Family Firms and Audit Effort: An Empirical Examination of Audit Hours per Auditor Rank

ABSTRACT This study examines how audit effort varies across auditor ranks in response to family firm ownership. Prior research suggests that family firms typically face lower information asymmetry between shareholders and managers, leading to reduced audit fees and effort. Utilizing the Korean audit environment, where audit hours by auditor rank are publicly disclosed, we investigate how auditors adjust their effort for family versus non‐family firms. Our empirical findings show that family firms are associated with lower effort by engagement partners, with much weaker or insignificant effects observed for senior or junior auditors. However, among family firms, those with higher volumes of related‐party transactions (RPTs) are associated with increased partner and senior auditor effort. This suggests that auditors perceive RPT‐heavy firms as riskier and respond by enhancing oversight and expanding the role of experienced members on the team. This effect is more pronounced in firms with stronger monitoring mechanisms, suggesting that family firms with higher governance quality support greater auditor involvement in response to elevated risk. Overall, our study provides new insights into how auditors allocate their efforts across ranks in response to ownership structure, financial reporting risk and governance quality.