The effect of Audit Inputs on Audit Quality

Prior sutudy investigates how audit effort effectiveness in suppressing discretionary accruals differs by audit ranks and shows only selective ranks of auditors are effective in improving audit quality. However, prior study neglects the fact that audit hours by different CPAs in an audit team are not independent from one another. Also, CPAs in all ranks are not all the participants of the audit conduct; this study examines effectiveness of external specialist use during audit process in improving audit quality. Based on Korean data about detailed audit conduct information on all companies in the market, this study examines how sufficient audit conducts and procedures improve audit quality measured by discretionary accruals, By examining the effectiveness of each audit input resourece(audit hours per partner, licensed CPA, certified CPA and external specialist; called audit class in this paper) on audit quality in conjunction of the total audit size, we find negatively significant associations between the comparative magnitude of hours spent in audit conduct per all classes with respect to total audit hours spent and discretionary accruals measured by performance-matched model (Kothari et al. 2005). This study also examines whether every unit audit hour spent by each class are independently effective in improving audit quality. Additionally, we test for the accounting firms reaction in maintaining an adequate audit quality with internal quality control function when the effectiveness of audit conduct is different. This study contributes to the literature by empirically testing for the effectiveness of audit hours by all classes in conjunction with the total audit size, as auditors usually work as a team. This study also contributes to the literature body by empirically testing complement relationship between audit conducts effectiveness and interanl quality control effectiveness on audit quality.