The association between human resource investment by audit firms and their audit quality*

Minjung Kang, Ho Young Lee, Myungsoo Son, Michael Stein

Research output: Contribution to journalArticlepeer-review

10 Citations (Scopus)


Utilizing unique data available only in Korea, we examine the association between investment in human resources and audit quality provided by audit firms. While human resources investment is important in improving audit quality, few studies have examined this association mainly because public data about human resources investment and financial statements of audit firms are unavailable. Using two proxies for audit quality (i.e. discretionary accruals and accounting conservatism), we provide evidence that higher compensation in audit firms improves audit quality. In addition, we find higher audit quality in audit firms with higher education expenses, when audit quality is measured by the level of conservatism of clients’ financial statements. These results support regulators’ stance that quality control through human resources investment in audit firms can effectively improve audit quality and therefore the quality of clients’ financial reporting. However, we find no association between education expenses and the average absolute value of discretionary accruals of audit clients. These results generally suggest that direct investment in human capital (i.e. compensation) is more effective in improving audit quality than indirect investment in human capital (i.e. education expenses).

Original languageEnglish
Pages (from-to)249-271
Number of pages23
JournalAsia-Pacific Journal of Accounting and Economics
Issue number3-4
Publication statusPublished - 2017 Oct 2

Bibliographical note

Publisher Copyright:
© 2016 City University of Hong Kong and National Taiwan University.

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics


Dive into the research topics of 'The association between human resource investment by audit firms and their audit quality*'. Together they form a unique fingerprint.

Cite this