The effect of the personnel composition and experience level of the accounting firm’s quality control office on the client firm’s cost of capital: Evidence from South Korea

This study investigates the impact of the personnel composition and experience level within the quality control office of an accounting firm on the cost of capital for client firms. Using hand-collected data on the personnel composition and experience level of the accounting firm’s quality control office in South Korea, I find that the proportion of quality control personnel relative to the total workforce does not significantly influence the weighted average of cost of capital (WACC) for client firms. However, an increase in the proportion of accountants with more than seven years of experience within the quality control office leads to a reduction in the cost of capital for client firms. This study provides incremental contributions to literature and practical areas in several ways. Firstly, a primary concern for client firms in Korea is the increased economic burden caused by substantial rises in audit fees due to changes in recent audit-related regulations. In this context, the present study provides valuable insights by demonstrating that personnel with a high level of experience within the quality control office contribute to the improvement of audit procedures through self-regulated peer review and careful oversight of the audit process. This, in turn, leads to a reduction in the cost of capital for client firms. Second, in view of the growing acknowledgment of the importance of human resources within quality control divisions in practice, this study offers practical insights into the necessity of restructuring and enhancing personnel-related frameworks.