The effect of audit tenure on information asymmetry: Investigating the role of auditors in achieving a more transparent organization (Target 16.6 SDGs)

Abstract

One of the SDGs targets is the achievement of transparency of the organization. Information asymmetry is a condition in which management’s information is not in balance with shareholders/stakeholders. This study also investigates whether specialist auditors can reduce information asymmetry. Regression analysis using 274 observations of financial data from firms listed on the Indonesia Stock Exchange, this research finds that the audit tenure relationship and information asymmetry are u-shaped (a quadratic relationship) with a minimum point at eight years. These results indicate that, in the early years of the audit engagement, the longer a public accounting firm audits a company (tenure), the information asymmetry will decrease. These results indicate that after eight years, the bonding between auditors and clients is getting more robust so that auditors find it difficult to maintain their independence. After eight years, it is necessary to change (rotate) the public accounting firm that audits a company because its independence begins to decline. These results indicate that public accountants have played a significant role in achieving a more transparent and accountable organization, as one of the SDGs’ goals.