 Do Relatively More Efficient Firms Demand Additional Audit Effort (Hours)?Dafydd Mali and Hyoung‐joo Lim Australian Accounting Review, 2021, vol. 31, issue 2, 108-127 Abstract: We examine whether firms with higher relative efficiency (operational performance) require additional audit effort (hours) to signal audit quality to demonstrate that their financial reporting systems are robust. Therefore, we use a Korean sample of publicly listed firms because of the Korean audit hour policy which mandates that audit hour information be made available for market participants. We find that client firms with higher relative efficiency have higher audit hours, suggesting that management has an incentive to demand additional audit hours for signalling purposes, and that shareholders, amongst other stakeholders, have an incentive to demand external monitoring to reduce potential agency problems. The results show that relative efficiency is a unique measure of firm performance that can provide insights into a client firm's business and audit risk. We also find evidence suggesting that audit firms do not subject clients to a fee (fee per hour) premium based on relative efficiency, supporting our finding that client firms require audit effort for signalling purposes. Thus, our results have important implications for policymakers about audit effort demand. Date: 2021 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bla:ausact:v:31:y:2021:i:2:p:108-127 Ordering information: This journal article can be ordered from Access Statistics for this article Australian Accounting Review is currently edited by Linda M. English More articles in Australian Accounting Review from CPA Australia |
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