Audit Committee Characteristics and Low-balling of Audit Fees

Bo-Gyu Choi,Bomi Song,Jong-Hag Choi 韓國公認會計士會 2015 회계·세무와 감사 연구 Vol.57 No.2

본 논문은 우수한 감사위원회가 존재하는 기업에서 감사인 교체시에 주로 발생하는 초도감사 보 수할인 현상이 나타나는지를 연구하였다. 우수한 특성을 지닌 감사위원회는 높은 품질의 감사를 받기 위하여 감사 초년도 감사인의 감사보수 할인 제의를 받아들이지 않을 것으로 예상하였다. 감 사보수 할인이 발생하면 감사시간이 줄어들어 감사품질이 하락할 가능성이 높아지기 때문이다. 감 사위원회의 질에 영향을 미칠 것으로 여겨지는 감사위원회 특성을 감사위원회의 독립성, 감사위원 회 내의 재무전문가 포함 여부, 감사위원회 개최 횟수 및 감사위원회 위원의 평균 재임 기간 네 가 지로 구분하여 실증 분석한 결과는 다음과 같다. 먼저, 선행연구와 마찬가지로 한국 감사시장에서 초도감사 보수할인이 이루어지고 있음을 재확인하였으며, 감사위원회의 독립성과 활동성은 감사보 수와 양의 관계를 가지고 있는 것으로 나타났다. 특히 빈번한 감사위원회 회의 개최가 초도감사 보 수할인을 억제하는 것으로 나타났다. 이는 활동적인 감사위원회가 감사품질 유지에 중요한 역할을 하는 것을 의미한다. This paper aims to investigate whether audit committees with certain characteristics effectively avoid initial engagement year audit fee discounts or so called ‘low-balling’. Regulators have great concern on the potential detrimental effect of low-balling on audit quality. Effective audit committees may not be attracted with auditor’s fee cutting in the initial engagement year because the committees have a great concern in maintaining high quality of audit. We classify audit committees based on four aspects that signify the quality of the committees: independence, financial expertise, meeting frequency, and tenure. Consistent with prior research, we find that low-balling of audit fees exists in Korean audit market and audit committee independence and meeting frequency are positively associated with the level of audit fees. In particular, audit committees with frequent meetings prevent audit fee discounts in the first engagement year, suggesting that a diligent audit committee plays an important role to maintain high audit quality

Dynamic Auditor Competition and Audit Quality in the United States

( Ahrum Choi ),( Jeong-bon Kim ),( Yoonseok Zang ) 한국회계학회 2020 會計學硏究 Vol.45 No.2

Regulators and audit market participants have concerned that less competitive audit market makes auditors to reduce the incentives to conduct high-quality audits. While a few studies examine the effect of competition in the U.S. local audit markets, they report conflicting evidence using the static Herfindahl index which is arguably noisy in capturing the intensity of competition. The purpose of this paper is to provide evidence on the effect of dynamic auditor competition in local audit markets on audit quality. For this purpose, we employ a measure to capture the dynamic nature of audit market competition: the proportion of clients switching auditors in the local market. Employing this measure, we find evidence suggesting a positive relation between auditor competition and audit quality and that the relation is stronger in large MSAs and for clients whose relative importance to audit office is smaller. This paper adds to the competition-audit quality literature by utilizing dynamic measures of audit market structure. In addition, the findings in this paper provide important evidence in response to the regulatory concerns that low competition is harmful to audit quality in a sense that it can cause auditor complacency and less rigorous audit procedures.

Repeat Auditing of Primary Health-care Facilities Against Standards for Occupational Health and Infection Control: A Study of Compliance and Reliability

Cloete, Brynt,Yassi, Annalee,Ehrlich, Rodney Occupational Safety and Health Research Institute 2020 Safety and health at work Vol.11 No.1

Background: The elevated risk of occupational infection such as tuberculosis among health workers in many countries raises the question of whether the quality of occupational health and safety (OHS) and infection prevention and control (IPC) can be improved by auditing. The objectives of this study were to measure (1) audited compliance of primary health-care facilities in South Africa with national standards for OHS and IPC, (2) change in compliance at reaudit three years after baseline, and (3) the inter-rater reliability of the audit. Methods: The study analyzed audits of 60 primary health-care facilities in the Western Cape Province of South Africa. Baseline external audits in the time period 2011-2012 were compared with follow-up internal audits in 2014-2015. Audits at 25 facilities that had both internal and external audits conducted in 2014/2015 were used to measure reliability. Results: At baseline, 25% of 60 facilities were "noncompliant" (audit score<50%), 48% "conditionally compliant" (score >50 < 80%), and only 27% "compliant" (score >80%). Overall, there was no significant improvement in compliance three years after baseline. Percentage agreement on specific items between internal and external audits ranged from 28% to 92% and kappa from -0.8 to 0.41 (poor to moderate). Conclusion: Low baseline compliance with OHS-IPC measures and lack of improvement over three years reflect the difficulties of quality improvement in these domains. Low inter-rater reliability of the audit instrument undermines the audit process. Evidence-based investment of effort is required if repeat auditing is to contribute to occupational risk reduction for health workers.

감사인 특성이 감사보수에 미치는 영향 : 감사인 투입자원(노력)이 감사보수에 미치는 영향

최국현 ( Kuk-hyun Choe ),김동현 ( Dong-hyun Kim ) 한국생산성학회 2018 生産性論集 Vol.32 No.4

The controversy over the audit fees has continued between auditors and auditee by Korea. The differences between the two groups are causing controversy. The Audit-Data in Korea Auditreport is a valuable resource suitable for the environment of Korea. The issue of estimating proper Audit Fees is a research topic that has been actively conducted overseas. Therefore, it is a subject of more active research in Korea. The results of this study. First, the usefulness of Audit-Data was verified by explaining the audit fee using Audit-Data. These results were intended to present meaning as data that could be fully utilized in studies related to the characteristics of auditors as well as research on audit fees. The study also combined new variables based on previously validated data. Some supported the theory of research assuming that audit fees are adequately explained as characteristics of auditors using combined variables. This outcome is determined as a result of the previous data verification model proving that the results are sufficiently descriptive in the study of audit and maintenance determinants. In addition, the text of the study indicates that Big4 has a significant negative correlation with audit fees, which may be evidence of academia's opinion on the independence of auditors. The limitations of the study. The biggest problem is the reliability of data using unused data. Also, There was a lack of rationale in using Audit-Data to combine new variables. And the data is collected directly by researchers, so it is impossible to rule out the possibility of errors occurring in the collection process. Finally, as a characteristic of the auditee, a detailed analysis of whether the model is a reasonable research model for Korean studies with geographical differences from the sample selection period was necessary. This study used data not used in other studies to identify new variables related to the characteristics of auditors. Therefore, we expect to make a lot of contributions in that we have opened the opportunity to utilize new data. This study attempted to adequately explain the audit fees. In the course of the process, Audit-Data was first validated to have a significant impact on audit fees. This process offers a high possibility of presenting meaning as a new variable that can be considered as a characteristic of auditors in the relationship of audit risks, providing the opportunity to fully utilize Audit-Data, which has not yet accumulated much data. In particular, the process of validating and using Audit-Data in the study and combining it into a new variable eventually provided empirical evidence to identify the auditor's characteristics, and it is expected that further continued and accumulated such new findings will lead to more findings about the auditor's characteristics.

지방의회의원의 결산검사 참여가 회계품질에 미치는 영향

전예진 한국회계학회 2022 회계저널 Vol.31 No.4

The purpose of a financial statement audit is to provide accurate and useful financial information on the local governments’ financial conditions and operation results. Local council appoints the settlement audit committee members and the representative among the settlement audit committee members in accordance with the ordinance. One of the local councilors is appointed as the representative of the settlement audit committee. The primary role of the representative in the settlement audit committee is to oversee the overall affairs of the settlement audit. The local councilor who participates in the settlement audit committee as the representative is obligated to ensure the independence of the settlement audit committee in an objective manner from the perspective of accountability. However, it will be practically difficult for that the local councilor performs the general affairs of the settlement audit in a neutral state that completely excludes his or her political position. Therefore, this study empirically investigates the effect of local councilor’s participation in the settlement audit on the comprehensiveness of financial accounting information. As a result of analyzing 226 basic-level local governments in Korea from FY2014 to FY2018, accounting quality decreases when the proportion of the local councilor in the settlement audit committee increases. This result suggests that the smaller the size of the settlement audit committee is, the lower frequency of requests for data is. This affects the incentive for the local councilor who participates in the settlement audit committee to pursue private interest. Furthermore, this study finds that when monitoring is stronger, the negative effects of the higher proportion of the local councilor in the settlement audit committee on accounting quality is weaker. This suggests that the high demands for accounting transparency reduce the pursuit of the private interest of local councilors who take part in the settlement audit committee. The theoretical implications of this study are as follows. First, this study is the first study to empirically analyze the effect of local councilor’ participation in settlement audit on accounting quality. Prior studies (Yang, 2019; Yun et al., 2017; Lee, 2013) only conduct the comparative or review studies from an institutional perspective in relation to the settlement audit committee, but there is little empirical evidence related to local governments’ settlement audit committee. This study newly proposes the empirical analysis model, which expects to be a meaningful starting point for further research to effectively evaluate the effect of local governments’ settlement audit on accounting quality. Second, this study attempts to supplement the methodology for evaluating the quality of accounting information of local governments. Existing study to research governments’ accounting errors (Kim and Han, 2016) uses qualitative characteristics of accounting information to measure accounting quality. Comprehensive information on financial statements such as ‘other net assets’ and ‘etc accounts’ increases information asymmetry between information providers and users, as well as information risk and search costs. This study measures accounting quality from the perspective of information users using and evaluating the financial information (Dechow and Dichev, 2002; Lee and Masulis, 2009; Kim and Han, 2016). Third, this study presents a methodology for measuring the independence of the local governments’ settlement audit committee. This study first presents a proxy to measure the independence of the local governments’ settlement audit committee for the proportion of local councilors who participated in the settlement audit. This enables discussions on the role of local councilors in the settlement audit committee. Fourth, this study provides various policy implications for improving the accounting quality of local g... 지방자치단체는 지방 재정 상태와 운영결과에 관한 정확한 재무회계정보를 제공하기 위해 결산검사를 실시함으로써 지방의회 및 주민의 의사결정을 지원한다. 결산검사는 조례에 따라 선임된 결산검사위원을 통해 실시된다. 결산검사위원회의 대표위원은 지방의 원으로 선임되며, 결산검사 전반의 업무를 총괄한다. 그러나 결산검사위원회에 참여한 지방의원이 정치적 입장을 완전히 배제한 중립적 인 상태에서 결산검사 총괄업무를 수행하는 것은 현실적으로 어려울 것이다. 이에 본 연구는 지방의원의 결산검사 참여가 회계품질에 미치는 영향을 분석한다. 본 연구는 기초지방자치단체 226개를 대상으로 2014년부터 2018년까지 총 5년 동안 지방의원의 결산검사 참여가 회계품질에 미치는 영향을 분석한다. 분석결과, 결산검사위원회에 참여한 지방의원의 비율이 증가할수록 재무회계정보의 포괄 성이 증가하였다. 이는 결산검사위원의 규모가 작을수록 자료 요청의 빈도가 상대적으로 적어 결산검사위원회에 참여한 지방의원의 사익 추구 경향이 높아 나타난 결과이다. 또한, 지방자치단체 모니터링 강도가 높을수록 결산검사위원회에 참여한 지방의원의 비율이 증가할수록 재무회계정보의 포괄성이 증가하는 효과는 약화되는 것으로 나타났다. 이는 회계투명성에 대한 지방의회의 요구와 주민의 관심이 높을수록 지방의원의 사익추구 경향이 줄어드는 조절효과가 나타난 결과이다. 이러한 연구의 결과는 결산검사위원회 내 지방의 원의 역할을 제고하고 지방자치단체의 결산검사에 관한 제도적 장치 마련 등의 지방자치단체 회계품질 개선을 위한 정책적 시사점을 제공한다.

위험음주자 선별을 위한 한국판 알코올사용장애 선별검사(AUDIT-K), 알코올 소비 점수(AUDIT-C), 3번 문항(AUDIT3)의 유용성과 최적 절단값

우성목(Seong-Mok),장옥진(Og-Jin Jang),최화경(Hwa-Kyung Choi),이영렬(Young-Ryeol Lee) 한국중독정신의학회 2017 중독정신의학 Vol.21 No.2

Objective : This study was conducted to evaluate the availability and optimal cut off score for screening of hazardous drinking using AUDIT-K, AUDIT-C and AUDIT3. Methods : Participants in this study were recruited from an online site. Selected panel members participated in the survey through ‘Do It Survey’ (www.dooit.co.kr) February 10-15, 2016. A total 509 participants (males : 265, females : 244) were recruited. Subjects responded to the questionnaire about their drinking pattern, amount of alcohol consumption and AUDIT-K. The criteria for hazardous drinking were based on the NIAAA criteria. AUC of the ROC curve were calculated to evaluate availability and cut off scores for hazardous drinking of AUDIT-K, AUDIT-C and AUDIT3. Results : In AUDIT-K, suggestible cut off score for screening hazardous drinking based on the NIAAA criteria was 11 for males and 7 for females. AUDIT-C and AUDIT3 also available for detecting hazardous drinking. And suggestible cut off scores of AUDIT-C and AUDIT3 for hazardous drinking were 7 and 3 for males and 6 and 3 for females. Conclusion : Our findings suggest that AUDIT-C and AUDIT3 were available for detecting of hazardous drinking base on the NIAAA criteria. We also suggest that cut off scores for screening hazardous drinking.

회계법인 감사 업무수행이사의 피감기업수에 대한 고찰

이다혜,박은영,양종익 한국회계학회 2020 회계저널 Vol.29 No.3

This paper investigates the relation between the number of companies audited by an audit partner and the quality of audit. Since 2018, the Korean audit market has obligated most public firms to open the names of their audit partners in the annual audit reports. We can figure out the number of companies audited by an audit partner. The result shows that the number of companies audited does not affect audit quality. It seems to agree with the comprehensive view of the prior literature that an audit partner may determine the number of auditing companies in the balance between workload and effective audit ability. Moreover, the further analysis of the audit fee and hour indicates that the company audited by an audit partner who has the larger number of auditing companies can be under more efficient audit. For the regulator, disclosure of audit partners may bring about an unexpected result that the larger number of companies audited by an audit partner could not be the workload. It means that the current policy may not serve to improve the quality of sustainable auditing. Instead, it can work as a disadvantage for efficient auditing. So a detailed review is necessary. 본 연구는 2018년 이후 감사보고서상 회계법인 업무수행이사의 이름 공시로 감사업무수행이사의 피감기업수가 간접 공개됨에 따라 감사시장에서 감사업무수행이사의 피감기업수의 영향에 대해 살펴보고자 한다. 비공개 자료를 이용한 기존 연구와 달리 본 연구는 시장참여자가 수집 가능한 공시정보를 이용하여 감사업무수행이사의 피감기업수의 기능에 대한 실질적인 시장평가를 검토할 수 있다. 또한 선행연구에서 감사업무수행이사의 피감기업수는 업무부담(workload) 혹은 효율적 감사능력 등 그 해석이 혼재되고, 업무수행이사의 이름 공개가 규제당국의 최초 기대와 달리 지속가능한 감사품질 제고보다는 효율적 감사에 대한 불이익으로 작용할 수 있어 보다 구체적인 검토가 요구된다고 볼 수 있다. 본 연구는 감사보고서상의 실명공개자료를 수집하여 감사업무수행이사의 피감기업수와 감사품질의 관계를 살펴보았으며 연구결과, 업무수행이사의 피감기업수는 감사품질에 영향을 미치지 않는 것으로 나타났다. 이는 선행연구 중 감사업무수행이사는 업무부담과 효율적 감사능력의 균형수준에서 각자의 피감기업수를 결정한다는 종합적 견해와 일치하는 것으로 보인다. 또한 피감기업에 대한 감사보수, 감사시간, 시간당 감사보수와 업무수행이사 외에 등록 및 수습공인회계사의 상대적 감사시간 비중 등을 살펴 본 결과, 피감기업수가 많은 업무수행이사에 의해 감사된 기업의 감사보수, 감사시간, 시간당 감사보수 모두 유의적으로 적을 뿐만 아니라, 수습공인회계사 대비 등록공인회계사의 상대적 감사투입시간 비중 역시 낮은 것으로 나타나 효율적 감사가 이루어진 것으로 판단된다. 이는 일괄적인 감사투입시간과 감사참여인의 구성 비율 등의 지나친 규제가 오히려 수년간의 OJT(on-the-job training)를 통해 축적된 회계법인 업무수행이사의 개인적 경험 및 역량을 통한 감사업무수행의 효율성을 저해할 수 있음을 제시하여 정책 및 규제당국에게 유의한 시사점을 제공한다.

부산지역 근로자들에서 Alcohol Use Disorders Identification Test (AUDIT)와 간기능 검사와의 연관성 조사

손진군,송혜란,이광영,김진하,김호찬 大韓産業醫學會 2003 대한직업환경의학회지 Vol.15 No.3

목적: 세계보건기구에서 알코올의존 이전 단계인 위험 및 유해음주를 조기에 선별하기 위해 개발한 AUDIT와 근오자 정기 건강 진단시 간기능 수치를 조사하여 집단검진에서 AUDIT의 유용ㅇ성과 AUDIT점수와 간기능 이상과의 연관성을 확인 하고자 하였다. 방법: 생산직 근로자 440명을 대상으로 AUDIT설문을 시행하고 이들의 간기능 수치를 측정하여 세계보건기구 기준에 따른 정상, 우험음주와 김종성등(1999)의 기준에 따른 정상, 위험, 유해음주 사이의 간기능의 차이를 비교하고 비정상 간기능에 영향을 미치는 요인들을 비교 하였다. 결과: 체질량지수가 정상인 군에서 세계보건기구 기준에 의한 정상, 위험음주의 비정상 간기능에 대한 단순분석시 교차비는 위험음주가 2.81로 통계적으로 유의하게 높았고, 김종성 등(1999)의 기준에 의한 정상, 위험, 유해음주간의 비정상 간기능에 대한 chi-square test for linear trend 분석시 교차비는 위험, 유해음주에서 각각 1.23, 2.14로 통계적으로 유의하게 높았다. 비정상 간기능에 영향을 미치는 요인들을 다중 로지스틱 희귀분석을 구한 교차비는 AUDIT문항 No. 1-3(고위험군- 2.39), 연령(30대-1.95, 40대-2.40, 50대-3.85), 체질량지수(과체중-1.66, 비만-4.53), 세계보건기구 기준(위험음주-2.10), 김종성 등 기준(유해음주-2.20) 모두에서 통계적으로 유의하였다. 결론: AUDIT를 이용한 음주문제의 선별기준은 간기능 장애와 유의한 연관을 보여 향후 집단 검진시 음주로 인한 간기능 장애의 예측검사와 위험 및 유해음주의 선별검사로 AUDIT활용이 가능 할 것으로 생각된다. Objects: The purpose of this study was to investigate the usefulness of the Alcohol Use Disorders Identification Test (AUDIT) and the relationship between AUDIT score and liver function test. Methods: AUDIT questionnaires were distributed to 440 blue-collar workers. We compared liver function test with firstly, normal and hazardous drinking as measured by Kim et al.(1999). We also compared influencing factors on abnormal liver function. Results: By simple analsis in the normal BMI group, abnormal liver function was significantly affected by hazardous drinking (odds ratio 2.81) based on the guideline of WHO. By chisquare test for linear trend in the normal BMI froup, abnormal liver function was significantly affected by hazhrdous drinking (odds ratio 1.23) and harmful drinking (odds ratio 2.14) based on the guideline of Kim et al. By multiple logistic regression analysis, abnormal liver function was significantly affected by AUDIT questionnaires No. 1-3 (odds ratio risk 2.39), age (odds ratio-thirties 1.95, forties 2.40, fifties 3.85), BMI (odds ratio- overweight 1.66, obesity 4.53), guideline by WHO (odds ratio- hazardous drinking 2.10), and guideline by Kim et al (odds ratio-harmful drinking 2.20) Conclusions: We found that the problem of alcohol drinking as meadured by AUDIT was significantly associated with abnormal liver function. Therefore we suggest that AUDIT will be useful for the predictive test of abnormal liver function and screening test of hazardous and harmful drinking.

전산감사기법에 있어서 감사인의 전문성과 명성이 감사품질 인지도에 미치는 영향

김길조,나영,손원기 대한경영학회 2004 大韓經營學會誌 Vol.17 No.6

Though the article 19 of Generally Accepted Auditing Standards (GAAS) "auditing in information data processing environment", the article 401 of Auditing Guideline "auditing in information environment", and the article 402 of Auditing Guideline "items to consider when auditing a firm that outsource services" regulate auditing in Korea, computer-based auditing techniques are not properly utilized, generating audit risks and quality problems. In February 2003, KICPA sought the approval of the Financial Supervisory Service (FSS) on the Audit Quality Management to supervise established audit reports. According to these changes in auditing environment, this research covers the necessity and present condition of information system audit in Korea. It suggests the direction of information system audit of development and present audit risk management devices for audit quality control. This research aims at understanding the present condition and necessity of information system audit by CPA, and finding an audit risk management device under information systems. It tries to contribute in terms of improving audit quality by activating information system audit. To improve the audit quality in works related to information system audit, there are three matters to be considered. First, the research suggests that the quality of audit will improve when information system audit uses data such as the balance of the trial balance sheet. Second, to improve audit quality in the information system environment, information system audit was brought out to be a better method than general audit. Then, several conclusions can be derived to activate information system audit by using information system audit method and to induce audit quality by reducing audit risk. 우리나라에서는 회계감사 품질을 향상시키기 위해 2001년 6월에 외감법을 개정하여 회계감사기준 제19조와 회계감사준칙 400, 401, 402에 회계감사 수행시 전산감사를 필수적으로 수행하도록 명문화 하였지만, 아직도 실행측면에서 미흡한 수준에 머물러 있는 실정이다. 이러한 상황에서, 본 연구에서는 전산감사기법이 감사품질 인지도에 미치는 영향을 파악하기 위해 다음과 같은 요인을 토대로 가설 검정을 하였다. 첫째로는 감사인의 전문성(감사인의 전산감사 수행경험 유무)과 전산감사의 효율성, 그리고 감사품질 인지도 차이를, 둘째로는 감사인의 명성( Big 4와 Non-Big 4)과 전산감사의 효율성, 그리고 감사품질 인지도 차이를 실증적으로 검정하였다.연구결과를 살펴보면, 감사인의 전문성과 전산감사의 효율성, 감사인의 명성과 전산감사의 효율성 등은 감사품질 인지도에 큰 영향을 미치고 있는 것으로 나타났다. 따라서 감사인의 감사품질 인지도에 대하여 감사품질의 효율성 변수는 중요도 및 예측에 있어서 영향력이 있다는 것을 알 수 있다.

실제이익조정활동과 감사시간 및 감사보수

이창섭(Chang Seop Rhee),최우석(Woo Seok Choi),배성호(Seong Ho Bae) 한국경영학회 2012 經營學硏究 Vol.41 No.4

In this study, we examine whether auditors are able to recognize managers` real earnings management activities. Roychowdhury (2006) define managers` real earnings management activities as departures from normal operational practices, motivated by managers` desire to mislead at least some stakeholders into believing certain financial reporting goals have been met in the normal course of operations. This type of earnings management brings negative effects on a firm`s long-term performance and eventually increase audit risk by failing a company`s operation. Prior studies argue that real earnings management is less likely to draw auditor`s attention even though real earnings management may bring audit failure because, unlike earnings management using discretionary accrual, auditors have no specific regulation to restrain managers` real earnings management activities (Graham et al. 2005; Roychowdhury 2006). However, we expect that auditors may recognize managers` real earnings management activities when they evaluate a firm`s audit risk during a audit-planning period. For example, in the audit-planning period, auditors carefully review a firm`s various characteristics that might affect the firm`s audit risk. The characteristics might include a firm`s governance structure, operational environments, operational strategies, unusual sales and purchases, etc. These characteristics might be directly and/or indirectly related to a firm`s real earnings management behaviors. In order to test whether auditors can recognize managers` real earnings management activities, we examine the association between managers` real earnings activities and changes in audit hours and audit fees. We predict that if auditors recognize managers` real earnings management activities which might increase audit risk, they will increase audit hours and/or audit fees to reduce or compensate additional audit risk due to the real earnings management activities. Using the sample of listed companies in the Korean Stock Market(KOSPI) during 2003- 2009, we find that both audit hours and audit fees as of year t are significantly increased as more managers` real earnings management activities as of year t-1 are observed. This finding suggests that auditors request more input of audit hours and more audit fees in the current year after recognizing managers` real earnings management activity from the past year of audit. In addition, we examine the case of auditor changes to check the robustness of our results. The results show that even though we include the case of auditor changes in our sample, our findings are unchanged. We also examine whether auditors increase audit hour when they recognize managers` real earnings management activities at the same year. In other words, we examine the contemporaneous relationship between a firm`s real earnings management activities and audit hours/fees. The results are again is consistent with our findings, suggesting that our findings are robust. This study have several contributions to both academics and practitioners by providing a new perspective about the role of auditors in recognizing a firm managers` real earnings management activities. The findings of this study suggest that auditors are able to recognize managers` real earnings management activities and reflect them in assessing a firm`s audit risk. We also believe that our empirical evidence may shed some lights on our understanding of the potential effect of audit hours and audit fees as measure of audit quality. The findings of this study demonstrate that audit hours and fees are closely associated with a firm`s real earnings management, implying that they are related to the quality of audit.