Assessing audit effort in response to exogenous shocks: Evidence from Korea on the impact of enhanced audit standards and COVID‐19

This study examines the effects of COVID‐19 and the enhanced internal control requirements (Korea Sarbanes‐Oxley or K‐SOX) on audit effort in Korea. The results show that both COVID‐19 and K‐SOX led to increases in audit effort. Regarding the comparative magnitude of these two shocks, COVID‐19 is associated with greater total audit effort, whereas K‐SOX is linked to greater IT audit effort. This study also finds that Big 4 firms negatively moderate the increase in total audit effort and IT audit effort caused by COVID‐19. Additionally, Big 4 firms moderate the effect of K‐SOX on mid‐sized clients. Specifically, Big 4 firms positively moderate the increase in total audit effort, whereas they negatively moderate the increase in IT audit effort caused by K‐SOX. This study also investigates the effects of COVID‐19 and K‐SOX on various ranks of auditors and the effects of these exogenous events observed across different industry sectors. Our findings provide insights into the impact of an unpredicted global health crisis and predicted stringent regulations on audit effort when they occur simultaneously, an area that has never been addressed due to its unprecedented nature.