Do Periodically Designated Auditors Increase the Actual Audit Hours Relative to Standard Audit Hours? Focusing on Comparison with Freely Changed Auditors

This study aims to investigate whether periodically designated auditors, using the standard audit hours disclosed in annual reports since 2020, spend more actual audit hours (i.e., the difference between actual and standard audit hours) than freely changed auditors. Using data on periodically designated auditors as of 2020, the study analyzes initial and second-year audits and finds that: first, there is no evidence that periodically designated auditors spend more actual audit hours than freely changed auditors in either the initial or second-year audits, as shown by consistent results using the difference-in-differences method; second, abnormally high audit fees paid to periodically designated auditors are not a significant moderating factor in increasing actual audit hours compared to standard audit hours; and third, additional analysis using the growth rate of audit hours as the dependent variable shows that the audit hours of periodically designated auditors increases during the initial audit but decreases during the second-year audit compared to freely changed auditors. In summary, this study provides empirical evidence that periodically designated auditors do not make greater efforts to conduct more rigorous audits with higher actual audit hours or audit hours growth than freely changed auditors during initial or second-year audits. These findings are relevant to recent social conflicts and controversies between corporations and audit industries regarding the cost-effectiveness of the periodic designation system, as well as the increasing interest of regulators and academics in this issue.