JURNAL AKUNTANSI DAN BISNIS
Jurnal Program Studi Akuntansi
Available online http://ojs.uma.ac.id/index.php/jurnalakundanbisnis
Financial Distress as a Moderating Effect of Management Turnover, KAP Size, and Audit Fees on Auditor Switching in
the Indonesian Stock Exchange
Puspita Isnu Fianti*, & Achmad Badjuri
Department of Accounting, Faculty of Economics and Business, University of Stikubank Semarang, Indonesia
Submitted: July 8, 2023; Reviewed: October 9, 2023; Accepted: October 25, 2023
*Corresponding Email: [email protected]
Abstract
This research aims to examine the impact of replacing the KAP management scale and audit costs on auditor turnover, considering the moderating variable of financial distress. The relationship between these various variables can be explained by agency theory, which describes the agency relationship when one or more parties work together or enter into agreements with others as agents to provide specific services. This study also uses the deep pocket theory. The population studied consists of 260 samples, which are companies listed on the Indonesian Stock Exchange (BEI) selected through purposive sampling. The research method used to analyze the data is logistic regression and moderating regression. The experimental results show that the dimensions of KAP have a significant negative impact on auditor turnover, while changes in management and audit costs do not influence auditor turnover. Findings from multiple regression analysis (MRA) indicate that financial distress strengthens the relationship between management changes, dimensions of KAP, audit costs, and auditor turnover.
Keywords: Auditor Switching, Financial Distress, Manajemen Turnover, KAP Size, Fee Audit How to Cite: Fianti, P. I, Badjuri, A. (2023). Financial Distress as a Moderating Effect of Management Turnover, KAP Size, and Audit Fees on Auditor Switching in the Indonesian Stock Exchange. Jurnal Akuntansi dan Bisnis : Jurnal Program Studi Akuntansi. 9 (2): 142-154
INTRODUCTION
The rapid growth of the business world makes many companies offer their shares to the public or go public. Companies whose names are on the Indonesia Stock Exchange or in short BEI, namely companies open to the public and are required to publish annual financial reports. This progress also has an impact on increasing the number of Public Accounting Firms (KAP) and professionals in the accounting field. So, auditors have independence and ability, especially in the preparation of financial reports that are widely applicable to Financial Accounting Standards (SAK) and have high quality.
Auditor independence can be threatened if there is a long-standing relationship between the client and the auditor because this can create a sense of comfort between the client company and the auditor (Marshandy et. al., 2018).
To achieve public accountability and transparency, the role of independent auditors has significant importance. As a profession, auditors are responsible for verifying that the financial statements prepared or prepared by management have met the applicable financial accounting standards in Indonesia, this is to meet the needs of investors.
(Djamil, 2018). The concept of audit quality refers to the ability of an auditor to carry out his duties professionally, taking into account professional ethics, expertise, and independence. Auditor independence is an important component of audit quality, assuring that the financial statements accurately reflect the economic reality of the company (Hunt et al., 2021). According to Susanto (2017), to produce a true and correct audit report, many factors influence it, starting from the company's financial ratio, the level of competence performance, objectivity, and skepticism held by the auditor (Rusmanto, Toto, et al, 2014).
In carrying out audit tasks, an auditor needs to maintain independence and impartiality. Independence describes a situation where it is not controlled or influenced by other parties, while impartiality can be interpreted as a neutral attitude in weighing the facts at hand and putting aside personal interests related to the facts themselves (Nurasik & Dewi, 2020: 173). Independence is a very significant audit standard because it can affect the reliability of financial statements stated objectively by an auditor. This independence can also experience interference if the cooperation is long enough between the auditor and his client which then triggers dependence so that it affects auditor switching. (Nurasik & Dewi, 2020: 174).
Information on auditor switching can be obtained through one incident at PT Tiga Pilar Sejahtera Tbk (AISA) in the 2017 financial year. There were hints of violations committed by AISA's auditors, mainly related to the misuse of funds and the frequency of delays in publishing audited financial statements. Evidence of these violations was discovered by the Financial Services Authority (OJK) after analyzing the financial statements published by AISA. In 2018, the company changed auditors and the new leadership decided to switch between Amir Abadi, Yusuf, Aryanto, and Mawar, which was later replaced by Ernst and Young. The consequence of the violation was the application of sanctions by the Ministry of Finance (Yunita, 2021). From this case, it can be concluded that after finding the core problem of the audited financial statements, they then chose to change auditors. This is certainly not influenced by regulations that have been implemented (applicable) but PT Tiga Pilar Sejahtera aims to maximize the quality of financial reporting based on existing standards.
Auditor Switching refers to a change in KAP that occurs within the company, either because of the company's wishes or at its request. The rules regulated by Government Regulation No. 20 of 2015 regulate the procedures related to auditor switching. Article 11 paragraph (1) limits the provision of audit services by audit institutions by public accounting institutions to the organization's financial information for a maximum of 5 (five) consecutive financial years. If there are no audit services for 2 (two) consecutive financial years, a professional auditor can again provide audit services for the organization's financial information.
According to Hidayati and Jatiningsih (2019), a company experiences a change in management when the directors are replaced after the GMS makes a decision or when the directors choose to resign voluntarily. As for Manto and Manda (2018), Wulandari and Suputra (2019), and Mirasanti and Kartika (2022), it was found that management changes have an impact on auditor turnover. When there is a change in leadership, the company will implement new policies related to accounting, finance, and KAP selection, which causes auditor turnover. However, Hidayati and Jatiningsih (2019), and Adli and Suryani (2019), concluded that leadership changes will not have any impact on auditor turnover.
According to Hidayati and Jatiningsih (2019), KAP size is the main factor in changing auditors because it is divided into 2, namely KAP Big Four and KAP outside the Big Four. The dimensions of KAP have a significant impact on reputation and superior quality and affect credibility and a high level of expertise. According to Manto and Manda (2018), Dianti (2020), and Pratama and Sudiyatno (2022), KAP size harms auditor switching. This will certainly indicate that the larger the KAP size will minimize the company to change auditors. However, Klarasati et al. (2021) concluded that KAP size cannot affect auditor switching.
Audit fees, also known as audit honoraria, refer to fees paid in exchange for audit services provided by auditors and KAPs. The contract that management and auditors must abide by is the basis for the institutional relationship between the two. In addition, the quality of the audit is also influenced by the phenomenon of audit fees, where the cooperation contract between the auditor and the lien plays an important role in determining audit fees. According to Diandika and Badera (2017), this finding shows that there is a change in auditors positively influenced by the number of audit fees. In certain situations, when audit fees are high, companies will face additional burdens that may encourage them to look for another Public Accounting Firm (KAP), with more minimal costs. The reason behind this is that companies cannot afford to pay audit fees that are too high. Meanwhile, Adli and Suryani (2019) found in their research that audit fees harm auditor changes. Even though the audit fee given is high, companies still believe that the auditor or hood they have used has an adequate understanding of the business situation at hand. Meanwhile, research by Dianti (2020), Wulandari and Suputra (2018) shows that audit fees do not affect auditor switching.
The state of financial decline is called financial distress. Financial distress can be a factor that results in a change of auditor for a company. This may be a sign that the client company is going bankrupt. When financial distress occurs, client companies change auditors or KAP because they want to maintain financial stability. This situation arises because, in conditions of financial difficulty, companies often wish to change KAP by paying lower fees (Elisabeth, 2018). Factors that influence moderation include management turnover, KAP size, and significant audit fees on auditor changes. The correlation between financial distress and auditor switching confirms that financial distress can change the effect of management turnover, KAP size, and audit fees on auditor changes.
REVIEW OF THEORY AND HYPOTHESIS DEVELOPMENT Agency Theory
This agency theory describes the correlation between company owners (principal) and company management (agent). A contract stipulates that the agent must provide services to the principal (Diandika & Badera, 2017). (Diandika & Badera, 2017). The interests of both parties are not always the same as a result, causing the problem, namely information imbalance. This information imbalance occurs due to the uneven distribution of information between the principal and the agent, which results in difficulties in monitoring and managing the principal's activities. To reduce information imbalance, one solution that can overcome this problem is to contact a third party or bias
called an independent auditor (KAP).(Mirasanti & Kartika, 2022). Independent auditors perform the function of supervising financial reports prepared by managers, which will then be audited to ensure the accuracy of the financial statements. Then, the auditor states in the form of an auditor's report.
Theory Deep Pocket
This theory is known as auditor wealth theory which is tied to high rewards and auditor independence. Large firms, also known as the Big Four, are specifically tied to incentives and wealth to ensure their independence which is not shared by ordinary firms. In this theory, Big Four auditors face higher risks than KAP outside the Big Four affiliation if they make mistakes in conveying statements or opinions in an auditor's report.(Sa'adah & Kartika, 2018).
Auditor Switching
Auditor switching is a change in the KAP or auditor that serves the client company.
Auditor switching can be mandatory or voluntary. When auditor switching is done outside the law, there is a potential for fraud by users of financial statements and external parties. Therefore, it is important to understand the factors that cause auditor switching. Some negative things companies should think about and plan carefully before doing voluntary accounting (Yunita, 2021).
Change of Management
Management turnover occurs if there is a change in the board of directors.
Management turnover is divided into two areas, namely routine and non-routine management turnover (Aprilia, 2013). Routine turnover is a change in leadership that occurs after the term of office of the board of directors ends. On the other hand, non- routine management changes are generally carried out due to considerations of company reality, when the existing management structure is unable to manage the company effectively (Wulandari & Suputra, 2013). (Wulandari & Suputra, 2018).
KAP size
KAP size is a measure to classify the size of the KAP used by the company. The size of KAP is divided into two groups, namely Big Four KAP and non-Big Four KAP. The Big Four KAP network spreads widely with various branches, generally serves large companies as clients, and has more than 30 experts in their field. Meanwhile, non-Big Four does not have branches and its clients are small companies and the maximum number of employees is 25 people. (Suryandari & Kholipah, 2019). High KAP size will increase investor confidence in the financial statements issued by the external auditor (Indarti et al, 2020; Indarti & Widiatmoko, 2021). According to client companies, auditors who are part of the Big Four KAP have qualifications that exceed the standard because these auditors have international recognition and experience.
Audit Fee
Audit fees are fees paid by companies to external auditors. The amount of the audit fee is adjusted. The honorarium received by the auditor or KAP depends on the level of complexity and scope of the audit, as well as the KAP's reputation among the public, government, and investors. The procedure for determining the audit fee involves the auditor or KAP offering the audit fee to the company by the guidelines set by the KAP.(Adli & Suryani, 2019).
Financial Distress
Financial distress is a condition when the company experiences financial difficulties the company eventually goes bankrupt This difficulty is a situation where the company's operating cash flow is not sufficient to pay short-term obligations and the
company is forced to take corrective action. (Manto & Lesmana Wanda, 2018).
Companies that have experienced financial bankruptcy are more likely to receive poor feedback from investors who no longer have confidence in the company's performance.
(Rizki Dianti, 2020)
One of the most well-known methods to predict financial distress leading to bankruptcy is Altman's Z-Score. Altman's Z-Score applies several indicators to forecast a company's financial distress. The use of the Altman model as an indicator of financial difficulty is not constant or static, but changes over time, where Altman continues to test and discover the model so that its application is not limited to manufacturing companies only and already includes non-manufacturing companies, and credit cooperative companies (Elisabeth, 2021).
Hypothesis Development
The Effect of Management Change on Auditor Switching.
According to agency theory, the reason for management changes can also arise because the company representative cannot fulfill the interests of the main party at that time. Management changes occur as a result of shareholder meeting decisions or the cessation of management at their request, so shareholders must appoint a new replacement in the position of managing director or CEO (Chief Executive Officer). If there is a change in the leadership of the company, this will encourage changes in the choice of auditors because company management will tend to look for a suitable Public Accounting Firm. Previously conducted research also shows that leadership changes affect auditor turnover (Wulandari and Suputra, 2018; Manto and Manda, 2018;
Mirasanti and Kartika, 2022). Taking into account the above explanation, a hypothesis can be formulated as follows:
H1: Management change has a positive effect on auditor switching.
Effect of KAP Size on Auditor Switching
The attempt that must be made by the company agent is to obtain audit services to evaluate the financial statements of a KAP that has a well-known auditor so that the client does not face information imbalances. In the business world, Big Four KAPs are generally considered the best audit service providers and have a good reputation (Hidayati & Jatiningsih, 2019). Based on the deep pocket theory, investors are more likely to use accounting data generated by reputable auditors because large KAPs can withstand pressure from management.
The ability possessed by auditors will reflect their performance. The level of competence and independence of auditors affects the trust of users of audited financial statements (Kholipah and Suryandari, 2019). To improve the quality of financial reports addressed to external parties as users of financial statements, companies try to find KAP institutions that have a high level of trust. In choosing the KAP, the main attention is given to the size of the company. Companies audited by KAP Big Four have a plan to continue to choose KAP Big Four over KAP which is not Big Four. However, the company will not always maintain the Big Four KAP because of the auditor rotation obligation.
Studies conducted by Manto and Manda in 2018, Hidayati and Jatiningsih in 2019, Dianti in 2020, and Pratama and Sudiyatno in 2022, found that the KAP dimension has an unfavorable impact on auditor turnover. Based on this explanation, the following hypothesis can be proposed:
H2: KAP size harms auditor switching The Effect of Audit Fees on Auditor Switching
Agency theory places greater emphasis on the formation of agreements. This theory also argues that a complex system of contracts, both written and unwritten,
serves as an effective mechanism in guiding various individuals, especially principals and agents, in decision-making.
Before establishing an audit fee, an auditor needs to gain a deep understanding of the client's business environment and the associated audit risks. If the auditor does not have an adequate understanding of the situation, this could potentially increase audit fees. When companies are dissatisfied with the audit fees paid, they may try to find a new auditor. Adli and Suryani (2019) determined that audits affect auditors. Therefore, the determination of audit fees must be agreed upon by both the client and the auditor. In certain situations, high audit fees can increase the burden on the company, so it tends to encourage companies to look for other KAPs, especially those that offer lower audit fees.
This is because the company cannot afford to pay audit fees that are too high. Similar types of research also revealed (Ddika & Badera, 2017) that audit fees affect auditor switching. Based on the description above, the hypothesis can be formulated as follows:
H3: Audit fee affects the positive auditor switching
Financial Distress Moderates the Effect of Management Change on Auditor Switching
If a company faces financial difficulties, of course, the shareholders will submit a request to hold a General Meeting of Shareholders (GMS)to supervise the new management, they believe that the old management did not overcome the financial difficulties that caused the share price to drop. It is hoped that the new management can overcome the emergence of financial difficulties in the company with the new management. Dissatisfaction with the services provided by the old auditor or KAP makes the new management do auditor switching. Based on the previous explanation, it can be stated that the hypothesis can be formulated as follows:
H4: Financial distress strengthens the influence of management turnover on auditor switching.
Financial Distress Moderates the Effect of KAP Size on Auditor Switching.
When financial distress is related to KAP size and auditor switching, companies experiencing financial problems tend to change their choice of auditor to reduce audit costs. When companies face high audit costs, they try to find smaller auditors. Taking into account the above explanation, we can formulate the following hypothesis:
H5: Financial distress strengthens the effect of KAP size on auditor switching.
Financial Distress Moderates the Effect of Audit Fee on Auditor Switching
This KAP change may occur because the audit fees offered by KAP to the company are relatively high. As a result, no agreement has been reached between the company and KAP regarding the amount of audit fees, which may encourage the company to switch to another auditor. The company changes the auditor because it is unable to meet the audit fees demanded by the Public Accounting Firm for companies that are experiencing financial difficulties. This statement is supported by Diandika and Badera's research (2017) which resulted in a significant effect. The sixth hypothesis in this study is proposed based on this description.
H6: Financial distress strengthens the effect of audit fees on auditor switching.
RESEARCH METHODS
The method applied is an empirical study whose type is quantitative research, because the data obtained and analyzed are on a statistical measurement scale. The data used is secondary data obtained through annual reports published on the IDX or the company's website. This study involves a population of manufacturing companies in the 2017-2020 period listed on the IDX. In this study, the technique applied was the purposive sampling method.
Table 1. Variable Measurement Tools and Measurements
No. Variables Operational Definition Indicator
1 Auditor Switching (Dependent
Variable)
Change of auditor (KAP) by the client company
Measured by a dummy variable. Valued 1 if there is a change of auditor. While given a value of 0 if there is no change in the auditor
2 Management Change (Independent
Variable)
Changes occur in the management or directors of a company
Measured by a dummy variable, if there is a change in management, it is assigned a value of 1, and if there is no change in leadership, it is assigned a value of 0.
3 KAP Size (Independent
Variable)
There are two groups in distinguishing the size of KAP, namely the Big Four affiliated KAP and the unaffiliated one.
Measured by its dummy variable. If the company undergoes an audit by a "Big Four" accounting firm, a value of 1 will be given to the variable. Conversely, if it is not audited by a "Big Four" accounting firm, it will take a value of 0 on that variable.
4 Audit Fee (Independent
Variable)
The size of the audit fee provided
Audit Fee = Ln (Professional fees) (Dianti, 2020)
5 Financial Distress (Moderating
Variable)
The company's condition indicates economic difficulties and potential financial failure...
The Financial Distress formula uses the Altman Z Score:
Z" = 0.717X1 + 0.847X2 + 3.107X3 + 0.420X4 + 0.998X5 Description:
Z": Z-Score value
X1: working capital / total assets X2: retained earnings / total assets X3: operating profit (EBIT) / total assets
X4: market value of equity/book value of total debt X5: sales / total assets
If Z" passes the threshold of 2.9, it is considered a "safe"
state, as a result of which the company is not exposed to financial pressure.
If 1.23 < Z" < 2.9 = the condition is "gray", it cannot determine whether a company is stable or in financial distress.
If Z" < 1.23 = the condition is "distress", then it is included in the count of financially distressed companies. (Manto &
Manda, 2018)
RESULTS AND DISCUSSION Statistical Test
Table 2. Descriptive Statistic
Based on Table 2, the auditor switching variable has a value range between 0 and 1, with a minimum value of 0 and the highest value of 1. The average value is around 0.12, while the standard deviation is 0.329. The average of 0.12 indicates that in general companies tend to rarely change auditors during the observation period.
The management turnover variable has a value range between 0 and 1, the average value is in the range of 0.38 and the standard deviation is 0.486. In this context, the average value of 0.38 indicates that in general companies tend to rarely make management changes during the observation period.
The numbers representing KAP size indicate a low of 0 and a high of 1, a mean of 0.75, and a standard deviation of 0.436. The average is 0.75, then it is concluded that in general companies are more willing to be audited by the Big Four KAP.
The audit cost variable shows a range of values between 18.77 and 29.22, with a mean value of 223.511 and a standard deviation of 194.851. The average of 233.511 can be observed that companies that decide to conduct an audit often face more audit costs than companies that do not choose this option.
The financial distress variable covers values between 0.47 and 121.98, with a mean value of around 39.98 and a standard deviation of 974.306. In this case, the average value of 39.128 indicates that most companies are not at risk of financial distress.
Model Feasibility Test
Based on the data in Table 3, it can be seen that the significance value obtained is 0.992. In this situation, the significance value shows that it has met and >0.05 (α) 5%.
Therefore, hypothesis 0 (H0) is accepted while Ha is rejected, and the conclusion is that there is no high or significant difference between the model and the observed data. This means that this model is suitable or in line with the data so that it is accepted and used for further analysis.
Overall Model Value
Comprehensive testing of the model is carried out by comparing the initial -2 Log Likelihood (Block Number = 0) with the final -2 Log Likelihood (Block Number = 1).
Based on Table 4, it is known that the initial -2LL is 200.500, while the final -2LL has a value of 177.337. There was a decrease of 23.163, which indicates that adding
Variables N Minimum Maximum Mean Std.
Deviation
Auditor Switching 260 0 1 0.12 0.329
Change of
Management 260 0 1 0.38 0.486
KAP size 260 0 1 0.75 0.436
Audit Fee 260 18.77 29.22 223.511 194.851
Financial Distress 260 0.47 121.98 39.128 974.306
Valid N (listwise) 260
Table 3. Hosmer and Lemeshow Test
Step Chi-square df Sig.
1 1.515 8 0.992
independent variables to the regression model improves the fit of the model with the existing data.
Determination Coefficient Test
Table 5 shows that the Nagelkerke R Square value obtained a score of 0.118, indicating that 11.8% of the variation in the dependent variable for this study can be explained by the independent variables used. Furthermore, 88.2% of other variations are not in this study. It is then concluded that there are significant limitations in the variation of the independent variables in this study.
Classification Matrix Test
Table 6, shows the statistical percentage correct value of 87.7%, this shows that overall 87.7% of the sample can be predicted to do auditor switching. The high percentage of the clarification table (close to the percentage value of 100%). Supporting the substantial similarity between the predicted data and the observation data illustrates the accuracy in logistic regression is more effective.
Hypothesis Test
Significance Test of Logistic Regression
The logistic regression test shows a logistic regression test significance level of 0.00. Based on the comparison of significance <0.05, the conclusion is that the existing model meets the established criteria.
Moderating Regression Analysis (MRA) Test
The MRA test is used to test the relationship between the dependent variable and the dependent variable, analysis is needed by considering factors that can strengthen or weaken the relationship. Based on the significance level <0.05, the model in this study is appropriate for use.
Table 8. MRA Test Table 6. Clarification Test Observed
Predicted
Auditor Switching Percentage Correct not do do
Step 1
Auditor Switching
not do 228 0 100
do 32 0 0
Overall Percentage 87.7
Table 7. Variables in the Equation
B S.E. Wald df Sig. Exp(B)
Change of Manageme nt
0.04 0.419 0.009 1 0.924 1.041
KAP size -1.493 0.407 13.465 1 0.000 0.225 Audit Fee -0.068 0.114 0.355 1 0.551 0.934 Financial
Distress 0.006 0.013 0.195 1 0.658 1.006 Constant 0.431 2.458 0.031 1 0.861 1.538
Unstandardized Coefficients
Standardized
Coefficients t Sig.
B Std. Error Beta
(Constant) -0.097 0.315 -0.308 0.758
Management
Change*Financial Distress -0.069 0.026 -0.37 -2.689 0.008 KAP Size*Financial Distress 0.049 0.019 0.274 2.559 0.011 Audit Fee*Financial Distress -0.008 0.004 -5.158 -2.297 0.022 Based on the results of the hypothesis test attached in Tables 7 and 8, explain that : The Effect of Management Change on Auditor Switching
Based on the results of the regression analysis in Table 7, it is found that the change in leadership has a coefficient of 0.04 and the significance level is 0.924> 0.05. These findings confirm that management changes have no impact on auditor turnover, so hypothesis H1 can be rejected. Based on the results of the analysis, it can be seen that during the study year, there were several manufacturing companies that experienced changes in management or directors. Interestingly, these companies chose to use the same KAP as the previous management. So, this indicates that the auditor's views and previous management policies are still in line with the latest management policies, which are successfully achieved through an agreement between the two.
These results are in line with research (Adli & Suryani, 2019), (Hidayati &
Jatiningsih, 2019) (Klarasati, Inayati, Hariyanto, & Setyadi, 2021) (Halim, 2021) found that there was no relationship between management changes and auditor switching. This finding shows that even though companies often change management, this does not always have an impact on companies’ change auditors. Companies generally tend to maintain audit services from the same public accounting firm as used by previous management. In addition, one of the other reasons is that companies use audit services from one of the top four accounting firms, which makes most companies continue to maintain cooperation with these firms.
The Effect of KAP Size on Auditor Switching
The regression analysis results show that the coefficient number for KAP size is - 1.493 with a significant level of 0.00 <0.05. So, this finding indicates that the size of KAP has an impact on auditor switching, so hypothesis H2 is accepted. Companies usually seek to increase investor and stakeholder confidence in their financial statements by finding a KAP that has a high reputation. Thus, companies hope to increase the level of trust in their financial statements presented. When companies have applied the services of the Big Four, maybe they will not look for other auditors and continue to work with KAP, the lower the probability of the company changing auditors. This conclusion is in line with (Hidayati & Jatiningsih, 2019) and (Manto & Manda, 2018).
The Effect of Audit Fees on Auditor Switching
The results of the regression analysis illustrate that the audit fee coefficient is - 0.068 and the significance level is 0.551, and > 0.05. This finding indicates that there is no effect of audit fees on auditor switching, so H3 is rejected. This fact confirms that the amount of audit fees cannot influence the company's decision to change its auditor. The audit fee is usually determined before the audit process is carried out and has been approved by the company leadership. Accordingly, the amount of audit fees has no impact on auditor switching, as long as the auditor meets the qualifications set by the company. This finding supports the results of Ikmala's research (2018), which concluded that audit fees are unable to significantly influence auditor switching.
Financial Distress Moderates the Effect of Management Change on Auditor Switching
The results of the MRA test show that the significance value is 0.008 <0.05. So financial distress and management change influence auditor switching, so H4 is accepted.
Companies that are troubled by finance mostly change their management from old to new, with the change of new management there will be new policies in a company to overcome financial difficulties. New management will do auditor switching to maintain the credibility of the company's financial statements to attract new investors.
Research conducted (Rosita, 2019) concluded that in a situation of company financial difficulties, stakeholders will generally hold a meeting, namely the General Meeting of Shareholders (GMS) to replace the management. They hope that the new management can overcome these financial problems. In addition, the presence of new management or a new CEO will also have an impact on company policy-making. In addition, dissatisfaction with the previous auditor or KAP is an important reason behind the new management's decision to change auditors or auditor switching.
Financial Distress Moderates the Effect of KAP Size on Auditor Switching
The MRA test results show that the significance value is 0.011 <0.05. So financial distress with KAP size has an influence on auditor switching in other words H5 is accepted. Companies that use Big Four KAP services will change auditors when the company is unhealthy. When the company is experiencing financial/financial problems, the company will change to a smaller KAP with minimal audit fees compared to the previous KAP. Companies should be diverted to increasing capital rather than incurring large costs to replace the new KAP in the audit process. This action can help improve the financial condition of companies that are facing problems, such as a financial crisis.
Ikmala (2018) reveals that collaboration with the big four KAP will reduce the need to replace KAP. When companies face financial challenges, they generally will not change auditors because they have collaborated with accounting firms with promising reputations.
Financial Distress Moderates the Effect of Audit Fee on Auditor Switching
The result of the MRA test found that the significance number is 0.022, which shows the number <0.05. So, the conclusion is that there is a relationship between financial distress and audit fees with auditor switching. This means that H6 can be accepted.
Organizations facing financial difficulties will feel burdened by expensive audit fees, so they choose to change auditors with public accounting firms that offer cheaper audit fees.
The results of this finding are in line with Diandika & Badera, (2017), which shows that financial difficulties can affect the relationship between examination fees and auditor turnover. Auditor turnover can be considered as a clue that the company is unable to pay the fees charged by KAP when conducting an examination.
CONCLUSION
This study examines the effect of financial distress as a factor influencing management changes, KAP size, and audit fees due to auditor replacement. The dependent variable in this study is auditor switching. The independent variables in the study are management change, KAP size, and audit fees. The moderating variable is financial distress. Theories that are considered relevant in explaining this research include agency theory and deep pocket theory. Concerning using agency theory which states that there are differences in interests between the principal and the agent.
Meanwhile, the deep pocket theory states that investors are more likely to use accounting data produced by reputable auditors because large KAPs can withstand pressure from management. This research focuses on companies in the manufacturing sector and is listed on the IDX in the 2017-2020 timeframe. The purposive sampling
method was used to collect a sample of 260 companies. The results of the data analysis and discussion above show that KAP Size has a significant effect on Auditor Switching while Management Change and Audit Fee do not affect Auditor Switching. Financial distress strengthens management turnover, KAP Size, and Audit fees on auditor switching.
Based on the results of the analysis of the conclusions above, several suggestions can be made for further research and interested parties as follows. First, further research should increase the sample or divide the research object, so that the data used will be more. Second, researchers can add other variables to the independent variables as well as moderation variables. Third, the results of this study can be used for reference by stakeholders in motivating management to retain or change auditors. The importance of understanding management policies will have an impact on the quality of financial statements and the company's reputation. Fourth, it is recommended that companies conducting auditor switching must be based on common interests, not just for one-sided benefits. When the company experiences losses, management should manage its finances well and not do auditor switching to cover up mistakes in managing the company.
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