The Effect Of Auditor Designation On Audit Opinion: Evidence From Korea

Abstract

Korea introduced the auditor designation system as an exception to the free audit engagement system in 1991. The auditor designation system is a system in which Securities & Futures Commission designates an auditor for companies that are highly likely to manipulate their accounting information so as to conduct fair auditing.

The meaning of this study is in that it focused on the auditor designation system, which is only enforced in Korea around the world, to investigate whether auditors of companies designated with an auditor express conservative opinions in comparison to companies without designation. This study also examined whether designated auditors give more conservative opinions to companies showing low quality of financial reporting.

As a result of verification, companies designated with an auditor were found to have greater possibility of receiving adverse audit opinions compared to companies without designation, and lower quality of financial statements resulted in adverse audit opinions. Such results indicate that designated auditors perform stricter and more independent auditing. The results of this study can provide useful implications to other nations attempting to introduce the auditor designation system.