The Auditor Tenure And The Quality Of Audit: Mandatory Audit Firm Rotation And Audit Quality Evidence From The Manufacturing Firms Listed In Indonesia Stock Exchange (Idx).

THE

AI]DIIORTf,IiI'f,E

AND

?HE

QUALITY

OF

AT'DIT:

MANDAMI

AT'I'T

fiRM

ROTATIOI{ AIi'D

AUDIT

QUATITY

Evid.nco

f]!m

rb.

M$rufrcacrtls

Flrm

La..d

in

lrdoDdia

SKRTPSI

Srbdftd

i!

p.nli.l

follilln.trt

of.h...qolE6cnt

for

Uldlrrrrdudc

d.grd

i!

dnonls

ACCOUNTING

DEPARTMEM

F'ACT'I,TY OF DCONOMI(--S

ANDAI,AS

UNTVERSIIY

So*

Il

t.relGDX)

*-,?L"..r.j

iirliu,

.!BsTR{cT

TheAudn

r

Tcnu*

,And

lhe

QuaLiiy

OfAuJir:

Mandar.

,\udn

Frm

Ro.aioi

nd

Audi!Qudnr

Evidcicc Fro'n |he

Manlf&iu.i'g

Fims

Lkt.d

ln lndonesil

srock ExchatrBe

(ldr)

SYLllandYN

Thn

nudy

r$cs.s

*herhu

mandarorr_ audn

fi.n,

mlarion

cllccr

audit

qualirt. AuJit

fim

oralion

rel(6

b'

rhc audiror teiure and

qualir]

olaudir

bl

quolily

ol

*ming

QuaLily

olerfrid8s

rsfl{t

b}

d scr.rionq.-

acnul

bNcd.f

Drlious

asem.h lhar

Lfs

rc.rur

s ro

nnxy

tbr rhe qualirl

oaerdi.es

Further

il

audr

qlali!-

n

thoqhr

Df

rs coDiraini4

cxt.m.

mrnaeemenl decisiois

li

rhe

turcni',8

orhnncnlPrro

d.e.theseRsuLrs sugget

nrai

aidaro.l rotarion nav

lesdb

Lowr audir

qlrlity

In rhis

Esarch

ihe

value.ldiscretionary

a.cna[

a.c

Jividcd inlo lhEe,

absolorc, negat

ve. and posiliv. di$relionary

acc.uals. Neqarivc

dncretomq

accruals sho$ a

|ositive

reLaiionship $nh

Audiio.

lenurc afd rhe rcn

ofvariables

Which mcan auditee more

c.nseaxlivc snh

the

audiro*

that ha!e been long reloti.nship

rirh

rhem. Audiiees tend ro bc nore

corefllmd

choose

to

dereasd

$cn

income thdl tosuh

in

neeatile

di\r.rionary occuLr'

Posiriv. dis.rernnary accrull

shors ne-!dnc

rul.tionship

sith

ab$Lure

vllue.f

Dhcrelioiart

accn'dh.

it

nieans ihar lhe longcr audirorrenure thc lower positive

dh.reliomry

accrurh.

ln

sum, ihers

k

iceariv.

rclationshlp

bet{ccn

AbsoLLt Discrelionary Accrual! and

Audittr Ttntr.c

h means ther ihe highcr nlmber rhe

.ompanies rerained

rhe

saDre audiror

(longo

renuE)

the

lo*cr

the

value

ol

absolule discrerir)'ary

accruais

Lhc

lolvd

valuD

of

Ab{Lutc

dioetiora'}

accnals rctlecB

ihe

hidcr

cetrirg

qualit)

(Jr

sirh

_{simple conclusion. audil}

quali(y is

incrc6e$lhe

atrditortenure

i'rreasc

The couap$

ol

Enrcn

md

its

audiroi

Arlhu

Ande6en,

quicklr

led

Egularor world*ide ro

consider

dilTernt

n{hanim

for

enhancin8 auditor independent

Pdicular

ai€nrion has b€en _Siven to

sp.ct

of

rhc

audiloElient

iclarionshiD that could impact on audiror independencd, vherher

in

hct

or

in

appdEnce

The dudiling

poie$ion

hE

taditionally

opp.sd $c

implehentllion

ol

any mmdatory regulatory rcqunemert lor qudir

fim

ro

tuhie

aiier _{a Siren}

p.riod

of lenu.e.

A

syneh

oi

mandarory audit

fim

would rtqune

oohpsies

nr

.ohrc

ihen sudir

fim. her€itd slled

audilor,

p.riodiolly

Lisrud

cmpaniG

in

Ilaly

and

B@il

rc

require

ro roFte

their

ludilor ever]

nine and

nve

yem

Nspcdively

(kclFn

er

al

2006).

Temp.

otrline

(April

166

200?)

recod

Sin8opore req0iEd iLs banl ro

olatc

rhct

exrcmal auditor every five

yem

sin.e

2 003

i

in

rh.

sme

yed

Sourh

Korc.

natd

duditor rorat ion i s

nandalory

Cu

e

alons in

ile

next

]e6

{2004) Lithu&ia also

$trlc r

nmdalory auditor

olalion lor

Indoncsja lisled

coDr

ies ar

Febnai

5. 2003, rc4triEd

!.

rc6t

$eir

indepdndem auditor

every

six

yed.

lhis

is

rhe

ne* polict sine t€foE

they

*€E

EquiEd

to mrare ev.ry

filc

ys6.

The

liEt flle

lhal EquiRd compsies

r.

rcbt

deir

audiror

m

b€

liand

in

KepdM

Meden

KemAe

Republik

ltuloneia Nanot

123/KMK.46/2002

kdanE

Jatd,4kd

Plblik

30 Septenret

nor yet implenent€d until 2004. A one yetr

loleFnc. wG

gived by

de

ftgularor

dd

2001

is

consideEd as

.hc

tansiion

y4r. Al

2001

cohpdies lhal

have

ftrained rhc

sme aldiror for live or

moE yea6

in a rcw

nill

allows

lo

use

senicesolthe

s.me audjtor until rho

ys6

ended 2003. FurlhemoE explained jn the

l:epututn

^leateti

Ker''Ean

Republik ltulotusia

Nanor

359/K-UK062AA1 tentana

J6o,4h[nta

Publik

2l

asnus

2443.

R4enlly the

lndonesi

Miniq

ol

Finrnco,

sri

Mulyani

IndnNati

published a

n*

dlc

olpublic

accounbm

in

Indonesi!. The policy

is

lounds

it

th.

Perutorun

Me\teti

K?rdnAon

l?ltlK) No

|7/PMX.03/20A3 5

Febwi

2003 aboutpublic

lccounrtntervices.

The newpolicy h tnc consumnation

olpftvious

Dolict thar

s6

considetod

no

lonAer

sllicient

*nh

rhc rec.nl

condition

(Ktput6ah

M.nlri

Keuryuh

(KMK)

No

123/KMK042AA2

antl XMK

No

159/KuK.A6/200:l). otre

al

n{y

rcasons thar

rcqtriE

Ihc eslablishing

ol

rhis policy was theE are sonc chnngB in the

B$iatjon

of public

ecou.Ltt.

BefoE.

c.ch pr6lic lccounrd!

w6

goup€d

i.

the

$siarion

dllcd

Ikarin

Akunhn lndonesia'Konpa4ehen

Akundr

Publik. Bu1

noq

they are ercupLrd undcr the

in{ir

Akuni'n

Puhlik lndoncsia.

Thcsc

bLtion

issue come! to Ihe

sula@

bcsue

sciety

have

bn

lhcir

rrus on the public accountant prcfe$ion. The requiiemenr ro mrate audilos is an

atrnpr to

Educe

the tnrc8t ro

audid

iidep€ndene

laryelt arisin!

f6m

fmilianty.

The cdn&m is

ihat.ver

the Lons

rem.

the dudnor becomes ioo close to the

clientrnd

lo*s

bis or her "honen disinrerescdncsC. For

exmde

audilor

CEAPTER

V

This

resedh

invcsrigates wh€ther mandltory audn

fim

sklion

cfdl

.udil

qdallry. Audit

fim

.ohrion refied by lhe auditor tenua

ud

sudil

+ality

by

quditt df

cminA.

t)verall,

thh resech

found thar

theF

is

a

negaiivs

rlationship

bcrwccn absolute dieretionary

a*ruah

dd

tuditor ten!re.

lt

meds

dhcretionary

accrah rcnels

the

hignq

eaning

qu.liiy.

or

with

simple

conclGion. audir quality

k

irorc

6

the

audilo

re.ure

inclw

(Hl-rejatedi

'l _he mrjn hsue thar comes up with dris audilor Dration problcm

h

thai the

wodicd

aboul

rie

indepcndenl

ol

oudlt6 if

lhe @mponies rehined the

me

audiror

*ilh

no Linihrion

renlP

sn €Ne

an oudit

qulity

Eduction.

B!r.

in thct

indcpe.dcne is nol the

o.ly

issue tbrt nccds lo put in onsideBtion, For

dxrnplc.

audn

qualit,

is lower in rhe

edly

ya^

olihe

auditor4licnl

Elalionship.

Aldn

qurlitt

h

.lleAed

to

be lower in thc

etrly

ycds ol

tne

EblionshiP

btctu$

rhc audiror

h unfanililr

with thc

clienlt businsi

op€Btions, slsroms,

conhls,

sd

thar tnc hi8her numb€r the doDpanics

.ainod

lhe same auditor (longer rcdure) the lower

de

valu. of absolub

diedionary

a4tulj

The lowcr value ol absolue

Rae.

Cil

S., Byune

l.

Ro.

J.ohsa

Rho. 2007. The

Ellel

of

Mandat

.y

Audir

Fim

Rcleolion on Audit Qualiry, Evidcncc

lior

lhc Koran

Audir

it'a&.|.

'-tv.

$d|c.

t (Jzh, 21", 2AA9)

BanFir

F

Michcland

Linda Sfrirh Banber.2003. Decemb€r 2003 Discussioi

ol

Mandaiory

audilPannq

Rotarlon.

Audi

Qurlit]

hd

Nlarker

Perception: Llviduncc

llom

Taiwan".

r\, {mr

Nhh.

o''

B.nov.

Eli,

FerdinMd

,\

gtrl,

Jltdy

S.1..

l\ui.

od

L€onard

N

SIcnr' 2000

Discrclora4

Accnals

Modcls

and Audit

Qualifi.dio.s

C.mern. MaL

And.lisa Preicipe,

ud

Atrdiror

Change:

hnpovc Audir _Qlali!v?

and

Marco];ombe&

2003.

Audiror'ltnuE

l\es

Mandatory

audiror Roralon

Really

r,w\'

\!th.on' (i,ldrth

Jltl,2AA9)

C.rcello. JoseDh V. and

Albcn

l'in

cialRcpoding.

(:heuk. Leo

M.

C.

aid Ka'.

Wah

R.t'i.n

and

Audit

Audn

Fifr

Tcn

reand lrFudulent

canertlh.

lctt.

Blrry

l-swis,

laqrclinc

RccL ard

Suzanne

liwen$hn

2007

ln

-rpi'

cr

l1!d

r'rioi .

\trd

or

Po! n

P/.tri'-re

r'

,,-" - a tu.rh ,l'

)0n9)

l-ai. 2005. Audn Repon

lie.

Audit

l'jannc.

Fim

Rohrion:

Evidence

tom

AusmLia.

Chi,

Wuchun,

lluichi

Huan!.

and YichuD Liao. 2004.

-lhe

ElILu of

Audito.

IenLft

and

Cli$r

Inpotuncc

on

DscRtioDr4

Accruah

-

Evidctce

liom

Audir-P.dner

Bo$d

Dala

in

lairan

r

$Jrr,..e4

avrah

Chutre,

Hyees@

200,1. Mandalory

Audiio.

Roratnn

ud

,^udir

QualilY: An F-mpni.al Investigarion

ol

Audit

r

Dcsignalior Policy

i,r

Korea

itv|svnop

tMar.h

)tt, )!ar)

Church

.

Bryar K.

hd

Pine

ZhM!.

2006.

A

Model

ol

Mandaroq

Audir.r

Robrion.

v*,

sm

cok

lMa..h

/

, 200e)

Amn

Dwieht

200,1.

An

Empirical InvcsiSalion

oi

the

Efecb

!l

E.mines

Pftdictabilir)

dnd

trdiror1]lic

Rclationships on lhe Bond

Ct

dit

)\{ket r*v!:rn.onlMorch

31"'.20A9)

Soo.

1003

Aldiro.

TmuE a|d

ihe

ability

10 Mcct or