A Study of the Effects of Periodic Auditor Designation System on the Restatements of the Financial Statements

This study analyzes the effects of the introduction of periodic auditor designation system stipulated in the ‘Act on External Audit of Stock Companies, etc.’ (hereinafter, the Revised Audit Act) on the restatements of the financial statements. For companies listed on the KOSPI and KOSDAQ markets from 2015 to 2022 this study analyzed the effects of periodic auditor designation system on the restatements of the financial statements. The main variables of interest in this study, a variable of before and after the introduction of periodic auditor designation system, a variable of whether or not the companies subject to periodic auditor designation system, and a variable of the first year designation of periodic auditors, significantly decrease the restatements of the financial statements. Nevertheless, this study finds that the corrections of financial items in accounting reports have increased since the introduction of periodic auditor designation system. Increases in the corrections of financial items can be interpreted as a positive effect of increasing the reliability of the financial statements by correcting differences with management in the financial statements. These results present empirical evidence that periodic auditor designation system can increase the transparency of the accounting reports. On the other hand, due to the short implementation period of periodic auditor designation system this study does not analyze whether the introduction of periodic auditor designation system maintains higher auditor independence and a certain level of accounting transparency in the long run.