Financial statement comparability and audit efficiency: evidence from South Korea

In this study, we examine the effect of financial statement comparability on audit hours, which we use as a proxy for audit efficiency. We examine the hours worked by auditors in completing 2322 audits in Korea between 2006 and 2010. Audit efficiency can be determined by the total audit effort required to achieve a successful audit. Using a sample consisting of firms maintaining a certain level of audit quality, we investigate whether financial statement comparability reduces audit hours. We find that comparability is negatively associated with audit hours. In addition, we find that the effect of comparability on audit hours is attenuated for firms that are ‘highly followed’ by financial analysts. This study contributes to the literature by proposing a possible way to improve audit efficiency from a unique perspective. While prior studies show that a client’s inherent risk and control risk lower audit efficiency, the results of this study show that comparability between financial statements facilitates audit efficiency. Improvements in audit efficiency reduce the opportunity costs associated with audit effort and thereby enable auditors to spend more time and effort focusing on high-risk engagements. Comparability is one of four qualitative characteristics of accounting information included in accounting conceptual frameworks. Despite the importance of comparability, there is very little research on its benefits. This study makes a unique contribution by measuring audit effort using a large database of audit hours worked by auditors in Korean firms.