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Auditor independence: The effect of auditors’ quality control efforts and corporate governance

Seokyoun Hwang, Bharat Sarath and Seung-youb Han

Journal of International Accounting, Auditing and Taxation, 2022, vol. 47, issue C

Abstract: This paper investigates whether audit firms’ quality control (QC) activities, which are generally viewed simply as an internal review process of engagement work-papers, are related to auditor independence. Using a sample of Korean firms, we find a significantly positive relationship between the ratio of QC hours to total audit hours (QC hour ratio) and the auditor’s propensity to issue a going concern opinion. This relationship is more pronounced for economically important clients. We also find that audit firms’ QC efforts are effective in maintaining independence only when client firms have better governance systems. These results suggest that audit firms’ QC efforts, especially in interaction with governance, are effective in maintaining auditor independence.

Keywords: Auditor independence; Quality control; Audit hours; Corporate governance; Audit reporting (search for similar items in EconPapers)
JEL-codes: M41 M42 M48 M49 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1016/j.intaccaudtax.2022.100470

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