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The association between abnormal audit fees and audit quality after IFRS adoption: Evidence from Korea

Soo-Jung Jung (Business School, Seoul National University, Seoul, Korea)
Bum-Joon Kim (School of Business Administration, The Catholic University of Korea, Buchen, Korea)
Ju-Ryum Chung (School of Business, Yonsei University, Seoul, Korea)

International Journal of Accounting & Information Management

ISSN: 1834-7649

Article publication date: 1 August 2016

2952

Abstract

Purpose

This paper aims to examine how the relationship between abnormal audit fees and audit quality changed after adoption of the International Financial Reporting Standards (IFRS) in Korea.

Design/methodology/approach

Using empirical data collected over the period from 2008 to 2013, this study analyzes the association between abnormally high/low audit fee and audit quality. This study uses linear regression to test the hypothetical relation using discretionary accrual as a proxy for audit quality.

Findings

This study finds that there exists no significant relationship between abnormally high audit fees and audit quality measured by the magnitude of discretionary accruals in the pre-IFRS adoption period. However, the relationship between abnormally high audit fees and the magnitude of discretionary accruals turns to be positive in the post-IFRS adoption period. These finding suggests that the IFRS enables some clients to engage more discretion in the choice of discretionary accruals and auditors charge higher audit fees in return for allowing the discretion for such clients.

Practical implications

This study provides insight to regulators of the need to review carefully the financial statements of firms with abnormally high audit fees, and to investors to be more cautious when using financial information about these firms.

Originality/value

To the best of authors’ knowledge, this is the first study to assess IFRS impact on audit fee-quality relation. Also, unique Korean audit market with intensifying competition and discounting audit fee provides interesting setting to review the impact of abnormal audit fee on audit quality.

Keywords

Acknowledgements

This paper is developed from the master’s thesis of Soo-Jung Jung, Seoul National University in 2015. The authors appreciate the invaluable comments from Young-Min Kwak (discussant) and participants at the Korea Accounting Association Annual Meeting in 2015 as well as anonymous reviewers. Specially, Soo-Jung Jung thanks Jong-hag Choi (academic advisor) for his sincere supports and suggestions. The authors take responsibility for any remaining errors.

Citation

Jung, S.-J., Kim, B.-J. and Chung, J.-R. (2016), "The association between abnormal audit fees and audit quality after IFRS adoption: Evidence from Korea", International Journal of Accounting & Information Management, Vol. 24 No. 3, pp. 252-271. https://doi.org/10.1108/IJAIM-07-2015-0044

Publisher

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Emerald Group Publishing Limited

Copyright © 2016, Emerald Group Publishing Limited

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