The Korean government requires listed firms to disclose the total number of employees engaged in the implementation of internal controls (hereafter, IC personnel) and the number of IC personnel in accounting, finance, information technology and systems departments, and other related functional areas. Using data unique to Korea, this study examines the effect of human resource investment in internal control on audit reporting lag (ARL). We employ quantitative and qualitative measures for the IC personnel, and the ARL is measured by the time between the fiscal year-end and the audit report date. We find an insignificant association between the quantitative measure (the number of IC personnel) and ARL. On the other hand, we find that the qualitative measure (the average experience of the IC personnel) reduces the audit time, thereby decreasing the ARL. This result highlights the importance of qualitative aspect in investments in IC personnel, which could be useful for firms that desire to reap the best result from the investment. Further analysis shows that investments in IC personnel at other departments as well as accounting and finance department increase audit efficiency. We confirm the robustness of our results through a series of additional analyses.

Purpose: Using 5,055 sample firm-years in Korea between 2009 and 2013, this paper aims to examine the association between the characteristics of the internal audit and the number of external audit hours as a proxy for audit efficiency. Design/methodology/approach: This study is motivated by the International Standard on Auditing No. 610: “Using the work of internal auditors”. This auditing standard guides external auditors in using the work of internal auditors to obtain audit evidence and consult internal auditors for direct assistance. The authors expect that external audit efficiency will increase when the work of competent internal auditors is used. Findings: The authors find that the number of internal auditors relative to the number of employees is associated with the number of external audit hours. This result suggests that the greater the availability of internal auditors, the greater their contribution will be to the financial statement audit and the more efficient the audit. The authors find evidence that external auditors use the work of internal auditors with accounting and legal expertise to improve audit efficiency. They also find some evidence that the work of internal auditors with greater availability is more effective during initial external audit engagements. Originality/value: This study adds to the extant literature on the contributions of internal auditors to external audits by using archival data and by measuring audit effort using a large database of audit hours. In addition, our findings have practical implications for firms and external auditors who are evaluating the role and value of using the work of internal auditors. The authors also believe that the findings will be of interest to regulators or auditing standards boards.

The purpose of this paper is to examine the association between activities related to corporate social responsibility (C81SR) and firm value, and whether social ties between outside and inside directors within the board (social ties) affect this association. We analyzed a sample of non-financial firms with fiscal year-end in December listed in the Korea Stock Exchange market for the period of 2012–2017, measuring the intensity of social ties based on region and school relations using the concept of density from social network theory. Using environment, social, and governance (ESG) scores from the Korea Corporate Governance Service to measure CSR activities, we find that, on average, firms can increase their value through CSR activities in Korea. In addition, in firms with strong social ties, the positive association between CSR activities and firm value is attenuated, indicating that boards with strong social ties are ineffective in monitoring CSR activities. Although the government has made great efforts to improve corporate governance with a focus on independence of outside directors, the results of our analysis indicate that there is room for firms to improve board independence substantively in a society where nepotism is widespread.

Utilizing unique data available only in Korea, we examine the association between investment in human resources and audit quality provided by audit firms. While human resources investment is important in improving audit quality, few studies have examined this association mainly because public data about human resources investment and financial statements of audit firms are unavailable. Using two proxies for audit quality (i.e. discretionary accruals and accounting conservatism), we provide evidence that higher compensation in audit firms improves audit quality. In addition, we find higher audit quality in audit firms with higher education expenses, when audit quality is measured by the level of conservatism of clients’ financial statements. These results support regulators’ stance that quality control through human resources investment in audit firms can effectively improve audit quality and therefore the quality of clients’ financial reporting. However, we find no association between education expenses and the average absolute value of discretionary accruals of audit clients. These results generally suggest that direct investment in human capital (i.e. compensation) is more effective in improving audit quality than indirect investment in human capital (i.e. education expenses).