Audit regulation and auditors’ behaviour: the impact of auditor tenure disclosure on audit quality

The aim of this research is to determine the influence of Audit Fees, Audit Rotation, Audit Tenure, Company Size, Auditor Specialization and Auditor Reputation on Audit Quality in manufacturing companies listed on the Indonesia Stock Exchange in 2020-2022. The method used in this research is quantitative associative method, using secondary data. Based on the research results, it shows that Audit Fees, Audit Tenure and Auditor Specialization partially have no effect on Audit Quality. This shows that audit fees are low and competitive for auditors without reducing auditor quality standards. Audit quality is maintained even though there are changes in the Audit Tenure period. Auditor specialization is reduced, but there is increased training, application of audit standards and use of technology in maintaining effective Audit Quality. Company size partially has a positive and significant effect on Audit Quality. This shows that the auditor has sufficient expertise to handle the high complexity of a large company size, thus providing support for increasing audit quality. Audit Rotation and Auditor Reputation partially have a negative and significant effect on Audit Quality. This shows that a decrease in the frequency of Auditor Rotation can result in a decrease in their objectivity and independence, but auditors have a high perspective and long-term relationship to improve Audit Quality. A decline in auditor reputation can reduce public trust and auditor credibility, but implementing audit standards, strengthening policies and procedures and effective supervision can play a transparent role in maintaining integrity and professionalism by assessing and improving high audit quality standards. Audit Fees, Audit Rotation, Audit Tenure, Company Size, Auditor Specialization and Auditor Reputation simultaneously have a positive and significant effect on Audit Quality. This shows that Audit Fees can ensure auditors work well, Audit Rotation can reduce the risk of fraud, Optimal Audit Tenure does not lose objectivity, Company Size provides resources for comprehensive audits, Auditor Specialization adds value with special skills, Auditor Reputation adds trust and contribute to improving Audit Quality in Manufacturing Companies listed on the Indonesia Stock Exchange in 2020–2022.

This study is aimed at examining the determinant factors of audit quality. Different from the previous studies, we use earnings surprise benchmark developed from Carey and Simnet (2006) as the proxy for audit quality. Based on the previous literature, we expect that audit tenure, size of audit firm, and audit regulation have a positive impact on audit quality. Using logistic model,we find that size of audit firm and audit regulation are the two determinant factors that consistently provide positive effect on audit quality. This result suggests that the probability for delivering high audit quality increases as the audit firm size is getting bigger. In addition, the probability of high audit quality is higher under audit regulation regime compared to that of non-regulated.

This study examines the influence of audit fees, independence, and competence on audit quality in KAP Surabaya and Malang. Data was collected using a saturated sampling approach, wherein questionnaires were distributed to gather responses. The response rate for the study was 78%, with a total of 39 completed questionnaires out of the 50 distributed. The collected data was analyzed using multiple linear regression in SPSS Version 25. The findings indicate significant results. Firstly, higher audit fees positively impacted audit quality, suggesting that auditors receiving higher fees devote more time and resources to conducting thorough audits, leading to better quality outcomes. Secondly, independence had a positive and significant effect on audit quality, implying that auditors maintaining a higher level of independence demonstrate professional skepticism, objectivity, and impartiality, resulting in higher-quality audits. Thirdly, competence positively influences audit quality, indicating that auditors with more excellent technical knowledge, experience, and professional skills perform more accurate and reliable audits, thereby enhancing audit quality. These findings emphasize the importance of adequate audit fees, promoting independence, and enhancing auditor competence to ensure high-quality audits. Audit firms and regulators should consider these factors when formulating audit policies and procedures. This study provides valuable insights into the relationship between audit fees, independence, competence, and quality. By understanding these factors, stakeholders can strive to improve audit practices and standards, ultimately leading to more effective and reliable auditing processes.

Consequences of Changing the Auditor's Report: Evidence from the U.K.

The audit regulator in the United Kingdom made significant changes to the auditor’s report for large public companies with fiscal years beginning on or after October 1, 2012. The new report has to describe significant risks of material misstatement, the application of materiality, and the audit’s scope. We study changes in audit fees, audit quality, and investors’ reaction to the report’s public release in the two years before and after the new rules. We find mixed evidence of a change in audit fees, ranging from an increase of nearly four percent to no change, depending on model specification. We do not find evidence of changes in audit quality or investors’ reaction to the report’s public release. Further examining the content of the new reports, we document that the total length of the report, the length of the risks’ discussion, and the number of risks are positively associated with audit fees. Moreover, materiality is inversely related to audit quality. Thus, although the new report format had a small impact on audit fees and did not significantly change audit quality or investors’ reaction to the report, the mandated risk and materiality disclosures are associated with cross-sectional variation in audit fees and quality.

Indonesia’s go public companies are the main backbone of its economy. As of January 2019, there are 620 listed companies in Indonesia Stock Exchange. The Indonesian Institute for Corporate Directorship yearly acknowledges listed companies and gives award categorized as the most trusted, trusted and fairly trusted companies every year. This study aimed to explain the effect of audit firm age and audit tenure on audit quality for the trusted company awardees from 2011-2016. An explantory method is used in this study since it depicts the cause and effect relationship. Data gathered will be processed, analyzed, presented, interpreted and concluded in a way that it will clarifies the matters about audit firm age and audit tenure on audit quality. There were 36 firm year observation as sample which was derived the companies that were awarded for six consecutive years. A multivariate analysis was used in processing and analyzing the secondary data. The findings partially showed that audit firm age has no significant effect on audit quality while audit tenure showed that there is a significant effect on audit quality. In addition to the findings mentioned, it simultaneously showed that audit firm age and audit tenure on audit quality. When the two variables are combined it affects the audit quality. This means that the two variables, audit firm age and audit tenure should go hand in hand together in achieving audit quality. Audit firm age, although not significant, must be takeninto consideration. The longer the firm, it is expected to increase audit quality. Audit tenure has to do with objectivity in which it will lead to audit quality. Long tenure is avoided by following the government regulations. As much as possible, in every audit engagement, audit work must appear to be very objective, unbiased, and impartial thus resulting to high audit quality. As for recommendation, researcher must add more samples in order to be more representative. Also, other variables may be taken into consideration as a proxy for auditquality.

Selection Bias in Audit Firm Tenure Research

Does Auditor Tenure Improve Audit Quality? Moderating Effects of Industry Specialization and Fee Dependence

Agency Problems, Auditing, and the Theory of the Firm: Some EvidenceAuthor(s): Ross L. Watts and Jerold L. ZimmermanSource: Journal of Law and Economics, Vol. 26, No. 3, (Oct., 1983), pp. 613-633Published by: The University of Chicago PressStable URL: http://www.jstor.org/stable/725039Accessed: 29/06/2008 23:14

Purpose – The objective of this study is to analyze the influence of auditor independence, professionalism, professional skepticism, audit tenure, and auditor competence on audit quality in Indonesia. This study is intended to provide documentation for factors that improve the reliability audits and credibility of financial reporting.Design/methodology/approach – A quantitative method was used with the primary data in the form of structured questionnaires to auditors of Public Accounting Firms in Surabaya and other cities in Indonesia. Data were tested using structural equation modeling (SEM) to confirm hypotheses and evaluate the relationships found among the variables. Tests of reliability and validity were performed to ensure accuracy of measurement.Findings – This study found that auditor independence, professionalism, professional skepticism, and auditor competence positively and significantly affected audit quality, suggesting that ethical and technical excellence is essential to good audit practices. Conversely, audit tenure has a negative impact on audit quality, which supports the idea that tenure may impair the objectivity of auditors in an extended audit engagement. These results are consistent with regulatory arguments calling for rotation of audit firms and/or partners to bolster professional skepticism and independence.Originality/value – This study fills a gap in the existing literature by providing empirical evidence about the determinants affecting audit quality in the Indonesian setting. The outcomes support policymakers, regulatory agencies, and auditing professionals in reinforcing governance frameworks and audit standards. The study emphasizes the significant role that auditor expertise and ethical behavior plays in upholding the integrity of financial reporting.Research Implications – This study highlights the importance of continuing professional education, and taking action to ensure regulatory compliance, ultimately improving audit quality

SUMMARY We insert an automated high-quality (HQ) auditor into established experimental audit markets to test the impact of high-quality competition on other auditors' supply of and managers' demand for audit quality. Theory predicts that managers will demand high levels of audit quality to avoid investors' price-protecting behavior. This demand should result in the HQ auditor dominating the market and increase other auditors' audit quality provision to compete with the HQ auditor. However, we find that the HQ auditor does not dominate the market—despite holding audit costs constant and investors placing a premium on HQ auditor reports. We also find that adding an HQ auditor results in other auditors lowering audit quality. Additional analyses indicate some managers demand lower audit quality to avoid negative audit reports, consistent with loss aversion as a potential explanation. Our findings indicate a need to develop a more comprehensive theory of the demand for auditing. Data Availability: The laboratory market data used in this study are available from the authors upon request.

The research was aimed to determine the effect of auditor switching, audit tenure, company size variables on audit quality and to determine fee audit fee variables in moderating the effect between auditor switching, audit tenure, and company size variables on audit quality. The population is manufacturing companies listed on the Indonesia Stock Exchange during the 2014-2017 period. The total sample is 43 companies using the purposive sampling technique. The data used in the research were financial statements. The method of data analysis uses logistic regression analysis for the hypotheses of auditor switching, audit tenure, and company size. Logistic regression analysis with a residual test for the hypotheses of auditor switching, audit tenure, and company size on audit quality that moderated by fee audit. The results of the research indicated that auditor switching had a negative and significant effect on audit quality. While audit tenure and company size have a positive and significant effect on audit quality. Related to moderating variables indicate that fee audit is not able to moderate auditor switching and audit tenure on audit quality. Conversely, fee audit has an effect as a moderating variable between company size and audit quality

PENGARUH BIAYA AUDIT TERHADAP KUALITAS AUDIT DAN DETERMINAN BIAYA AUDIT

PurposeThis study aims to examine the effects of the entry of foreign direct investments (FDIs) on the audit markets in developing countries (i.e. Egypt). There is a long-standing debate on the impact of FDIs on developing markets, but little is still known about the effect of FDI on national suppliers, such as audit firms.Design/methodology/approachThis paper reports the results of a study that used qualitative research methods. It involves interviews with senior management teams of the Big 4 audit firms, to find out how these firms deal simultaneously with conflicting global and local influences. The interviews were complemented by the publicly available data on the firms’ websites as well as published reports related to the Egyptian economy and current investment regulations.FindingsDrawing on the institutional theory, the findings suggest that an increased litigious environment, compliance with developed markets’ regulations, auditor regulatory sanctions and improved local accounting and auditing standards are highly significant consequences of foreign investment inflows. The findings indicate that more emphasis has been given to the quality of audit and auditors’ independence when auditing FDIs. Both audit regulators and audit firms in the domestic market pay higher attention to improving the quality of financial reports when FDIs have entered the market. More inspections and reviews for audit firms have been conducted, and local auditing and accounting standards have been revised to be in compliance with international standards.Research limitations/implicationsOur results have important implications for investors, regulatory authorities and governments in relation to the development, implementation and enforcement of international financial reporting and auditing standards.Originality/valuePolicymakers and regulators in Egypt have responded to international pressure by revitalizing their local accounting and auditing standards and adopting international financial reporting and auditing standards. The authors identify strategies that have been adopted by audit firms to face the FDIs’ challenges.

Abstract: Audit quality is a key factor in ensuring that a company's financial reports provide accu-rate and reliable information to external stakeholders. Good audit quality helps maintain integ-rity and transparency in financial reporting, thereby influencing business decision-making. However, in recent years, especially after a series of accounting scandals involving auditors, public trust in the ability of auditors to maintain audit quality has eroded. This research aims to explain and analyze the factors influencing audit quality, particu-larly in the context of non-cyclical consumer sector companies listed on the Indonesia Stock Exchange during the period 2020-2022. Several key factors are the focus of this study. First, the research attempts to identify the influence of auditor tenure on audit quality. Audit tenure refers to the length of the relationship between the auditor and the audited company. Whether longer auditor tenure improves or harms audit quality is one of the questions to be answered. Second, the reputation of Public Accounting Firms (PAFs) is also considered to have a significant im-pact on audit quality. The reputation of PAFs reflects how well they perform audit tasks and instills confidence in stakeholders about audit results. Third, the amount of audit fees is also a relevant factor in this study. The size of audit fees can affect auditor independence and overall audit quality. This research also considers the role of the audit committee as a moderating vari-able in the influence of auditor tenure, PAF reputation, and audit fees on audit quality. The au-dit committee is considered an internal oversight entity that can influence how audits are con-ducted and ensure their integrity. The research method used is quantitative with a moderating technique. Secondary data from financial reports of non-cyclical consumer sector companies listed on the Indonesia Stock Exchange during the period 2020-2022 are used as the data source. The research sample is se-lected through purposive sampling, and data analysis is performed using SPSS software version 27. The results of this research indicate that audit tenure, PAF reputation, and audit fees do not affect audit quality. Additionally, the audit committee does not moderate the influence of audit tenure, PAF reputation, and audit fees on audit quality. The findings of this research are expected to provide deeper insights into the factors in-fluencing audit quality and the important role of the audit committee in this context. These re-sults can also serve as a guide for companies and regulatory authorities in enhancing integrity and transparency in financial reporting. In conclusion, audit quality has significant implica-tions in the business world, and this research aims to provide a better understanding of it. Keywords: audit tenure, Public Accounting Firm reputation, audit fee, audit quality, audit committee