The Relations between the Timing of Engagement Review, Review Efficiency, and Audit Efforts

• In Event: Internal Audit and Audit Firm Quality Control

Abstract

In this study, I examine whether and how the timing (interim vs. year-end) of an audit engagement review is associated with the efficiency and the effectiveness of engagement quality review efforts. My study is motivated by the recent call from the PCAOB to provide feedback on its proposed new standard on the system of quality control for public accounting firms in the United States (PCAOB 2019). I use data from South Korea, where the disclosure of audit production details for public engagements are mandated. Using the percentage of review efforts spent in interim review relative to the percentage of engagement-team efforts spent in interim audit, I find that earlier the timing of review efforts is negatively associated with abnormal review efforts, suggesting review effort efficiency. I also find that earlier the timing of review effort encourages greater effort from engagement team, suggesting review effort effectiveness associated with the review timing. My findings are potentially useful to the PCAOB in developing guidance to auditors on implementation and operation of their quality control system. By documenting empirical evidence on the varying efficiency and effectiveness of engagement monitoring efforts and circumstances in which in-process engagement review is more prominent, my study also contributes to the literatures on audit production and quality control system of auditors and provide practitioners with better understanding on effort effectiveness and efficiency for audit cost management.

Author

• Jooanne Choi, Bentley University