Browse > Article
http://dx.doi.org/10.7469/JKSQM.2022.50.4.735

Nonfinancial Information and Audit Efforts: Evidence from Management Discussion and Analysis (MD&A) Quality  

Ha-Yeon, Park (Department of Business Administration, Catholic Kwandong University)
Cheong Kyu, Park (Department of Accounting Dongguk University)
Publication Information
Journal of Korean Society for Quality Management / v.50, no.4, 2022 , pp. 735-749 More about this Journal
Abstract
Purpose: The purpose of this study is to investigate whether the Management Discussion and Analysis (MD&A) has an impact on auditors' audit efforts. MD&A is a means of disclosure that provides information about a company from the management's perspective in financial reporting. The MD&A is a standardized format of nonfinancial information that can be useful for the stake-holders. The auditors have incentives to utilize the nonfinancial information contained in the MD&A for their decision-making. We posit that the MD&A disclosure quality is associated with the level of audit efforts. Methods: We hand-collect the disclosure data from the Financial Supervisory Service of Korea (the Korean SEC). Results: By employing two measures of audit efforts, we document evidence that the quality of MD&A is associated with both audit hours and audit fees. Conclusion: It implies that the auditors perform intensive audit work for companies with high-quality disclosure of MD&A. The study contributes to the literature by providing the first approach to examine the association between the MD&A disclosure and audit efforts.
Keywords
Nonfinancial Information; MD&A; Disclosures; Audit Efforts;
Citations & Related Records
Times Cited By KSCI : 5  (Citation Analysis)
연도 인용수 순위
1 Abbott, L. J., Parker, S., Peters, G. F., and Raghunandan, K. 2003. The association between audit committee characteristics and audit fees. A Journal of Practice & Theory 22:17-32.    DOI
2 Barron, O., Kile, C., and O'Keefe, T. 1999. MD&A quality as measured by the SEC and analysts' earnings forecasts. Contemporary Accounting Research 16:75-109.    DOI
3 Bedard, J. C., and Johnstone, K. M. 2004. Earnings Manipulation Risk, Corporate Governance Risk, and Auditors' Planning and Pricing Decisions. The Accounting Review 79:277-304.    DOI
4 Carcello, J. V., Hermanson, D. R., Neal, T. L., and Riley, R. A. 2002. Board characteristics and audit fees. Contemporary accounting research 19:365-384.    DOI
5 Cho, S., Kang, P., Lee, C., and Park, C. 2020. Financial reporting conservatism and voluntary CSR disclosure. Accounting Horizon 34:63-82.    DOI
6 Choi, G., and Park, J. 2018. The Effects of Audit Quality on Audit Performance. Journal of Korean Society for Quality Management 46(1):113-134.    DOI
7 Choi, K. 1999. The Production of Audit Services and Clients' Characteristics. Korean management review 28:609- 635. 
8 Chun, H., Chu, J., and Yun, Y. 2019. The Impact of Corporate Charitable Contributions on Audit Hours. Sustainability 11:1045. 
9 Clarkson, P., Kao, J., and Richardson, G. 1999. Evidence that management discussion and analysis is a part of a firm's overall disclosure. Contemporary Accounting Research 16:111-134.    DOI
10 Defond, M., and Zhang, J. 2014. A review of archival auditing research. Journal of Accounting and Economics 58: 275-326.    DOI
11 Dhaliwal, D., Radhakrishnan, S., Tsang, A., and Yang, Y. G. 2012. Nonfinancial Disclosure and Analyst Forecast Accuracy : International Evidence on Corporate Social Responsibility Disclosure. The Accounting Review 87 :723-759.    DOI
12 Garcia-Lacalle, J., and Torres, L. 2021. Financial Reporting Quality and Online Disclosure Practices in Spanish Governmental Agencies. Sustainability 13:2437. 
13 Griffin, P. A., and Sun, Y. 2013. Going green : Market reaction to CSR wire news releases. Journal of Accounting and Public Policy 32:93-113.    DOI
14 Hurtt, D., Bradley E., and Jason, M. 2013. The Relationship Between Segment-Level Manipulations and Audit Fees. Journal of Applied Business Research 29:1244-1260. 
15 Hyeon, J., Ahn, T., Choi, Y., and Hyun, J. 2014. The Determinants of Nonfinancial Information Disclosure in Management Discussion and Analysis (MD&A). Korean Accounting Review 39:179-219. 
16 Kim, S., and Lee, A. 2017. An Impact of Management Discussion and Analysis Quality on Analysts' Forecasts Characteristics. Korean Accounting Journal 26:1-43.    DOI
17 Ji, H., and Moon, S. 2006. The Effect of Litigation Risk on Audit Hours and Conservatism. Study on Accounting, Taxation & Auditing 43:311-336. 
18 Kang T., Kim, Y., and Jung D. 2021. ESG Management Practice Led by BYN Black Yak: The Resource Circulation System for Recycling Domestic Transparent PET Bottle. Journal of Korean Society for Quality Management 49(3):433-446.    DOI
19 Kim, J., Cho, K., and Park,C. K. 2019. Does CSR Assurance Affect the Relationship between CSR Performance and Financial Performance?. Sustainability 11:5682. 
20 Kwon, S., and Moon, B. 2012. The Effect of Corporate Life Cycle on Audit Hours and Audit Fees Study on Accounting. Taxation & Auditing 54:105-146. 
21 Kwon, S., Kim, M., and Jung, T. 2005. The Effects of Audit Hours and Audit Quality on Audit Fees. Korean Accounting Review 30:47-76. 
22 Lee, A., and Kim, G. 2014. The Disclosure Quality of Management Discussion and Analysis and the Cost of Debt. Korean Business Education Review 29:407-430. 
23 Lee, A., Kim, S., and Chun, S. 2013. The disclosure quality of management discussion and analysis and the firm's characteristics. Korean Accounting Journal 22:175-201. 
24 Lee, J., and Ryu, H. (2011). A study on the Relation between Corporate Governance Improvement and Audit Fee : Characteristics of Outside Director, Ownership Structure, Audit Committee. Korean Corporation Management Review 37:203-220. 
25 O'Keefe, T. B., Simunic, D. A., and Stein, M. T. 1994. The production of audit services : evidence from a major public accounting firm. Journal of Accounting Research 32:241-261.    DOI
26 Seong, Y., Lee, D., and Jung, U. 2022. Group-wise Keyword Extraction of the External Audit using Text Mining and Association Rules. Journal of Korean Society for Quality Management 50(1) : 77-89.    DOI
27 Palmrose, A. V. 1989. The relation of audit contract type to audit fees and hours. Accounting Review 64 : 488-500. 
28 Park, H., and Lee, A. 2016. MD&A disclosure quality and the Accuracy of management forecasts. Review of Accounting & Policy Studies 21:185-210. 
29 Sabri, B., Hamrouni, A., and Liang, Q. 2015. Corporate Governance, Voluntary Disclosure, and Firm Information Environment. Journal of Applied Business Research 32 : 89-102. 
30 Shawn, H., Lee, H., Jung, J., and Moon, S. 2016. Relation between Real Earnings Management andnd Audit Quality. Journal of Applied Business Research 31:967-980.    DOI
31 Simunic, D. A. 1980. The pricing of audit services : Theory and evidence. Journal of Accounting Research 18: 161-190.    DOI
32 Stein, M. T., Simunic, D. A., and O'Keefee, T. B. 1994. Industry Differences in the Production of Audit Services. Auditing : A Journal of Practice and Theory Supplement, 128-142.    DOI
33 U.S. Securities and Exchange Commission. 1989. Securities Act Release No.6835 (May 18). 
34 Wu, X. 2012. Corporate governance and audit fees: Evidence from companies listed on the Shanghai Stock Exchange. China Journal of Accounting Research 5:321-342.    DOI