Abstract
[Purpose] R&D investment is indispensable for long-term growth and survival in business and the amount involved is quite significant. However, the outcome and benefit are not visible in short term, which increase the information asymmetry between management and information users. Also R&D is often misused as a tool for real earning management or accounting treatment. Therefore in this study we analyse how the R&D affect the audit quality, proxied by management-auditor disagreement.
 [Methodology] The regression model is used with KSE and KOSDAQ listed firms. Also for robustness test, propensity score matching method is used to mitigate potential endogeneity issue.
 [Findings] We find that firms with larger research and development investment have less management-auditor disagreement, and this association weaken in big4 auditor group. This results imply that high audit risk decreases the audit quality, but high quality audit by big4 auditor could decrease the audit quality deterioration. Also the firm expensing all R&D investment rather than capitalization has higher management-auditor disagreement, which indicate that the auditor adjust capitalized R&D expenditure to expense.
 [Implications] This study could broaden the understanding on financial statement and audit quality by suggesting that R&D expenditure affects the audit environment.
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