The Auditor Tenure And The Qualiqv Of Audit: Mandatory Audit Firm Rotation And Audit Quality Evidence From The Manufacturing Firms Listed In Indonesia Stock Exchange (IDX).
TgE AI]DITOR TENIIRE AND TgE QUALITY OF AI'DIT:
MANDAMRY AI'DIT IIN,M ROTATION AND ATJDIT
Evid€m. frou
t!.
QUALITY
Mrrrftctudog ltrms Lilted in Irdor€rtr
Stoct
Elchirs. (IDx)
SKRIPSI
SrbElttcd t! prndd fdtiuEclt ofa[. FqqiFE !a for
Und.rsndu.t d.sn.h.cononlc.
Evl
SYLIIANDY N
ID Nod. 0a153055
ACCOIJNTING DEPARTMENT
FACULTY OF ECONOMICS
ANDALAS UNTVERSITY
t009
'\tsTR Cl'
lhe Audiror Tenure And lhe Quah! OlAudir Mandalory Audil Fim R.hrion
An'l Audir Qtrdlity Evidence Fmm Thc Mantrlaclurir8 rnm\ l.i{ed Id l.doncsia
Stek Exchangc (ldx)
SvlfianJvN
This iudv dsc$es *hether mandarory aldit fim roration efiect audir
dir bv
qualit' Audit fim rotarion renccs by the ludiror tenure md qualitt
quaiiry ol caming. Qulli! olsmings rcfleds by discttiom'rr ..cruil- hrsed on
previous Es€rh thri uses a.cruals ro proxy for rhe qoiliry oreaminss Funhcr, ll
audn ttualir)_ h rholghr ol rs coisinining exteme mdnqcmc decisios in rhe
mmddory tobllon mav
EFnLng otlinai.i.lp.rformance, rhcsc dulrs sugees
a.cruals are
quaLit.
tqarch
the
value
ofdiscEtionar}
In this
Lead io lo{sr audit
positive
discreiionarl acctuah
dividcd into three, .bsolute, negative, and
Nesarive disdionarl rccruah sbo* a positive rcl.rionship*ilh AudirorTeiurc
rn,l rhe tusr.fla.iables. Which mean auditee more coneflativevirh the audno6
rhat have bccn lone fthrionship with them Auditeesrcndlo be more carelul a.d
chms to Jecrcas iheir incohc that rcsul! in ncgativ. dhcEtionary moruals
Posnive discrtrionary ecrual shows negative Elationship wirh absolute volue ol
Discretionary adctuals.It means thar rhe lonCer audlbrtenuro rhe lowei p.sirive
dhcretionar] acctuah. In slm. thcrc h negative reLationship bcrween AbsoLute
Dkcrerionary Acctoals and Audi|r Tcnurc.lt means that the highcr nunberlhe
conpanies rr.ined lhe eme addnor (longer tenure) the lowcr the value ol
abslute disrttion.ry accrals. Thc lower value of AbsdLurc dscretiora4
accruals retecLs the hisner eoming qualiry or rilh simple conclusion. audil
quality is incElr d the atrdilor tenure incrmsc
of
&
Kltrutr trditd lenvc .a
kss quali, audit t!,utiq ndndatary.atrti
CIIAPTER
'lhe collaps of Enon
ud
I
its audiior, Afrhut AtdeEn. quickLy led
regrlatoE rorldwidc ro consid€r dilIerenl dechankm for enhan.ing audiloi
indeFendeDt
Pdicular anention
has been given 10 apects
Elationsiip 6at could inpaci on audnor indep.nds
q
ol lhe ludilor{lient
whedEr in fact or in
hd kdnidn0lly
opposed lhc implemenlarion
ol ary nand.lory €arlarory EquiFmeni for audn
lm b oturc allq a 3ive0
fim
wauld rtqute conpuies lo
app@Ence. lhe aldiring prcfession
pedod
oft
nuE. A sysren ol nudalory audit
draie their audit fim, heftaner called audiio( penodically Lised cmp€niB in
Ihly
ond
a@il ue
require
b
otale drei! auditor ewry nine
dd tire yes
psperively (Jscksn er dl 2006). TeDpo online (April 166 2007)
Sin8apoE requiEd iB bnnk to iolaie lheir
2003i in the
alons in tnc
ffe
Indonesia
ex6ml audilor every frve yets
yee South Kore. dacd rudilor roralion is mandato.y.
nel yee
(2001) Lilhumia also
sttlc a dddalory
auditor
iisl.d compsies at Febddi 5, 2003, E{uired to
indepe.denr audiror evcry six
@rd
yea6 lhis
since
Coe
rclalio. ror
sllle
their
is rhe new polict sincs b€loc they
w.re rcquiEd to otite ev€ry tire ysE. Tie fiNt rule lhal EquiEd coftpsics to
mrate dreir audiror
m
b€
fohd in KeprlL@ Meten Kewgn Rqtblik
lhat
Prbli* 30 Septentd
Ehta.A J6o
'23/KMK.A6/20A2
200.?. Ir requiEd @np6nies b rotate their sudito! every five yed. Bur this olc
Itulomtja Nomt
ndr ycr implsment€d until 2004. A one year toleFnce
yd
and 2001 is consideGd as the rFnsition
El'iied
same
ludiror
u.t
the
ya6
ended
Xtt@gn tupublik
reputua
^lert.ti
knta.g J6o,4tuntan Publik
2
l
4enal\
o*
$ill allows lo us
200l Furtncmor
Indoresia
have
cxplained in
N.nor 359/r.MK 06D0Aj
2AA3
Mulldi
lndneoti
&coldad b lndoneia. Tte p.licy h
lounds in
Reenrly thc Indonesio Miniery
publhheJ a nes nrlc olpublic
gived by the naularor
Ar 2001 onpanies that
rhc sme ludnor for live or inoE ]eds in a
Ffricesolrhe
the
{6
ol Finsce,
Sri
tle P.rtumn Menlei XetdnAon IPMK) No. l1/PMK.1ut2Ut3
t Fehwi
2AAB
abou! public accounum sdvices. The newpolicy is $e consummarionlfp€vious
pdiicl thar w6 considedd no lo.eer sufndient *irh thc eeln sndition
(Kep
L'h
Mentj Keunsun (KMK) No
359/KUK0 2Aa3). Onc
123/K,UK 0d20A2
ud
KMK No
.f nuy Earons lnd €lui€ rhc cslablGhing of lhis
policy wls theE are somc cha4es in the aatiarion df public aeoM60i. BefoEeach public accounht oas Soup€d in the
lndoncsia-Kompaftemen
In{irrr Aklrirn
Pu hl
asftidion ellcd
Akunb tublik. Bul
now, lhey
rhc public
&comrdt
p6fsion.]lF
aftbpr ro redue the ti€lts ro audilor
timilianq
The
torhecliented
indep€nde.ce
AlubEn
gouped lndcr thc
ik Indonesi..
Thcsc 66tion issue 6mes to the surlilce
hsron
re
ltth
bc€us society hare k,n Ihen
Equircmenl to 6raie audibB h
independedce Largely aising ltom
co.cen is that oler the long tem,
Ioscs
in
rhe
dditor
bk orh€. honesr disinrere$cdness
cm deMse os niendships develop,
b€cooes too
. For
lhc
closely idenlified *ith thc inleEsisolclienr managenen! rhc
clc
cwplq aldilJr
ditor beconcs
lm
tdn pls b$.nes
CHAI"If,RV
CONCI
JSION ANII
LIMITATION
Tlrir iesca*h invenigdes *h.1her mandarory audii
auJirquali.y. Auditllm roldioi
.l
qualil)
'.hr,u i
Efl-r
'p
tic.seF b. ilr'dF.rc'on-^ r.ri
rhc ralue of absolutc
thi.ed
di$retionlry
quiily
G
Thc main issue rhal
qornd JF
. i
incre
cond
&ruak
Th. low.rvaluc olabsoluh
as tho audiror bnure
up with tl,is aldiror
, oependen
qMli{! is.lleged
auditor h
b
b€ lowcr in the
ie.
'
f.vor ol
a
is that rhe
bin"J h( i'n.
n
BL' ir;.r
inensideBtion For ekmplc.
of$c aRliror4lienl
Elarionship. Audn
eely }ea6 olrltc ElarionshiP btc,u$ rhc
urlimlliarenh cclie.fs buei'!s,
'i hose in
simple
inc*ise (Hl_rejsredl
r d, r 'r!,T-xron'e1'? 'nr.rdlrdrquo lredu 'i
indcpcidence is nor (hc only issuerhar n.cds to pur
sifi
muiion problcm
oat"
'uJi'oll|'c
audir qdaliq is lo*er in rhc carly yeam
ncsrliYu
dJG0 T I' Pir.
'd.o'
rhd smc auditor (lon-qer Gnuto)
dncEtionrr] accruals Eflecri thc highcr eanirg qualiq Or
coi.Lusion. indit
cfrcct
lnd rudir qualiry bv
earning Ovenll, this Esdch tuund rha! $cre is a
$ar rhc hi8her numbcr rhc conpanies
fie louer
by rhc audiror rcnute
fim srario
op$ariors, sldems. conrsls,.nd
mand&t) cha4c of
vies by claimin* rhat audit qualit! dcrcriomtcs
the audii
s
fim oltcn
dclcnd
audit enu.e incrcass
$en
b€eus
rhc rclotlonshipbervcctr rhe auditor dnd lhe client bfromes ttu stiict atrd rhe
T. Ro. Jooh*a rtn.. 2007. TIe Elleci of
Fim Rctrtion .n Audil Qualiry: Evidence flon,
M.d.ct. wtt stn 0n d.n.21" 2009).
S.. Byune
Ilamb€L E. Michae and Linda Snnh Bamber.2003. D.ccmber 2003 Discussion
ol 'Msd o!- Addir-Padner Rolatiotr, ALdn QualirJ_ and Market
Perccption: Flvidencc
l]..!sm.!!!t (March, 64,
lio} t"i\tan-
N Stem 2000
Acctuak Models and Audir Qualificarnrn\'
Banor, Eli, IerdinMd A 8ul, Jldy S.L. Tsui rnd Llonad
Dkcretionary
\sv $m rum rMatuh
caremn- Mara Annalisa Prencite,
and Auditor Chanee:
lnpmveAudirQualit)?.
lrd
20r u)
and Marco
Tbfrbena. 2008
t)rrs ManJarory Auditor
r||t stn .onr lMqLh, 3 f
Carc.ll.. Joeph V. a.d Albcd
FindcialRcponing
Casie.ella
Jcr, aarry l-ewis. la.qucline Rcck. $d SdDnne Lo{ensohn. 2007
An Emoirical Inveeirarion ot Auditor R.hrion Rcquircnents.
tryL.!!ta!!!l I ttteh, I (lr, 2 009).
M. C. and K@ Wdn Lai 2005. Audir Repod lig. Audn Panrer
ndari.n d AuJir Fim RoEtion: Lividcnce fiom AuiElia
Crheuk. Leo
Chi. Wdchun. Huichi tludg. aM Yichuo t-iao 2004. Thc Effsr ol Auditor
Tenure lnd Clienl lmpoturce on Discftrion,ryAeruah Fvidence
liom Audn Prnner Basd Dara tr 'l|i*an. nw.'sm.on lvd.h,
Chung, Hyces@. 200,1. Mandarory Audltor Rohri.n and Audir Qualitv: Ai
Emp.icd Invc$ig4ion ol Audiror Dcsigmiion Policy in Korca.
n\ti srn.roa l,t@h J11,2AA9)
Chu(h
.
cFbn-.
BryaD K. md Pina
Ro.dn'n.
Zh$s. 2006 A Modcl ol Mandalory Audiror
ur'!)!!tpL
lMar.h, dt" 2009)
Aatud D$i3ht 200,1. An Empiricat lnveslieation of the Ellcc6 ol
Eamings Prediotabiln' dnd A0dnor{lien! RelarionshiPs on the BoM
Cret)r hatt€t. ew\| :in.@t lMath, 3l" 20t)9)
Sd. 20!3. Audilor 1enu.e and rhs AbiLitv to Meer o'
f .wdst wvj'thi.n lvarch, l l'' 2009).
MANDAMRY AI'DIT IIN,M ROTATION AND ATJDIT
Evid€m. frou
t!.
QUALITY
Mrrrftctudog ltrms Lilted in Irdor€rtr
Stoct
Elchirs. (IDx)
SKRIPSI
SrbElttcd t! prndd fdtiuEclt ofa[. FqqiFE !a for
Und.rsndu.t d.sn.h.cononlc.
Evl
SYLIIANDY N
ID Nod. 0a153055
ACCOIJNTING DEPARTMENT
FACULTY OF ECONOMICS
ANDALAS UNTVERSITY
t009
'\tsTR Cl'
lhe Audiror Tenure And lhe Quah! OlAudir Mandalory Audil Fim R.hrion
An'l Audir Qtrdlity Evidence Fmm Thc Mantrlaclurir8 rnm\ l.i{ed Id l.doncsia
Stek Exchangc (ldx)
SvlfianJvN
This iudv dsc$es *hether mandarory aldit fim roration efiect audir
dir bv
qualit' Audit fim rotarion renccs by the ludiror tenure md qualitt
quaiiry ol caming. Qulli! olsmings rcfleds by discttiom'rr ..cruil- hrsed on
previous Es€rh thri uses a.cruals ro proxy for rhe qoiliry oreaminss Funhcr, ll
audn ttualir)_ h rholghr ol rs coisinining exteme mdnqcmc decisios in rhe
mmddory tobllon mav
EFnLng otlinai.i.lp.rformance, rhcsc dulrs sugees
a.cruals are
quaLit.
tqarch
the
value
ofdiscEtionar}
In this
Lead io lo{sr audit
positive
discreiionarl acctuah
dividcd into three, .bsolute, negative, and
Nesarive disdionarl rccruah sbo* a positive rcl.rionship*ilh AudirorTeiurc
rn,l rhe tusr.fla.iables. Which mean auditee more coneflativevirh the audno6
rhat have bccn lone fthrionship with them Auditeesrcndlo be more carelul a.d
chms to Jecrcas iheir incohc that rcsul! in ncgativ. dhcEtionary moruals
Posnive discrtrionary ecrual shows negative Elationship wirh absolute volue ol
Discretionary adctuals.It means thar rhe lonCer audlbrtenuro rhe lowei p.sirive
dhcretionar] acctuah. In slm. thcrc h negative reLationship bcrween AbsoLute
Dkcrerionary Acctoals and Audi|r Tcnurc.lt means that the highcr nunberlhe
conpanies rr.ined lhe eme addnor (longer tenure) the lowcr the value ol
abslute disrttion.ry accrals. Thc lower value of AbsdLurc dscretiora4
accruals retecLs the hisner eoming qualiry or rilh simple conclusion. audil
quality is incElr d the atrdilor tenure incrmsc
of
&
Kltrutr trditd lenvc .a
kss quali, audit t!,utiq ndndatary.atrti
CIIAPTER
'lhe collaps of Enon
ud
I
its audiior, Afrhut AtdeEn. quickLy led
regrlatoE rorldwidc ro consid€r dilIerenl dechankm for enhan.ing audiloi
indeFendeDt
Pdicular anention
has been given 10 apects
Elationsiip 6at could inpaci on audnor indep.nds
q
ol lhe ludilor{lient
whedEr in fact or in
hd kdnidn0lly
opposed lhc implemenlarion
ol ary nand.lory €arlarory EquiFmeni for audn
lm b oturc allq a 3ive0
fim
wauld rtqute conpuies lo
app@Ence. lhe aldiring prcfession
pedod
oft
nuE. A sysren ol nudalory audit
draie their audit fim, heftaner called audiio( penodically Lised cmp€niB in
Ihly
ond
a@il ue
require
b
otale drei! auditor ewry nine
dd tire yes
psperively (Jscksn er dl 2006). TeDpo online (April 166 2007)
Sin8apoE requiEd iB bnnk to iolaie lheir
2003i in the
alons in tnc
ffe
Indonesia
ex6ml audilor every frve yets
yee South Kore. dacd rudilor roralion is mandato.y.
nel yee
(2001) Lilhumia also
sttlc a dddalory
auditor
iisl.d compsies at Febddi 5, 2003, E{uired to
indepe.denr audiror evcry six
@rd
yea6 lhis
since
Coe
rclalio. ror
sllle
their
is rhe new polict sincs b€loc they
w.re rcquiEd to otite ev€ry tire ysE. Tie fiNt rule lhal EquiEd coftpsics to
mrate dreir audiror
m
b€
fohd in KeprlL@ Meten Kewgn Rqtblik
lhat
Prbli* 30 Septentd
Ehta.A J6o
'23/KMK.A6/20A2
200.?. Ir requiEd @np6nies b rotate their sudito! every five yed. Bur this olc
Itulomtja Nomt
ndr ycr implsment€d until 2004. A one year toleFnce
yd
and 2001 is consideGd as the rFnsition
El'iied
same
ludiror
u.t
the
ya6
ended
Xtt@gn tupublik
reputua
^lert.ti
knta.g J6o,4tuntan Publik
2
l
4enal\
o*
$ill allows lo us
200l Furtncmor
Indoresia
have
cxplained in
N.nor 359/r.MK 06D0Aj
2AA3
Mulldi
lndneoti
&coldad b lndoneia. Tte p.licy h
lounds in
Reenrly thc Indonesio Miniery
publhheJ a nes nrlc olpublic
gived by the naularor
Ar 2001 onpanies that
rhc sme ludnor for live or inoE ]eds in a
Ffricesolrhe
the
{6
ol Finsce,
Sri
tle P.rtumn Menlei XetdnAon IPMK) No. l1/PMK.1ut2Ut3
t Fehwi
2AAB
abou! public accounum sdvices. The newpolicy is $e consummarionlfp€vious
pdiicl thar w6 considedd no lo.eer sufndient *irh thc eeln sndition
(Kep
L'h
Mentj Keunsun (KMK) No
359/KUK0 2Aa3). Onc
123/K,UK 0d20A2
ud
KMK No
.f nuy Earons lnd €lui€ rhc cslablGhing of lhis
policy wls theE are somc cha4es in the aatiarion df public aeoM60i. BefoEeach public accounht oas Soup€d in the
lndoncsia-Kompaftemen
In{irrr Aklrirn
Pu hl
asftidion ellcd
Akunb tublik. Bul
now, lhey
rhc public
&comrdt
p6fsion.]lF
aftbpr ro redue the ti€lts ro audilor
timilianq
The
torhecliented
indep€nde.ce
AlubEn
gouped lndcr thc
ik Indonesi..
Thcsc 66tion issue 6mes to the surlilce
hsron
re
ltth
bc€us society hare k,n Ihen
Equircmenl to 6raie audibB h
independedce Largely aising ltom
co.cen is that oler the long tem,
Ioscs
in
rhe
dditor
bk orh€. honesr disinrere$cdness
cm deMse os niendships develop,
b€cooes too
. For
lhc
closely idenlified *ith thc inleEsisolclienr managenen! rhc
clc
cwplq aldilJr
ditor beconcs
lm
tdn pls b$.nes
CHAI"If,RV
CONCI
JSION ANII
LIMITATION
Tlrir iesca*h invenigdes *h.1her mandarory audii
auJirquali.y. Auditllm roldioi
.l
qualil)
'.hr,u i
Efl-r
'p
tic.seF b. ilr'dF.rc'on-^ r.ri
rhc ralue of absolutc
thi.ed
di$retionlry
quiily
G
Thc main issue rhal
qornd JF
. i
incre
cond
&ruak
Th. low.rvaluc olabsoluh
as tho audiror bnure
up with tl,is aldiror
, oependen
qMli{! is.lleged
auditor h
b
b€ lowcr in the
ie.
'
f.vor ol
a
is that rhe
bin"J h( i'n.
n
BL' ir;.r
inensideBtion For ekmplc.
of$c aRliror4lienl
Elarionship. Audn
eely }ea6 olrltc ElarionshiP btc,u$ rhc
urlimlliarenh cclie.fs buei'!s,
'i hose in
simple
inc*ise (Hl_rejsredl
r d, r 'r!,T-xron'e1'? 'nr.rdlrdrquo lredu 'i
indcpcidence is nor (hc only issuerhar n.cds to pur
sifi
muiion problcm
oat"
'uJi'oll|'c
audir qdaliq is lo*er in rhc carly yeam
ncsrliYu
dJG0 T I' Pir.
'd.o'
rhd smc auditor (lon-qer Gnuto)
dncEtionrr] accruals Eflecri thc highcr eanirg qualiq Or
coi.Lusion. indit
cfrcct
lnd rudir qualiry bv
earning Ovenll, this Esdch tuund rha! $cre is a
$ar rhc hi8her numbcr rhc conpanies
fie louer
by rhc audiror rcnute
fim srario
op$ariors, sldems. conrsls,.nd
mand&t) cha4c of
vies by claimin* rhat audit qualit! dcrcriomtcs
the audii
s
fim oltcn
dclcnd
audit enu.e incrcass
$en
b€eus
rhc rclotlonshipbervcctr rhe auditor dnd lhe client bfromes ttu stiict atrd rhe
T. Ro. Jooh*a rtn.. 2007. TIe Elleci of
Fim Rctrtion .n Audil Qualiry: Evidence flon,
M.d.ct. wtt stn 0n d.n.21" 2009).
S.. Byune
Ilamb€L E. Michae and Linda Snnh Bamber.2003. D.ccmber 2003 Discussion
ol 'Msd o!- Addir-Padner Rolatiotr, ALdn QualirJ_ and Market
Perccption: Flvidencc
l]..!sm.!!!t (March, 64,
lio} t"i\tan-
N Stem 2000
Acctuak Models and Audir Qualificarnrn\'
Banor, Eli, IerdinMd A 8ul, Jldy S.L. Tsui rnd Llonad
Dkcretionary
\sv $m rum rMatuh
caremn- Mara Annalisa Prencite,
and Auditor Chanee:
lnpmveAudirQualit)?.
lrd
20r u)
and Marco
Tbfrbena. 2008
t)rrs ManJarory Auditor
r||t stn .onr lMqLh, 3 f
Carc.ll.. Joeph V. a.d Albcd
FindcialRcponing
Casie.ella
Jcr, aarry l-ewis. la.qucline Rcck. $d SdDnne Lo{ensohn. 2007
An Emoirical Inveeirarion ot Auditor R.hrion Rcquircnents.
tryL.!!ta!!!l I ttteh, I (lr, 2 009).
M. C. and K@ Wdn Lai 2005. Audir Repod lig. Audn Panrer
ndari.n d AuJir Fim RoEtion: Lividcnce fiom AuiElia
Crheuk. Leo
Chi. Wdchun. Huichi tludg. aM Yichuo t-iao 2004. Thc Effsr ol Auditor
Tenure lnd Clienl lmpoturce on Discftrion,ryAeruah Fvidence
liom Audn Prnner Basd Dara tr 'l|i*an. nw.'sm.on lvd.h,
Chung, Hyces@. 200,1. Mandarory Audltor Rohri.n and Audir Qualitv: Ai
Emp.icd Invc$ig4ion ol Audiror Dcsigmiion Policy in Korca.
n\ti srn.roa l,t@h J11,2AA9)
Chu(h
.
cFbn-.
BryaD K. md Pina
Ro.dn'n.
Zh$s. 2006 A Modcl ol Mandalory Audiror
ur'!)!!tpL
lMar.h, dt" 2009)
Aatud D$i3ht 200,1. An Empiricat lnveslieation of the Ellcc6 ol
Eamings Prediotabiln' dnd A0dnor{lien! RelarionshiPs on the BoM
Cret)r hatt€t. ew\| :in.@t lMath, 3l" 20t)9)
Sd. 20!3. Audilor 1enu.e and rhs AbiLitv to Meer o'
f .wdst wvj'thi.n lvarch, l l'' 2009).