본 연구는 내부회계관리제도의 효과적인 운용을 위한 인적자원 투자가 감사보수와 관련되어 있는지를 실증적으로 검증하였다. 내부회계관리제도가 효과를 발휘하기 위해서는 내부회계관리제도 즉 내부통제의 운용을 담당하는 인원이 충분해야 한다. 본 연구에서는 내부통제 담당 인력이 회사의 전체 종업원수에서 차지하는 비율을 내부회계관리제도의 효과적인 운용정도를 나타내는 대용치로 사용하였다. 만약 내부회계관리제도가 효과적으로 운영된다면, 감사보수와 관련되어 두가지 반대되는 예측이 가능하다. 첫째, 감사인의 감사를 실시할 때 효과적인 내부회계관리제도에 의존할 수 있을 것으므로 입증을 위한 감사노력이 줄어들어 감사보수가 낮아질 수 있을 것이다. 둘째, 그 반대로 내부통제에 많은 투자를 하는 기업은 감사품질에 더욱 많은 주의를 기울이는 기업일 것이므로 엄격한 감사의 실시에 큰 관심을 보일 수 있다. 그 결과 감사인이 더욱 열심히 고품질의 감사업무를 수행하여 감사보수가 오히려 증가할 것으로 예측할 수 있다. 본 연구에서 2003년부터 2008년까지의 2,764개 기업-연도 자료를 이용하여 관련성을 검증한 결과, 후자의 예측을 뒷받침하는 증거가 발견되었다. 회사내 전체 인력비중 뿐만 아니라 회계/자금 부서, 전산처리 부서, 기타 부서로 분류한 결과도 부서마다 동일한 현상이 발견되었다. 그러나 동일한 부서에서 근무한다 하더라도 내부통제 관련 업무에 종사하지 않는 인력의 비율은 감사보수와 유의적인 관련성을 가지고 있지 않았다. 이런 발견은 내부회계관리제도에 대한 인적자원 투자의 효과를 실증적으로 보여준다는 측면에서 여러 시사점이 있다고 할 수 있다.
This paper investigates whether human resource investment in internal control over financial reporting influences the audit fees. If more employees are assigned to perform internal control-related tasks within a firm, it is more likely that the system is well staffed and regularly monitored. Therefore, the internal control would play an important role in preventing firms from committing accounting irregularities or errors. If this is the case, two conflicting predictions can be made with respect to the audit fees. First, auditors would rely on the effective internal control system. In such a case, we expect that audit fees would decrease in the human resource investment in internal control. It is because auditor would exert less audit effort for the firms that invest more human resource in the internal control system due to decreased audit risk. Second, in contrast, the firms that invest more human resources in internal control is likely to be the firms which care about thorough internal control as well as external audit. In such a case, the auditor effort will increase and as a result, audit fee will increase. The section 302 of the Sarbanes-Oxley Act (SOX) requires chief executive officers (CEOs) and chief financial officers to certify the financial statements, including the effectiveness of the internal control over financial reporting, and to disclose any material changes in internal control. Furthermore, Section 404 of SOX requires auditors to attest to managements’ report on the internal control assessment. These suggest that U.S. regulators believe that adequate internal control is very important to assure the quality of financial information. Following SOX, Korea issued regulations on internal control in 2002, which is called K-SOX. Firms are required to disclose the number of employees who are responsible for the internal control system from year 2002. Starting from year 2005, auditors are required to review the internal control and disclose whether there exists any weakness in internal control for the firms. However, it is not clear whether the internal control plays an effective role in reducing accounting frauds or errors since there has not been much empirical study on this issue in Korea. This study examines the effect of the internal control on the audit fee. This study uses 2,764 firm-year observations for the period of 2003-2008. The data on the number of employees who are responsible for the internal control-related tasks are available from 'Report on the Operation of Internal Control System', which is a part of annual report. Korean regulators requires to disclose the number of employees handling the internal control related tasks in audit committee, board, accounting, finance, information technology system, and other internal control related departments separately. We hand-collect the data from the annual report. This enables us to examine the effect of human resource investment in internal control on audit fees. We are not aware of any other countries that require to disclose the similar information on the number of IC personnel. Thus, Korean data provide unique setting to examine the issue and provide valuable inputs to Korean regulators, academics, and practitioners as well as those in other countries. The degree of human resource investment in internal control is measured by either (i) the proportion of employees who are responsible for internal control-related tasks (IC personnel) out of total number of employees of the firm or (ii) the natural logarithm of one plus the number of employees who are responsible for internal control-related tasks to the natural logarithm of total number of employees. We find that the proportion of IC personnel to total employees (measured in both ways) is significantly associated with audit fees with positive sign. It implies that the more a firm has internal control-related human resource investment, the higher audit fees. It supports the second prediction of the paper. For the department level analyses, we find that the proportions of IC personnel working in accounting/finance, information technology, and other internal control-related departments are mostly associated with audit fees with positive sign. In contrast, the proportions of employees working in the same departments but do not engage in internal control-related tasks are not associated with audit fees. These findings highlight the importance of the human resource investment in the internal control and provide valuable insights into the issue related to internal control to regulators, academics, firms, as well as other information users.
This paper investigates whether human resource investment in internal control over financial reporting influences the audit fees. If more employees are assigned to perform internal control-related tasks within a firm, it is more likely that the system is well staffed and regularly monitored. Therefore, the internal control would play an important role in preventing firms from committing accounting irregularities or errors. If this is the case, two conflicting predictions can be made with respect to the audit fees. First, auditors would rely on the effective internal control system. In such a case, we expect that audit fees would decrease in the human resource investment in internal control. It is because auditor would exert less audit effort for the firms that invest more human resource in the internal control system due to decreased audit risk. Second, in contrast, the firms that invest more human resources in internal control is likely to be the firms which care about thorough internal control as well as external audit. In such a case, the auditor effort will increase and as a result, audit fee will increase. The section 302 of the Sarbanes-Oxley Act (SOX) requires chief executive officers (CEOs) and chief financial officers to certify the financial statements, including the effectiveness of the internal control over financial reporting, and to disclose any material changes in internal control. Furthermore, Section 404 of SOX requires auditors to attest to managements’ report on the internal control assessment. These suggest that U.S. regulators believe that adequate internal control is very important to assure the quality of financial information. Following SOX, Korea issued regulations on internal control in 2002, which is called K-SOX. Firms are required to disclose the number of employees who are responsible for the internal control system from year 2002. Starting from year 2005, auditors are required to review the internal control and disclose whether there exists any weakness in internal control for the firms. However, it is not clear whether the internal control plays an effective role in reducing accounting frauds or errors since there has not been much empirical study on this issue in Korea. This study examines the effect of the internal control on the audit fee. This study uses 2,764 firm-year observations for the period of 2003-2008. The data on the number of employees who are responsible for the internal control-related tasks are available from 'Report on the Operation of Internal Control System', which is a part of annual report. Korean regulators requires to disclose the number of employees handling the internal control related tasks in audit committee, board, accounting, finance, information technology system, and other internal control related departments separately. We hand-collect the data from the annual report. This enables us to examine the effect of human resource investment in internal control on audit fees. We are not aware of any other countries that require to disclose the similar information on the number of IC personnel. Thus, Korean data provide unique setting to examine the issue and provide valuable inputs to Korean regulators, academics, and practitioners as well as those in other countries. The degree of human resource investment in internal control is measured by either (i) the proportion of employees who are responsible for internal control-related tasks (IC personnel) out of total number of employees of the firm or (ii) the natural logarithm of one plus the number of employees who are responsible for internal control-related tasks to the natural logarithm of total number of employees. We find that the proportion of IC personnel to total employees (measured in both ways) is significantly associated with audit fees with positive sign. It implies that the more a firm has internal control-related human resource investment, the higher audit fees. It supports the second prediction of the paper. For the department level analyses, we find that the proportions of IC personnel working in accounting/finance, information technology, and other internal control-related departments are mostly associated with audit fees with positive sign. In contrast, the proportions of employees working in the same departments but do not engage in internal control-related tasks are not associated with audit fees. These findings highlight the importance of the human resource investment in the internal control and provide valuable insights into the issue related to internal control to regulators, academics, firms, as well as other information users.
