CHAPTER II THEORETICAL FRAMEWORK
4. Independence
Independence means public accountant is not easily influenced.
Public accountant is not justified biased towards anyone. Public accountants are obliged to be honest not only to the management and owners of the company, but also to creditors and other parties who put confidence in the work of public accountants (Christiawan, 2002).
Certified public accountants ethics code states that independence is the attitude expected of a certified public accountant for not having a personal interest in carrying out their duties, which is contrary to the principles of integrity and objectivity.
Research on independence has pretty much conducted both domestically and abroad. Lavin (1976) examined three factors that affect
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the independence of public accountants, namely: (1) Association of financial and business relationship with the client, (2) furnishing of services other than audit services to clients, and (3) the duration of the relationship between public accountants with clients.
Shockley (1981) examined four factors that affect the independence, namely (1) Competition among public accountants, (2) Provision of consultancy services management to clients, (3) Firm Size, and (4) The duration of the relationship audit
a. Older Relationship With Clients (Audit Tenure)
In Indonesia, the problem of audit tenure is set up in the Ministry of Finance Decree 423 / KMK.06 / 2002 on public accounting services. The minister's decision to limit the auditor's work a maximum of 3 years for the same client, while for Public Accounting Firm (KAP) may be up to 5 years.
This restriction intended auditor not to be so close to the clients so as to prevent the occurrence of accounting scandals. As for the explanation of differences in some of the research results of previous studies stated as follows: "Assignment of audit that is too long is likely to encourage public accountant loses its independence as a public accountant is satisfied, less innovation, and less strict in performing audit procedures. Instead the old audits may also increase the possibility of independence for public accountants are familiar; the
work can be implemented efficiently and are more resistant to pressure the client "(Supriyono, 2006).
b. Pressure from clients
In performing its duties, the auditors often have conflicts of interest with the company's management. Management might want the operation or performance looks successful company, which is reflected through higher earnings with a view to creating an award.
To achieve these objectives it is not uncommon to pressure the company's management to the auditor that audited financial statements were produced in accordance with the wishes of the client. In this situation, the auditor is in a dilemma. On the one hand, if the auditor to follow the client's wishes, it violates professional standards. But if the auditor does not follow the client then the client may terminate the assignment or change the auditors KAP.
In addition, competition among accounting firms (KAP) is greater. KAP increased, while the growth of the company is not comparable to the growth of the firm. Moreover, many companies conduct mergers or acquisitions and due to the economic crisis in Indonesia, many companies that went bankrupt. So therefore the firm will be more difficult to get new clients that the firm was reluctant to remove the existing clients.
The client's financial condition also affects the auditor's ability to cope with pressure of clients (Knapp, 1985) in (Harhinto, 2004: 44).
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Clients who have a strong financial condition could provide a sizeable audit fee and also can provide good facilities for auditor.Selain the probability of occurrence of bankruptcy clients who have a good financial condition is relatively small. In this situation the auditor become complacent resulting in less rigorous in auditing.
Based on the above, the auditor has a strategic position not only in the eyes of management but also in the eyes of the users of financial statements. In addition, users of financial statements put much faith in the work of auditors in the audit of financial statements.
To be able to meet the good quality of the audit the auditor in their profession as examiner should be guided by the code of ethics, professional standards and applicable financial accounting standards in Indonesia. Each auditor must maintain the integrity and objectivity in carrying out their duties to act honestly, decisively, without pretension so that he can act fairly, without pressures or demand is affected by certain parties to meet their personal interests.
c. Peer Review
The demands on the accounting profession to provide quality services demanded transparency of information about jobs and operating public accounting firm. Clarity of information about the quality control system in accordance with professional standards is one form of accountability to clients and the general public will be rendered.
Therefore, the work of public accountants and public accounting firm operations need to be monitored and audited to assess the feasibility of the design and quality control system for compliance with quality standards which hinted that the resulting output can reach high quality standards. Peer review as prepared by the auditor monitoring mechanism could improve the quality of accounting and auditing services.
Peer reviews perceived to provide good benefits for clients, public accounting firm that reviewed and auditors involved in the peer review team. The benefits derived from peer review, among others, to reduce the risk of litigation, providing a positive experience, enhance employee morale, and provide a competitive edge and more convincing clients of the quality of services rendered.
d. Non-Audit Services
Services provided by the CPA Firm not only attestation services but also non-attest services in the form of management consulting services, tax services and accounting services such as financial statements (Kusharyanti, 2002: 29).
The existence of two types of services provided by the firm makes auditor independence against his client in question which will affect the quality of the audit. The provision of services other than auditing is a potential threat to auditor independence, because
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management can increase the pressure on auditors to be willing to issue a report required by the management is an unqualified.