Does Auditor Tenure Reduce Audit Quality?

Abstract

Reduced auditor independence and the rise of corporate accounting manipulations have caused trust of the users in audited financial statements to begin to decline, so users of financial statements are questioning whether public accountants are independent parties. This research issue is related to the Decree of the Minister of Finance No. 17 in 2008 about public accountant services. Giving attestation services, in the form of financial statements about an entity, are conducted by the audit firm for no longer than 6 consecutive fiscal years and by a public accountant for 3 consecutive fiscal years at the longest. The purpose of this research is to examine empirically the influence of auditor tenure on audit quality. Auditor tenure is measured as the length of the auditor-client relationship. Audit quality is measured by the propensity of auditors to issue a going-concern opinion. This study uses a sample of firms listed on the Indonesia Stock Exchange during the 2003-2008 period. Research analysis uses logit model to measure the effect of auditor tenure on the auditors' propensity to publish a going-concern opinion. The hypothesis which states that the length of auditor tenure influences negatively the propensity of auditors to issue a going-concern opinion is statistically supported. This research is expected to provide empirical evidence about the importance of limiting of the auditor-client relationship.Abstrak: Berkurangnya independensi auditor dan maraknya manipulasi akuntansi korporat membuat kepercayaan para pemakai laporan keuangan auditan mulai menurun, sehingga para pemakai laporan keuangan mempertanyakan eksistensi akuntan publik sebagai pihak independen. Isu penelitian ini berkaitan dengan peraturan Menteri Keuangan No. 17 tahun 2008 tentang jasa akuntan publik. Pemberian jasa atestasi atas laporan keuangan dari suatu entitas yang dilakukan oleh Kantor Akuntan Publik paling lama untuk 6 (enam) tahun buku berturut-turut dan oleh seorang Akuntan Publik paling lama untuk 3 (tiga) tahun buku berturut-turut.Tujuan penelitian ini adalah untuk menguji secara empiris pengaruh tenur auditor terhadap kualitas audit. Tenur auditor diukur dengan lamanya hubungan auditor dengan klien. Kualitas audit diukur dengan kecenderungan auditor mengeluarkan opini going concern. Penelitian ini menggunakan sampel perusahaan yang terdaftar di Bursa Efek Indonesia perioda [2003][2004][2005][2006][2007][2008]. Analisis penelitian Junaidi et al. 304Keywords: audit quality; auditor tenure; going concern; reputation menggunakan model logit untuk mengukur pengaruh tenur auditor pada kecenderungan auditor mengeluarkan opini going concern. Hipotesis yang menyatakan bahwa terdapat pengaruh negatif tenur auditor pada kecenderungan auditor mengeluarkan opini going concern secara statistik didukung. Penelitian ini diharapkan dapat memberikan bukti empiris tentang pentingnya pembatasan hubungan auditor dengan klien.

Does Auditor Rotation Increase Auditor Independence?

“…Artificial rotation is a condition in which, conceptually, there has been a change of auditor so that the relationship between the audit firm and the client ends, but in fact such a relationship is still ongoing (Junaidi et al 2012). Tenure is suspected of breaking the auditor's independence, since over a long time period there may be over-familiarity between the client and the auditor (Mautz and Sharaf, 1961).…”

“…Meanwhile there is some research which proves that auditors' tenure brings negative effects to the audit's quality (Mai et al 2008;Nagy 2005;Mansi et al 2004;Junaidi 2012). Johnson et al (2002) do not find evidence that auditor rotation, when done to anticipate an auditor's tenure, increases the quality of the financial reports.…”

The effects of auditor reputation, financial condition, and potential intensive economy on artificial auditor rotation

“…Junaidi et al (2012Junaidi et al ( , 2014 tested the effects of auditor tenure on audit quality which is measured by the tendency of auditor to give going concern opinion. The results of this research show that the longer the auditor tenure is, the less independent the auditor will be.…”

“…In Indonesia, there has been regulation on mandatory auditor rotation; however, the phenomenon of artificial auditor rotations still exists. In this case, artificial rotation shows a condition in which, conceptually, there has been a change of the auditor, but substantially the relationship between the auditor and the client is still going on (Junaidi et al 2012, Junaidi 2014. That condition is suspected that either the auditor or the client tries to keep their working partnership.…”

“…Jackson et al (2008) and Carey and Simnett (2006) find that there are negative relations between audit partner tenure and the tendency of going concern opinion giving. Junaidi et al (2012Junaidi et al ( , 2014 shows that auditor tenure has negative effect on the tendency of going concern opinion giving. It shows that the longer the duration of auditor-client relationship, the less independent the auditor will be.…”