TY - JOUR
T1 - Audit quality and accrual quality
T2 - Do big 4 auditors indeed enhance accrual quality of ‘powerful’ clients?
AU - Park, Sorah
N1 - Publisher Copyright:
© by author(s); CC-BY.
PY - 2017
Y1 - 2017
N2 - External auditors are considered ‘watchdogs’ which closely monitor corporate financial reporting process and provide guidelines for investors and financial institutions. However, recent accounting scandals in Korea indicate that external auditors may cater their audit reports to their clients’ needs. Based on a sample of listed companies on the Korea Stock Exchange from 2001 to 2010, this study finds the evidence consistent with such conjecture. First, large business conglomerates in Korea (so called ‘chaebols’) audited by Big 4 have lower accrual quality than the others, indicating that Big 4 auditors may not serve as watchdogs to enhance accrual quality of ‘powerful’ clients. However, powerful clients who pay greater non-audit service fees to Big 4 auditors have higher accrual quality than the others. This result suggests that non-audit services provided by Big 4 may not necessarily harm the quality of accounting information, contrary to the traditional view in the literature.
AB - External auditors are considered ‘watchdogs’ which closely monitor corporate financial reporting process and provide guidelines for investors and financial institutions. However, recent accounting scandals in Korea indicate that external auditors may cater their audit reports to their clients’ needs. Based on a sample of listed companies on the Korea Stock Exchange from 2001 to 2010, this study finds the evidence consistent with such conjecture. First, large business conglomerates in Korea (so called ‘chaebols’) audited by Big 4 have lower accrual quality than the others, indicating that Big 4 auditors may not serve as watchdogs to enhance accrual quality of ‘powerful’ clients. However, powerful clients who pay greater non-audit service fees to Big 4 auditors have higher accrual quality than the others. This result suggests that non-audit services provided by Big 4 may not necessarily harm the quality of accounting information, contrary to the traditional view in the literature.
KW - Accrual quality
KW - Audit quality
KW - Big 4
KW - Chaebol
KW - External auditor
UR - http://www.scopus.com/inward/record.url?scp=85014515682&partnerID=8YFLogxK
U2 - 10.19030/jabr.v33i2.9908
DO - 10.19030/jabr.v33i2.9908
M3 - Article
AN - SCOPUS:85014515682
SN - 0892-7626
VL - 33
SP - 343
EP - 350
JO - Journal of Applied Business Research
JF - Journal of Applied Business Research
IS - 2
ER -