The Impact of Mandatory IFRS Transition on Audit Effort and Audit Fees: Evidence from Korea

This study explores the impact of increased audit work on audit effort and audit fees. Specifically, it analyses whether the magnitude of International Financial Reporting Standards (IFRS) adjustments affect audit hours and audit fees, and this relation varies depending on initial audit engagement. Using IFRS reconciliations and audit data in Korea, this paper provides evidence that audit hours as a proxy for audit effort is more closely associated with the level of audit work than audit fees. The study further documents that this finding is more pronounced for incumbent auditors. These findings suggest that increased audit work affects audit effort, and initial audit engagement has a negative impact not only on audit fees but also on audit hours. The findings of this paper should be of substantial interest to regulators, policy makers and financial managers who are interested in the cost of IFRS adoption.