Abstract
Purpose The purpose of this paper is to examine the effects of simultaneous and partial auditor switching toward the abnormal return of manufacturing companies listed in Indonesia Stock Exchange between 2009 and 2012. Design/methodology/approach Auditor switching is divided into some types: lateral Big 4 to Big 4 (B4B4), lateral non Big 4 to non Big 4 (NB4NB4), cross-up (CU) and cross-down. The abnormal return is measured with a market-adjusted model. In this study, company size is used as the control variable and is measured using the natural logarithm of the total assets (LnTA) and return on equity. Multiple linear regression is used for analysis with significant value a= 5 percent. The hypotheses were tested using f-test and t-test. Findings The result shows that simultaneous auditor switchings affect the abnormal return. In partial auditor switching, only CU switch has effects on the abnormal return. Originality/value This study provides additional literature on the effect of auditor switching, especially on an abnormal return.
Highlights
Independence of public accounting is vital in auditing profession
CU and CD auditor switchings can be seen from the auditor report, and the information related to the company size as well as the return on equity (ROE) will be responded by the investors
The mean of B4B4 auditor switching is 0.3, which means that 30 percent of the total manufacturing companies involved switched their accounting firms from Big 4 to Big 4 firms
Summary
One factor affecting the auditor’s independence is the length of the relationship the auditors have with their clients (Institut Akuntan Publik Indonesia, 2011). Professional Standards for Public Accountant (Standar Profesional Akuntan Publik) section 290.153 indicates that if a similar senior public accounting firm is hired by one similar client for relatively long period of time, this relationship will threaten the auditor’s independence. The government has regulated the switch of auditor by releasing the Regulation of Minister of Finance of the Republic of Indonesia Number 17/PMK.01/2008 on the obligation to switch the public accounting firm after auditing for six consecutive years, and to switch a public accountant after auditing for three consecutive years (Kementerian Keuangan, 2008). The full terms of this licence may be seen at http:// creativecommons.org/licences/by/4.0/legalcode
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