Can Regulators Identify and Deter Systematic Audit Quality Deficiencies among Big 4 Partners? Evidence from Korea
By Gil Bae, Sanjay Kallapur, Jae Lee
Citation
Bae, Gil., Kallapur, Sanjay., Lee, Jae. (2015). Can Regulators Identify and Deter Systematic Audit Quality Deficiencies among Big 4 Partners? Evidence from Korea .
Copyright
2015
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Abstract
Using a data set of regulatory disciplinary actions and individual Big 4 audit partner identity in Korea, we find that the audit quality (proxied by absolute performance-matched discretionary accruals, audit hours, audit fees, and restatements) of sanctioned audit engagement partners is systematically lower than that of the non-sanctioned partners. Further, using a difference-in-difference design we find that audit quality of the sanctioned audit partners improves significantly after disciplinary actions. Few previous studies document that regulators can identify systematic weaknesses among Big 4 auditors, and none of them finds evidence of subsequent quality improvement; our study improves on existing research designs by identifying audit failures and non-sanctioned clients of individual Big 4 partners. By showing that some partners have systematically lower audit quality, our results suggest that audit quality improvements are possible, contrary to what one would expect if audit failures were truly random.

Sanjay Kallapur is a Professor of Accounting at the Indian School of Business (ISB). He joined ISB in 2005 from the Krannert School of Management, Purdue University, where he was a tenured Associate Professor.

Professor Kallapur conducts research on financial and managerial accounting, auditing, corporate governance, and risk management. He has published in each of the top three accounting journals, and his papers have been cited over 4,000 times (Google Scholar) and in regulatory policy documents in India and the UK. The American Accounting Association recently published his monograph on scientific inference in accounting research, beyond the use of p-values.

He is the founding Editor-in-Chief of Accounting Theory and Practice, a research journal focusing on India, published by Elsevier. He has been an editor of The Accounting Review from 2008 to 2011, the first person from outside North America to be appointed to that position.

Professor Kallapur is a member of National Financial Reporting Authority (NFRA), the regulatory body overseeing the accounting and auditing of listed companies in India. He is an independent director on the Board of IDBI Bank, where he serves on the risk management and audit committees. He previously served on the Board of the Life Insurance Corporation of India.

Professor Kallapur has held positions as Associate Dean and Deputy Dean for almost a decade at ISB. He started the PhD-equivalent Fellow Programme in Management at ISB and has placed his students in faculty positions at the London School of Economics, IESEG Paris, Aalto University, University of Queensland, University of Western Australia, and IIM Udaipur.

Professor Kallapur has a PhD in Business Economics from Harvard Business School, and B.Com. and M.M.S. degrees from Mumbai University. He is professionally qualified as a Fellow Member of the Institute of Cost Accountants of India (FCMA).

Sanjay Kallapur
Sanjay Kallapur