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1 – 10 of over 3000Hyun-Young Park, Ho-Young Lee and Jin Wook Kim
Based on 3,775 firm-year observations from 2009 to 2013 using publicly available disclosure data for Korean listed firms, this study examines whether and how firm-level governance…
Abstract
Purpose
Based on 3,775 firm-year observations from 2009 to 2013 using publicly available disclosure data for Korean listed firms, this study examines whether and how firm-level governance characteristics are associated with investment in internal auditing proxied by compensation and the number of statutory internal auditors.
Design/methodology/approach
The authors investigate the association between governance characteristics and investment in internal auditing proxied by compensation and the number of statutory internal auditors.
Findings
The authors find that firms with greater ownership of the largest shareholders and with a higher proportion of outside directors invest more in internal auditing. These results indicate that firms with higher incentive and demand for monitoring are more likely to invest more in internal auditing. The authors further find that the positive effect of the largest shareholder ownership (board independence) on investment in internal auditing is attenuated in firms with greater board independence (ownership of the largest shareholders) suggesting that the complementary effect of the two governance mechanisms associated with internal auditing weakens as they function simultaneously.
Research limitations/implications
The results provide regulators and investors with a clear picture of the governance characteristics of firms associated with investment in internal auditing. The results imply that both the largest shareholders and the outside board of directors play a significant role in resource allocation in internal auditing within a firm. The effect of allocation, however, can be attenuated contingent upon the combined characteristics of governance mechanisms.
Originality/value
Using large amounts of public archival data, this study adds to the extant literature on firm characteristics associated with investment in internal auditing. This study also contributes to the literature by expanding the scope of research on executive compensation to the locus of statutory internal auditors.
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Minjung Kang, Sangil Kim and Ho-Young Lee
This study aims to examine the effects of allocation of audit hours to year-round audits and audit partners on audit quality when a new partner is appointed.
Abstract
Purpose
This study aims to examine the effects of allocation of audit hours to year-round audits and audit partners on audit quality when a new partner is appointed.
Design/methodology/approach
Using proprietary data of partners’ names and audit hours in the year-round context, the authors build a model testing input factors related to audit production and new partner assignment in 1,209 Korean listed firms during the period of 2015–2018.
Findings
The results show that in the partner rotation, the more audit hours spent, the more audit hours are allocated to the year-round audit, or more nonpartners’ audit hours are allocated to the year-round audit, the higher the audit quality. Subsample analyses show that these findings are concentrated in firms with longer audit tenure or low audit risk.
Research limitations/implications
The findings may provide regulatory authorities with practical guidelines concerning partner rotation and how to allocate audit hours to different audit stages and ranks (partner vs staff).
Originality/value
To the best of the authors’ knowledge, this study provides the first evidence of the joint effects of partner rotation and audit hour allocation on audit quality.
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Yong-Sang Woo, Minjung Kang and Ho-Young Lee
Audit firm bankruptcy can have significant negative impacts on the stock prices of client firms. The purpose of this paper is to identify determinants of audit firm bankruptcy…
Abstract
Purpose
Audit firm bankruptcy can have significant negative impacts on the stock prices of client firms. The purpose of this paper is to identify determinants of audit firm bankruptcy risk as measured by costs of debt.
Design/methodology/approach
Using audit firm data publicly available in Korea, this study empirically examines whether client portfolio, financial, and organizational characteristics are associated with the weighted average interest rates assumed by auditors.
Findings
The authors find empirical evidence that audit firms’ client portfolio characteristics, including the incidence (or number) of lawsuits against the auditor, the proportion of audit clients under surveillance, the proportion of initial audit engagements, and the proportion of listed companies of audit clients, are positively associated with the cost of debt. The authors also find several financial and organizational characteristics associated with the cost of debt.
Practical implications
The findings of this study suggest that client portfolio characteristics as well as financial and organizational characteristics are important determinants of the cost of debt in audit firms, and that these characteristics are different from those of firms in other industries. Identifying the determinants of audit firms’ cost of debt provides insight to regulators, client firms, and capital market participants.
Originality/value
This study examines the default risk of audit firms that play an important monitoring role in capital markets. By utilizing unique data about audit firms available in Korea, this study is the first study to empirically examine the effect of detailed audit firm characteristics on audit firm’s default risk.
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Ho-Young Lee and Hyun-Young Park
Using 5,055 sample firm-years in Korea between 2009 and 2013, this paper aims to examine the association between the characteristics of the internal audit and the number of…
Abstract
Purpose
Using 5,055 sample firm-years in Korea between 2009 and 2013, this paper aims to examine the association between the characteristics of the internal audit and the number of external audit hours as a proxy for audit efficiency.
Design/methodology/approach
This study is motivated by the International Standard on Auditing No. 610: “Using the work of internal auditors”. This auditing standard guides external auditors in using the work of internal auditors to obtain audit evidence and consult internal auditors for direct assistance. The authors expect that external audit efficiency will increase when the work of competent internal auditors is used.
Findings
The authors find that the number of internal auditors relative to the number of employees is associated with the number of external audit hours. This result suggests that the greater the availability of internal auditors, the greater their contribution will be to the financial statement audit and the more efficient the audit. The authors find evidence that external auditors use the work of internal auditors with accounting and legal expertise to improve audit efficiency. They also find some evidence that the work of internal auditors with greater availability is more effective during initial external audit engagements.
Originality/value
This study adds to the extant literature on the contributions of internal auditors to external audits by using archival data and by measuring audit effort using a large database of audit hours. In addition, our findings have practical implications for firms and external auditors who are evaluating the role and value of using the work of internal auditors. The authors also believe that the findings will be of interest to regulators or auditing standards boards.
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From 1953 to 1961, the South Korean economy grew slowly; the average per capita GNP growth was a mere percent, amounting to less than $100 in 1961. Few people, therefore, look for…
Abstract
From 1953 to 1961, the South Korean economy grew slowly; the average per capita GNP growth was a mere percent, amounting to less than $100 in 1961. Few people, therefore, look for the sources of later dynamism in this period. As Kyung Cho Chung (1956:225) wrote in the mid‐1950s: “[South Korea] faces grave economic difficulties. The limitations imposed by the Japanese have been succeeded by the division of the country, the general destruction incurred by the Korean War, and the attendant dislocation of the population, which has further disorganized the economy” (see also McCune 1956:191–192). T.R. Fehrenbach (1963:37), in his widely read book on the Korean War, prognosticated: “By themselves, the two halves [of Korea] might possibly build a viable economy by the year 2000, certainly not sooner.”
Moon-Kyung Cho, Ho-Young Lee and Hyun-Young Park
– The purpose of this paper is to examine the effect of the characteristics of statutory internal auditors on operating efficiency.
Abstract
Purpose
The purpose of this paper is to examine the effect of the characteristics of statutory internal auditors on operating efficiency.
Design/methodology/approach
This study investigates three characteristics pertaining to statutory internal auditors, namely, compensation, activity and expertise, based on 1,340 firm observations from 2009 to 2010 using publicly available disclosure data for Korean listed firms.
Findings
The authors find no evidence that statutory internal auditors’ compensation is positively associated with operating efficiency. This implies that compensation data on statutory internal auditors in Korea may not directly reflect their competence and ability to enhance operating efficiency. On the other hand, the authors find evidence for a positive association between full-time status for statutory internal auditors and operating efficiency and a positive association between the attendance at board meetings for statutory internal auditors and operating efficiency. The results also show a decrease in operating efficiency when statutory internal auditors are newly appointed. Finally, expertise of statutory internal auditors in financial or legal matters provides no advantage in terms of operating efficiency.
Practical implications
This study contributes to the extant literature on internal audit by examining the advisory role of statutory internal auditors and its effect on operating efficiency, which is one of the objectives established by the Committee of Sponsoring Organizations of the Treadway Commission.
Originality/value
While most prior research on internal audit depends on survey data from statutory internal auditors or experimental data based on a limited sample of firms, this study is based on a large sample of publicly available data of the Korean market.
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Dan‐Bee Song, Ho‐Young Lee and Eun‐Jung Cho
The purpose of this paper is to examine whether earnings management is related to incidence of fraud and the amount of misappropriated assets. By examining the research question…
Abstract
Purpose
The purpose of this paper is to examine whether earnings management is related to incidence of fraud and the amount of misappropriated assets. By examining the research question, this study seeks to improve our understanding of using the accrual basis of accounting in identifying the misappropriation of assets.
Design/methodology/approach
This study analyzes 173 sample firms that announced asset misappropriation in the period from 2006 to 2010 in Korea. The study utilizes logistic and linear regressions to test the hypothetical relations set up in the study using discretionary accruals as a proxy of the earnings management. Additionally, the authors performed the robustness test using estimated accruals as a supplementary proxy of the earnings management.
Findings
The authors find that misappropriation of assets has a significant positive association with discretionary accruals. Interestingly, this relationship only holds for firms with negative discretionary accruals. The results suggest that the accrual basis of accounting provides a clue towards uncovering management's misappropriation of assets and thus, plays an important role in reducing existing information asymmetry.
Practical implications
The authors' findings would assist practitioners in detecting asset misappropriation through financial reporting quality and investors and auditors should be more alert to negative discretionary accruals.
Originality/value
There are some studies that examine asset misappropriation. However, most of them are focused on the relation between asset misappropriation and corporate governance. To the best of the authors' knowledge, this is the first study that examines the association between financial reporting quality (i.e. discretionary accruals) and asset misappropriation. The authors' findings provide evidence of the usefulness of accrual basis of accounting in detecting fraud and enhance the understanding of income‐decreasing earnings management.
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Neil Fargher, Ho‐Young Lee and Vivek Mande
This paper aims to examine the effect of audit partner tenure (PARTEN) on client managers' accounting discretion.
Abstract
Purpose
This paper aims to examine the effect of audit partner tenure (PARTEN) on client managers' accounting discretion.
Design/methodology/approach
The authors contend that, when a new audit partner is from the same audit firm as the outgoing audit partner (audit partner rotation), audit quality increases because the new audit partner brings “fresh eyes” to the engagement.
Findings
The results confirm this conjecture. The authors find that, in the initial years of tenure of a new audit partner, client managers' accounting discretion decreases when the new partner is from the same audit firm as the outgoing partner. However, when the new audit partner is from a different audit firm as the outgoing partner (audit firm rotation), it is found that client managers' accounting discretion increases in those initial years.
Originality/value
The results provide support for recent legislation in the US restricting audit PARTEN and should be of interest to other regulatory bodies contemplating mandatory audit partner rotation.
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To examine whether or not new auditors of former Andersen clients perceive prohibited non‐audit services from Andersen as a business risk indicator and, therefore, adjust for the…
Abstract
Purpose
To examine whether or not new auditors of former Andersen clients perceive prohibited non‐audit services from Andersen as a business risk indicator and, therefore, adjust for the effects of this important risk factor in their audit pricing.
Design/methodology/approach
Utilizing a significant number of involuntary auditor switches in the US as a result of the collapse of Andersen in late 2002, this study uses regression analyses to examine the hypothesized associations between two types of non‐audit services and successor auditors' audit pricing.
Findings
This study finds that the provision of financial information systems (FIS) design and implementation services and internal audit outsourcing services are positively associated with audit fees charged by successor auditors. This study supports the recent prohibition on the provision of FIS and internal audit services mandated by the Sarbanes‐Oxley Act of 2002.
Originality/value
This study adds to the recent body of work on the association between the provision of certain non‐audit services and the predecessor auditor independence or audit quality perceived by the successor auditor and provides valuable information for policy makers.
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Chang-Hua Yen, Sheng-Hshiung Tsaur and Chin-Ying Ho
The friendliness of a destination is a key factor influencing tourists' destination selection. However, few studies have explored the construct of friendly tourism destinations…
Abstract
Purpose
The friendliness of a destination is a key factor influencing tourists' destination selection. However, few studies have explored the construct of friendly tourism destinations. The purpose of this study was to establish a typological framework of friendly tourism destinations and compare older and younger adults' valuations of friendly destination attributes.
Design/methodology/approach
A mixed-method approach was used; in-depth interviews were conducted with 18 tourism stakeholders. Content analysis of the collected data was performed to construct a friendly tourism destination framework.
Findings
The framework consisted of 37 categories, which were classified into six themes: transportation and infrastructure, friendly tourism environments, government policies and tourism promotion measures, tourism products and activities, tourism information services and friendly residents. Furthermore, survey data from 1,153 respondents in Taiwan revealed that older adults valued friendly tourism environments and friendly residents more highly than younger adults did.
Research limitations/implications
The participants were all from Taiwan; therefore, the results might not be applicable to tourists in other countries or regions. Furthermore, this study only compared the valuations of older and younger adults for the attributes of friendly tourism destinations.
Practical implications
Friendly tourism destination categories can provide a reference for tourists when making travel decisions. The framework provides destination marketers with a new tool for managing friendly tourism destinations. The findings can act as a reference for travel suppliers seeking to improve tourism-friendly services.
Originality/value
This study introduced a multifaceted framework for developing friendly tourism destinations from a holistic perspective. The results contribute to the tourism literature, revealing that younger and older adults have different valuations for the attributes of friendly tourism destinations.
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