Analysis of Mandatory Audit Rotation Regulations in Indonesia

DOI

10.2991/apbec-18.2019.65How to use a DOI?

Keywords

Audit quality, Audit Partner Rotation, Audit Firm Rotation, Audit Tenure, Specialization, CPE, Workload, Audit Committee

Abstract

This research investigates the impact on audit quality on the regulation requiring mandatory audit rotation in Indonesia. Only a few countries have enacted such a rule about mandatory audit firm rotation. To determine this rule’s impact, a sample of company listed on the Indonesian stock exchange, before the regulation (1999–2001) and after the regulation (2004–2008) were analyzed. The study found that before the regulatory period, the relationship between tenure and audit quality was concave (increasing up to 3 years and then declining), but after the regulation, the relationship became convex (decrease in the first 2 years, then rising). After the regulation, the rotation of audit partners increased audit quality, but audit firm rotation did not impact audit quality. Auditor specialization will increase audit quality, but auditor workload and Continuing Professional Education (CPE) will decrease audit quality. The audit committee was not found to have a direct impact on audit quality, nor does it moderate the relationship between the aforementioned variables and audit quality, except for the variable workload. The implication of this research is that mandatory audit firm rotation needs to be evaluated again because the regulation is impairing audit quality, whereas the regulation concerning audit partner rotation needs to be maintained, because it has improved audit quality. The role of the audit committee should be further enhanced.

Copyright

© 2019, the Authors. Published by Atlantis Press.

Open Access

This is an open access article distributed under the CC BY-NC license (http://creativecommons.org/licenses/by-nc/4.0/).

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TY  - CONF
AU  - Fitriany Fitriany
AU  - Sidharta Utama
AU  - Hilda Rossieta
AU  - Dwi Martani
PY  - 2019/07
DA  - 2019/07
TI  - Analysis of Mandatory Audit Rotation Regulations in Indonesia
BT  - Proceedings of the Asia Pacific Business and Economics Conference (APBEC 2018)
PB  - Atlantis Press
SP  - 460
EP  - 471
SN  - 2352-5428
UR  - https://doi.org/10.2991/apbec-18.2019.65
DO  - 10.2991/apbec-18.2019.65
ID  - Fitriany2019/07
ER  -