An Impact of Major Customer Concentration on the Audit Hour and Audit Fee

[Purpose] This study analyzes the effect of major customer concentration on audit hours and audit fees, specifically examining how customer concentration affects external auditors in domestic companies. [Methodology] To achieve this, we conducted an Ordinary Least Squares (OLS) regression analysis using data from companies listed on the KOSPI and KOSDAQ markets between 2014 and 2020. The key variables for analysis included customer concentration data, audit hours, and audit fees, which were obtained by reviewing the notes disclosures of individual companies through the Financial Supervisory Service’s electronic disclosure system (DART). [Findings] The empirical results show that companies with major customers accounting for 10% or more of their revenue, as well as those with higher customer concentration, tend to have significantly lower audit hours. This reduction in audit hours was primarily attributed to the decrease in audit time spent by registered auditors and other professionals. On the other hand, no significant relationship was found between customer concentration and audit fees. These findings suggest that companies with major customer concentration may have clearer and more stable relationships with major customers, making their operations and financial conditions simpler and less complex, thereby enhancing audit efficiency. However, no significant relation was observed between customer concentration and audit fees. [Implication] This study makes a significant academic contribution by analyzing the effect of major customer concentration on external audits in domestic companies, an area where relevant research has been scarce in Korea. Particularly, the study offers new insights by conducting an empirical analysis that reflects the characteristics of domestic firms, addressing the inconsistency in conclusions found in both domestic and international research.