Does Regulator Selection of Auditors Improve Audit Quality? Evidence from Auditor Designation in Korea
By Gil Bae, Seung Uk Choi, Sanjay Kallapur
DOI
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2037712
Citation
Bae, Gil., Choi, Seung Uk., Kallapur, Sanjay. (2021). Does Regulator Selection of Auditors Improve Audit Quality? Evidence from Auditor Designation in Korea http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2037712.
Copyright
2021
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Abstract
Although the hiring and firing of auditors by clients is believed to create a fundamental conflict of interest, there is little research on the issue except for experimental evidence in Mayhew and Pike (2004). This paper provides evidence on the issue by exploiting the setting in Korea, known as auditor designation, wherein regulators selectively and episodically selected auditors for certain client firms. We fail to find that audit quality proxied by absolute discretionary accruals, audit hours, modified opinions, and the tendency to meet or beat benchmarks, is higher during designated as compared to non-designated periods for designated firms. Our results therefore question whether hiring and firing of auditors by clients is a threat to auditor independence.

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