Purpose This study aims to investigate whether critical accounting estimate (CAE) disclosures by managers are affected by critical audit matter (CAM) disclosures by auditors. These two types of disclosures may overlap, as they both involve estimates and judgments with uncertainties in financial reporting. Design/methodology/approach The authors manually collect the CAEs disclosed in the 10-K and match them with CAM disclosure based on the same topic. Then, the authors empirically examine the influence of CAM on CAE tones (i.e., negative and uncertain tones) and test how financial information quality is affected when two disclosures are similar in tones. Findings The negative and uncertain tones of CAEs are more salient when auditors disclose the same topic as CAMs and when CAM also emphasizes negative and uncertain tones. CAE-CAM tone consistency helps to improve financial information quality, especially when the firm has an effective audit committee and is audited by industry specialist auditors. Originality/value It shows that improved communication between auditors and managers through CAM disclosures enables managers to better understand the sources of uncertainties embedded in the financial information processing, and thereby contribute to improve the quality of financial information.

In this study, we explore the expanded role of chief financial officers (CFOs) in facilitating corporate disclosure by examining how their accounting expertise influences the resolution process of Securities and Exchange Commission (SEC) comment letters issued on 10-K reports. Using CFO professional profile data collected extensively through EDGAR, Lexis-Nexis, and several online searches, we find that CFO accounting expertise improves the resolution of SEC comment letters by reducing the remediation costs and the likelihood of unfavorable resolution outcomes. We also show that the effect of CFO accounting expertise is more pronounced when the CFO's involvement in the resolution process is greater, and the SEC comment letter includes comments on accounting topics. Our findings are robust to a battery of robustness tests. Overall, this study highlights the importance of CFOs' role and function in regulatory compliance.JEL codes: G14; G30; M40; M41; M48

본 연구는 한국의 감사시장에서 글로벌 산업전문 감사인이 감사보수 프리미엄을 받는지 여부와 고품질의 감사를 제공하는지를 살펴본다. 이 분야의 국내 선행연구는 산업전문감사인이 고품질의 감사를 제공하고, 그 대가로 더 많은 감사보수를 받는다는 것을 보여준다. 그러나 이러한 연구에서 감사인의 산업전문성은 국내시장점유율에 기반한 측정치이지 글로벌 수준에서 측정된 지표가 아니다. 글로벌 회계법인 네트워크는 감사인이 산업전문성을 획득할 수 있는 경로를 국내고객을 넘어 국외의 제휴된 회계법인과 그 고객까지 포함하여 감사인의 산업전문성의 개념을 한 국가 수준에서 글로벌 수준으로 확대시키고 있다. 본 연구는 한국의 감사시장에서 고객회사들이 글로벌 산업전문성의 가치를 어떻게 평가하고 있으며, 글로벌 회계법인 네트워크 내에서의 산업고유 지식의 활용이 감사품질에 어떠한 영향을 미치는지 실증적으로 살펴본다. 이를 위하여 본 연구는 2015년부터 2017년까지 유가증권 및 코스닥시장에 상장된 비금융, 12월 결산법인 4,766개의 기업-연도 표본을 이용하여 글로벌 산업전문성과 감사보수 및 (재량적 발생액으로 측정된) 감사품질과의 관계를 살펴보았다. 본 연구에서 감사인의 산업전문성은 고객회사의 매출액 기준 시장점유율을 이용하여 측정하였다. 실증결과 글로벌 산업전문성만 있는 감사인은 감사보수 프리미엄을 받지는 못하지만 양질의 감사서비스를 제공하는 반면 한국의 산업전문성이 있는 감사인은 감사보수 프리미엄을 받지만 이에 상응하는 높은 품질의 감사서비스를 제공하지 않는 것으로 나타났다. 본 연구는 글로벌 산업전문 감사인과 한국의 산업전문 감사인의 감사보수 및 감사품질을 비교 분석함으로써 한국 감사시장에서 글로벌 수준의 산업고유지식의 활용정도와 그에 대한 고객회사의 평가를 살펴보았다는 점에서 의의가 있다.

This study examines whether critical audit matter (CAM) disclosures required by Auditing Standard 3101 have communication value through content analyses. First, we employ salience scores to capture the importance of audit risk and scope in describing CAMs as assessed by the auditor. Due to limited information processing ability, human readers assign more importance to prominent parts and find them more informative, which is captured by salience score. Second, we count words related to the resolution activities to analyze how actively the auditors resolve the CAM. The results show that these textual attributes of CAMs are related to the proxies for client business risk, audit risk, auditor business risk, auditor attributes, and audit committee effectiveness. We also document that audit fees are higher with higher salience scores in the audit scope. These results indicate that auditors make efforts into actual communication via CAM disclosures.

Using detailed data for fieldwork hours and audit hours by rank from audit engagements in Korea, we examine whether audits conducted under workload imbalance, proxied by busy-season audits, impair audit quality, and how auditors adjust staff assignments for busy-season audits. We generally find that busy-season audits are associated with lower audit quality, and that audit firms reduce the involvement of senior auditors during busy-season audits. In addition, the greater the involvement of senior auditors and junior auditors, the lesser the deterioration in audit quality. Finally, although there is no increase in interim audits in response to workload imbalance during busy seasons, increasing interim audits can mitigate the negative impact of busy-season audits on audit quality. Our results are relevant to auditors and regulators, who have expressed concerns about the adverse effects of workload imbalance on audit quality.

Prior research on the link between lowballing (LB) of audit fees and audit quality is incon-clusive. Using more recent data and an innovative design, we define LB engagements as those where the audit fee discount is at least 30 percent. We consider three research ques-tions to understand the possible link between LB and audit quality. First, we investigate whether the two variables that are often associated with auditor independence in the literature-non-audit fees and client importance-are related to LB. Second, we test whether lowballing auditors recoup initial audit fee discounts in the future period. Lastly, we investigate the relation between recovery of audit fees and future audit quality. We find that non-audit fees in the first year of engagement are negatively related to the propensity to LB. LB is significantly positively related to client importance for client firms switching from a non-Big N to another non-Big N auditor while the relation is insignificant for client firms switching from a Big N to another Big N auditor. The results of non-audit fees and client importance indicate that economic dependence does not motivate audit firms to lowball. Further, lowballing auditors tend to recoup their initial fee discounts in subsequent periods via increases in audit fees. Using multiple measures of audit quality, we do not find a significant relation between recovery of audit fees and future audit qual-ity. Overall, contrary to regulators' concerns, our results suggest that LB does not impair audit quality. (c) 2020 Elsevier Inc. All rights reserved.

본 연구는 사회적으로 큰 파장을 일으킨 일본의 도시바와 한국의 대우조선해양의 회계부정 발생원인과 사후처리를 비교분석한다. 두 기업은 각각 전자산업과 조선산업에서 세계적 경쟁력을 인정받은 기업들인데, 2015년에 드러난 회계부정사태로 기업명성에 손상을 입었으며 경제적 손실도 가져왔다. 두 기업은 이익을 성과 측정치로 과다하게 강조하여 이익조작의 유인이 존재했고, 원자력과 해양플랜트 신사업에 각각 진출한 이후 적자누적으로 회계부정 압력이 커진 것으로 보인다. 이에 따라 두 기업은 진행률 조작 등으로 이익을 과대계상 했으나 허술한 감독체계와 사외이사·감사위원의 전문성 부재 등으로 효과적인 모니터링을 하지 못한 것으로 밝혀졌다. 회계부정은 도시바의 파벌 간 경쟁과정 및 대우조선해양의 경영자 교체과정에서 내부고발로 인해 드러났다. 사후처리로 도시바는 제3자위원회를 구성해서 심층조사를 통해 부정 발생 원인을 밝혀냈고 증권거래감시위원회 조사와 검찰 수사가 이루어졌다. 경영진은 직책을 물러났으나 형사상 법적 책임은 지지 않았고, 회계부정의 근본적 해결없이 넘어갔다는 점에서 상대적으로 덜 알려진 일본기업 문화와 정책에 대해 시사하는 바가 크다 할 수 있다. 대우조선해양은 회계부정 이후 산업은행 실사, 감사원 감사, 검찰 수사, 금융감독원 감리 등의 과정을 거쳐 회계부정의 원인을 밝혀냈고 경영진과 감사인이 실형을 선고받았다. 또한 이를 계기로 회계개혁 및 선진화를 위해 관련된 법들의 개정이 이루어졌다. 본 연구의 결과는 (1)목표이익 달성을 과다하게 강조하는 보상계약 등이 회계부정을 유발시킬 수 있다, (2)내부통제나 내부고발자 보호 같은 반부정 통제장치가 제대로 작동하고, 독립성과 전문성을 갖춘 사외이사·감사위원이 선임되어 경영진을 효과적으로 감시·감독할 때 회계부정의 발생이 억제된다, (3)상급자의 부당한 압력에 대해 문제제기가 어려운 조직문화가 존재하거나 회계투명성을 지키려는 최고경영자의 의지가 부족할 때 회계부정이 일어날 소지가 있다는 시사점을 제공한다.

In this study, we explore the expanded role of chief financial officers (CFOs) in facilitating corporate disclosure by examining how they involve in resolving Securities and Exchange Commission (SEC) comment letters issued on 10-K reports. We find that CFOs are more likely to be involved in the resolution process when the comment letter raises concern on accounting and disclosure related issues. We also document that CFOs’ financial expertise exercised during the process leads to more effective resolution of SEC’s comments. In addition, we provide evidence that the resolution of comment letter improves investors’ perceptions on earnings, particularly when CFOs’ financial expertise is involved in the resolution process. Considered together, this study highlights the importance of CFOs’ role and function in regulatory compliance.

SUMMARY Economic agents in the same social networks could either enhance contracting efficiency by reducing information asymmetry or seek rents by promoting collusive behaviors. Recent studies have provided mixed evidence of whether social ties between a chief executive officer (CEO) and an engagement audit partner (EP) improve or impair audit quality (Guan, Su, Wu, and Yang 2016; Jeanjean, Marmousez, and Sirois 2013). By exploiting proprietary data from the South Korean audit market, where low investor protection and strong CEO power might lead to either information sharing or collusion, we add to this literature by exploring how undisclosed CEO-EP social ties affect audit outcomes. We find no evidence that audit effort, audit fees, or audit quality decreases in the presence of CEO-EP social ties. In contrast, we find that CEO-EP school ties are associated with high-quality audits and audit fee premiums. We interpret these findings as evidence that CEO-EP social ties might be important to secure a high-quality audit in a setting with low investor protection. Data Availability: Audit partner and CEO identification data used in this study are proprietary and subject to confidentiality agreements. Other data are publicly available from sources identified in the text.

SUMMARY This study examines whether auditors' industry expertise is negatively associated with underpricing of seasoned equity offerings (SEO) and whether the association between auditors' industry expertise and SEO underpricing changes around the global financial crisis (GFC). Using a sample of 2,028 SEO observations from 2001 to 2013, we document that in the pre-GFC period, auditors' industry expertise is negatively associated with SEO underpricing, but not during the post-GFC period. Industry-specialist auditors are also associated with higher earnings response coefficients in the pre-GFC period, but not in the post-GFC period. These results suggest that the GFC affected investor confidence in industry-specialist auditors in the capital markets. JEL Classifications: G01; G14; M42.

This paper examines whether Korea's mandatory adoption of International Financial Reporting Standards (IFRS) is associated with higher earnings quality. Based on Korean listed companies, we compare earnings quality and market assessment in the pre-IFRS period (2007-2010) with those in the post-IFRS period (2011-2014). We find significant IFRS adoption effects by documenting smaller absolute values in discretionary accruals and real earnings management, higher accrual quality, stronger earnings persistence, and less frequent negative earnings. Thus, we provide evidence of improved earnings quality with Korea's mandatory IFRS adoption. Additionally, we document an increase in the value relevance of earnings, more accurate analysts' earnings forecasts, and higher audit fees and hours. These results show that investors and analysts view improvements in the information environment, and auditors' respond to the complex environment by demanding higher audit fees and making additional efforts after mandatory IFRS adoption.

본 연구는 협상력 차이에서 비롯된 단가인하 압력이 협력사 이익하향조정에 미치는 효과가 외생적 변수인 낙수효과와 정부의 동반성장정책 따라 차별적으로 나타나는지 검증하였다. 2004년부터 2014년까지 유가증권에 상장된 1,048개 기업-연도를 대상으로 연구를 수행하였으며, 분석결과 낙수효과가 높은 협력사의 영업이익률, 순이익률이 낙수효과가 낮은 협력사보다 우수하고 이들 협력사에서는 재량적인 이익하향조정이 나타나지 않았다. 또한 동반성장노력을 하는 대기업 협력사에게서는 이익하향조정이 발견되지 않아 동반성장에 미온적인 대기업의 협력사들의 이익하향조정과는 대조적인 모습을 모였다 . 이러한 결과는 대기업-협력사 관계에 신뢰관계와 상생을 위한 노력이 협력사의 기회주의적인 회계선택을 완화한다는 것을 의미한다. 본 연구는 상생경영을 추구하는 대기업의 경영방침 또는 정부정책이 효과적으로 작용하였는지 실증적으로 분석하였으며 대기업-협력사의 신뢰관계 구축이 회계투명성을 높이는데 기여할 수 있음을 제시함으로써 낙수효과와 동반성장 정책의 회계적 의미를 보여주었다는데 의의가 있다.

We empirically examine whether firms make investment decisions in anticipation of recessions and subsequently perform better. Using a large quarterly dataset of fixed asset investments for U.S. firms during 1984-2012, we show that not all firms efficiently adjust their investment decisions in anticipation of a recession. However, we find that pre-acting firms that properly adjust their investment decisions (i.e., underinvest) before a recession outperform re-acting firms that fail to make proper investment decisions (i.e., overinvest) before a recession in subsequent returns on assets, returns on investments, and market-adjusted return measures.

Auditors’ low-balling in initial engagements is a longstanding concern for regulators and others. We examine the determinants and consequences of low-balling using more recent data. We provide evidence that auditors are likely to low-ball if they are “Big N” auditors, expect future revenues from non-audit services, or are quoting large, profitable, and important clients. Further, low-balling auditors tend to recoup their initial fee discounts in subsequent periods via increases in audit and non-audit fees. We also find that clients of low-balling auditors are more likely to restate in the subsequent period. Our findings suggest that low-balling is associated with greater future economic dependence on the client and have implications for auditor independence and audit quality.

We investigate whether auditors take into account accruals quality, a proxy for the cash flow risk associated with earnings, by adjusting audit hours and audit fees. Accruals quality tells investors about the mapping of accounting earnings into cash flows. Poor accruals quality weakens this mapping and thus increases this cash flow risk. We find a negative relationship between accruals quality and audit hours/fees, indicating that auditors increase their audit efforts by modifying audit procedures and substantive tests and charge higher fees for the increased cash flow risk. In addition, we find that both innate accruals quality and discretionary accruals quality are negatively related to audit hours and fees but that innate accruals quality is more likely to influence audit hours and fees than discretionary accruals quality. The results indicate that auditors incorporate the cash flow risk associated with accruals quality but that their response varies according to the source of accruals quality.