THE EFFECTS OF COMPANY SIZE, COMPANY RISK AND AUDITOR’S REPUTATION ON TENURE: AN ARTIFICIAL ROTATION TESTING
https://doi.org/10.22146/jieb.23269 Junaidi .(1*), Novia Nurul Khasanah(2), Nurdiono .(3)
(1) Faculty of Informatics Technology and Business, Universitas Teknologi Yogyakarta, Indonesia
(2) Faculty of Informatics Technology and Business, Universitas Teknologi Yogyakarta, Indonesia
(3) Faculty of Economics and Business, Universitas Lampung, Indonesia
(*) Corresponding Author
Abstract
This study aims to empirically examine the effects of firms’ size, firms’ risk, and auditors’ reputations on tenure in an artificial rotation. The phenomenon of artificial auditor (audit firm) rotations in Indonesia is an interesting topic, deserving further study. Artificial auditor rotations indicate a condition in which, conceptually, there has been a change of auditor that makes the relationship between the auditor and the client end, but in effect, the relationship is still going on. Regulations for mandatory auditor rotations causes audit firms or their partners to cheat the system by changing the name of their firm, or partners, to allow them to continue auditing the same client. This research samples 110 companies listed on the Indonesian Stock Exchange between 2000 and 2010, which were obtained using a purposive sampling method. The results of a statistical test indicate that a company’s size significantly influences the tenure. The variables of firms’ risk and auditors’ reputations do not have significant effects on tenure, statistically. This research is expected to contribute both theoretically and practically, especially to the regulations on auditors’ rotations. Auditing quality is an important factor that must be maintained by the auditor profession, to maintain the independence of auditors. In the auditing practices in Indonesia, regulators should consider the artificial rotation phenomenon that occurs in Indonesia, so the practice of auditing can run better.
Keywords
Full Text:
PDFReferences
Altman, Edward I 1968. ‘Financial ratios, discriminant analysis and prediction of corporate bankruptcy’. Journal of Finance, 4, 589–609.
Carcello, Joseph V., and Albert L. Nagy, 2004. ‘Audit firm tenure and fraudulent financial reporting’. Auditing: A Journal of Practice & Theory,23 (2), 55-69.
Carey, Peter, and Roger Simnett, 2006. ‘Audit partner tenure and audit quality’. The Accounting Review,81 (3), 653-676.
Chow, C. W., and S. J. Rice, 1982. ‘Qualified audit opinions and auditor switching’. The Accounting Review,57 (April), 326–335.
Choi, Jong-Hag., Chansog (Francis)Kim, Jeong-Bon Kim and Yoonseok Zang, 2010. ‘Audit office size, audit quality and audit pricing’. Auditing: A Journal of Practice &Theory, 29 (1), 73-97.
Christiawan, Yulius J., 2002. ‘Kompetensi dan independensi akuntan publik: refleksi hasil penelitian empiris [Competence and independence of public accountants: A reflection of empirical research results]’. Jurnal Akuntansi dan Keuangan,4 (2), 61-88.
Craswell, A. T., J. R. Francis, and S. L. Taylor, 1995. ‘Auditor brand name reputations and Industry Specializations’. Journal of Accounting and Economics, (14), 3-49.
DeAngelo, Linda Elisabeth, 1981a. ‘Auditor independence, lowballing and disclosure regulation’. Journal of Accounting and Economic, 113-127.
---------,1981b. ‘Auditor size and audit quality’. Journal of Accounting and Economics, 183-199.
Deis, Donald l. and Gari A. Giroux, 1992. ‘Determinants of audit quality in the public sector’. The Accounting Review,67 (3) (Juli), 462-479.
Fanny, Margaretta, and Sylvia Saputra, 2005. ‘Opini audit going concern: kajian berdasarkan model prediksi kebangkrutan, pertumbuhan perusahaan, dan reputasi kantor akuntan publik(studi pada emiten Bursa Efek Jakarta) [Going concern audit opinion: A study based on the bankruptcy prediction model, the company's growth and reputation of public accounting firms (studies on the listed companies in Jakarta Stock Exchange]’. Proceeding, Simposium Nasional Akuntansi ke-VIII, Solo, Indonesia.
Francis, Jere R., and Michael D. Yu, 2009. ‘Big 4 office size and audit quality’. The Accounting Review,84 (5), 1521-1552.
--------, and Earl R. Wilson, 1988. ‘Auditor changes: A joint test of theories relating to agency costs and auditor differentiation’. The Accounting Review, 63, 663-682.
Geiger, Marshall A., and K. Raghunandan, 2002. ‘Auditor tenure and audit reporting failures’. Auditing: AJournal of Practice & Theory, 21 (1), 67-78.
Ghosh, Aloke, and Doocheol Moon, 2005. ‘Auditor tenure and perceptions of audit quality’. TheAccounting Review, 80 (2), 585-612.
Hartadi, Bambang, 2009. ‘Pengaruh fee audit, rotasi KAP, dan reputasi auditor terhadap kualitas audit di Bursa Efek Indonesia [Effect of the audit fee, audit firm rotation, and auditor reputation to audit quality in the Indonesian Stock Exchange]’. Ekuitas: Jurnal Ekonomi dan Keuangan,16 (1), 84-103.
Hudaib, M. and T.E.Cooke, 2005.‘The impact of managing director changes and financial distress on audit qualification and auditor switching’. Journal of Business Finance & Accounting, 32, 1703-1739.
Institut Akuntan Publik Indonesia, 2011. Standar Profesional Akuntan Publik [Public Accountants Professional Standards]. Salemba Empat, Jakarta.
Jackson, Andrew B., Michael Moldrich, and Peter Roebuck, 2008. ‘Mandatory audit firm rotation and audit quality’. Managerial Auditing Journal,23 (5), 420-437.
Junaidi and Jogiyanto Hartono, 2010. ‘Nonfinancial Factors in the Going Concern Opinion’. Journal of Indonesian Economy & Business, 25 (3), 369-380
--------, Setiyono Miharjo, and Bambang Hartadi, 2012. ‘Does auditor tenure reduce audit quality?’.Gadjah Mada International Journal of Business, 14 (3), 303-315.
--------, 2014. ‘Pengaruh Tenur dan Rotasi KAP pada Independensi [The effect of tenure and audit firm rotation on independence]’.Unpublished Dissertation, Post-Graduate Programme. Yogyakarta: Universitas Gadjah Mada.
--------, Harun Pamungkas Apriyanto, Nurdiono, Eko Suwardi, 2014. ‘The effect audit firm tenure in artificial rotation on audit quality’. Journal of Economics, Business, & Accountancy (Ventura), 17 (3), 417-428.
Khomsiyah and Nur Indriantoro, 1998. ‘Pengaruh orientasi etika terhadap komitmen dan sensitivitas etika auditor pemerintahan di DKI Jakarta [Effect of ethical orientation towards commitment and ethical sensitivity of government auditors in DKI Jakarta]’. Jurnal Riset Akuntansi Indonesia,1 (1), 13-28.
Law, P., 2008. ‘An Empirical Comparison of Non-Big 4 and Big 4 Auditors' Perceptions of Auditor Independence’. Managerial Auditing Journal, 23 (9), 917-934.
Lim, Chee Yeow, Hun-Tong Tan, and Qiang Cheng, 2010. ‘Dosen auditor tenure improve audit quality? Moderating effects of industry specialization and fee dependence’. School of Accountancy Research Paper Series, 2 (1), 1-43.
Mai, Dao, Suchismita Mishra, and K. Raghunandan, 2008. ‘Auditor tenure and shareholder ratification of the auditor’. Accounting Horizons,22 (3), 297-234.
Maletta, M. And A. Wright, 1996. ‘Audit evidence planning: An investigation of industry error characteristics. Auditing: Journal of Practice & Theory, (15) 1, 71-86.
Mansi, S., Maxwell, W. and Miller, D., 2004. ‘Does auditor quality and tenure matter to investor?’Journal of Accounting Research, 23 (2), 17-30.
Maria, Agnes and Djohan Pinnarwan, 2003. ‘Independensi akuntan publik: sebuah rekapitulasi [The independence of public accountants: A recapitulation]’. Media Riset Akuntansi, Auditing dan Informasi, 3 (2), 194-215.
Mautz, R. K., and Hussein. A. Sharaf, 1961. The philosophy of auditing. American Accounting Association Monograph, Sarasota, Florida: American Accounting Assosiation.
Menteri Keuangan. 2002. Keputusan Menteri Keuangan Nomor:423/KMK.06/2002, Tentang Jasa Akuntan Publik.
_____.2008. Peraturan Menteri Keuangan Nomor: 17/PMK.01/2008, Tentang Jasa Akuntan Publik.
Myers, J., Myers, and T. Omer, 2003. ‘Exploring the term of auditor-client relationship and the quality of earnings: A case for mandatory auditor rotation?’ The Accounting Review, 78 (3),779-798.
Nasser, A.T.A., E.A. Wahid, S.N.F.S.M. Nazri, and M. Hudaib, 2006. ‘Auditor-client relationship: The case of audit tenure and auditor switching in Malaysia’. Managerial Auditing Jurnal, 21 (7),724-737.
Nurchasanah, Rizmah and Wiwin Rahmawati, 2003. ‘Analisis faktor-faktor penentu kualitas audit [Analysis of the determinants of audit quality]’. Jurnal Akuntansi dan Manajemen,(Agustus), 47-66.
Prastiwi, Andri and Frenawidayuarti Wilsya, 2009. ‘Faktor-faktor yang mempengaruhi pergantian auditor: studi empiris perusahaan publik di Indonesia [The factors that affect the auditor turnover: An empirical study of public companies in Indonesia]’.Jurnal Dinamika Akuntansi,1 (1), 62-75.
Ramadhany, Alexander, 2004. ‘Analisis faktor- faktor yang mempengaruhi penerimaan opini going concern pada perusahaan manufaktur yang mengalami financial distress di Bursa Efek Jakarta [Analysis of factors that affect the acceptance of a going concern opinion in the manufacturing companies experiencing financial distress in the Jakarta Stock Exchange]’. Jurnal Maksi, 4, 146-160.
Santosa, Arga Fajar, and Linda Kusumaning Wedari, 2007. ‘Analisis faktor-faktor yang mempengaruhi kecenderungan penerimaan opini audit going concern [The factors analysis that affecting the tendency of going concern audit opinion]’. Jurnal Akuntansi dan Auditing, 11 (2), 141-158.
Schwartz, K.B and K. Menon, 1985. ‘Auditor switches by failing firms’. The Accounting Review, 60 (2), 248-261.
Setyorini, Theresia Niken and Aloysia Yanti Ardiati, 2006. ‘Pengaruh potensi kebangkrutan perusahaan publik terhadap pergantian auditor [The influence of the potential bankruptcy of public companies towards the turn of the auditor]’. Kinerja,16 (2), 31- 40.
Sinason, David H., Jefferson P. Jones, and Sandra Waller Shelton, 2001. ‘An investigation of auditor and client tenure’. American Journal of Business,16 (2), 31-40.
Shu, S.Z., 2000. ‘Auditor resignations: Clientele effects and legal liability’. Journal of Accounting and Economics, 29 (2), 173-205.
Suparlan and Wuryan Andayani, 2010. ‘Analisis empiris pergantian kantor akuntan publik setelah ada kewajiban rotasi audit [Empirical analysis of the turn of the audit firm after no obligation audit rotation]’. Proceeding, Simposium Nasional Akuntansi XIII, Purwokerto, Indonesia.
DOI: https://doi.org/10.22146/jieb.23269
Article Metrics
Abstract views : 8370
| 
views : 4747
Refbacks
- There are currently no refbacks.
Copyright (c) 2017 Journal of Indonesian Economy and Business
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.
| Journal of Indonesian Economy and Business |
| The Journal of Indonesian Economy and Business (print ISSN 2085-8272; online ISSN 2338-5847) is published by the Faculty of Economics and Business Universitas Gadjah Mada, Indonesia. The content of this website is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License |
| © 2019 Journal of Indonesian Economy and Business | Visitor Statistics |