revenue account. However, we also found that only in the situation where the level of unbilled account is extremely high, audit efforts reduced the account, which means that only in an extreme case auditors do not allow the business judgement plea. Sensitivity tests using a discretionary accruals model, a 2SLS model, and the Lee (2017)’s abnormal unbilled account model confirmed our findings. Our findings suggests that under the current regulations there is certain limits for the external auditors to preventing the aggressive accounting practices in the production-to-order industries due to the systemic reasons. It is necessary to encourage more allocation of audit hours to high-level auditors who possess know-how on auditing or more use of industry professionals who understands the industries by regulating a new industry-specific standard rate system. To increase the number of industry specialized auditors who have accumulated industry knowledge at the level of company managers, it is required to allow an exception to the current mandatory partner or audit firm rotation rules.