Authors : Roland Akuoko-Sarpong; Stephen Tawiah Gyasi; Hannah Affram

Volume/Issue : Volume 9 - 2024, Issue 8 - August

Google Scholar : https://tinyurl.com/2xvvhbv4

Scribd : https://tinyurl.com/2vaxxc48

DOI : https://doi.org/10.38124/ijisrt/IJISRT24AUG1058

Note : A published paper may take 4-5 working days from the publication date to appear in PlumX Metrics, Semantic Scholar, and ResearchGate.

Abstract : Audit quality refers to the accuracy and reliability of audit reports issued by auditors. It is influenced by various factors related to auditors, audit firms, and the regulatory environment. This study aims to examine the key determinants of audit quality with a focus on auditor independence, firm size, and regulatory oversight. Prior studies have documented mixed evidence on the relationship between these factors and audit quality. While larger audit firms are generally expected to have more resources and capabilities to conduct high-quality audits, their independence could be compromised due to client pressure and non-audit service fees. Independence issues also arise for long- tenured auditors who develop close ties with client management over time. Meanwhile, stronger regulatory requirements and oversight are intended to enhance auditors' accountability and discipline but may constrain professional judgment. This study contributes to the existing literature by providing insights from the Indonesian context. A survey will be administered to audit partners and directors of public accounting firms as well as finance officers of listed companies to gather their perceptions on factors influencing audit quality in Indonesia. The survey responses will be analyzed using regression analysis to examine the relative impact of auditor independence, firm size, and regulatory environment on audit quality dimensions. The results are expected to offer implications for policymakers and regulators in further enhancing audit quality within the Indonesian audit market. They may also shed light on best practices for other developing countries seeking to strengthen their audit oversight framework and professional standards.

Keywords : Audit Quality, Supreme Audit Institutions, Regulatory Oversight, Auditor Tenure, Financial Reporting, Performance Audits, Stakeholder Engagement, Risk Assessment, Public Sector.

References :

1. Adeyemi, S. B., & Fagbemi, T. O. (2010). Audit quality, corporate governance and firm characteristics in Nigeria. International Journal of Business and Management, 5(5), 169-179.
2. Akbar, N. B. A., & Mahdi, F. S. (2023). The Interest of the Supreme Audit Institution in Sustainable Economic, Social and Environmental Development on the Audit Quality Performance. International Journal of Professional Business Review, 8(1), e01164. https://doi.org/10.26668/businessreview/2023.v8i1.1164
3. Akinjobi, A., & Omowumi, O. (2010). The changing responsibilities of auditors in detection and prevention of business frauds within a challenging environment in Nigeria. Journal of Emerging Trends in Economics and Management Sciences, 1(2), 71-75.
4. Al Nawaiseh, M. A. L., & Alnawaiseh, M. J. I. B. R. (2015). The Effects of the Threats on the Auditor's Independence. International Business Research, 8(8), 141.
5. Anto, L. O., & Yusran, I. N. (2023). Determinants of the Quality of Financial Reports. International Journal of Professional Business Review, 8(3), e01331. https://doi.org/10.26668/businessreview/2023.v8i3.1331
6. Baber, W. R. (1983). Toward understanding the role of auditing in the public sector. Journal of Accounting and Economics, 5, 213-227. https://doi.org/10.1016/0165-4101(83)90013-7
7. Bamber, E. M., & Iyer, V. M. (2007). Auditors' Identification with Their Clients and Its Effect on Auditors' Objectivity. Auditing: A Journal of Practice & Theory, 26(2), 1-24. https://doi.org/10.2308/aud.2007.26.2.1
8. Caruana, J., & Kowalczyk, M. (2021). The quest for audit quality in the public sector. Accounting in Europe, 18(1), 1-25.
9. Chadegani, A. A. (2011). Review of studies on audit quality. International Conference on Humanities, Society and Culture, 20, 312-317.
10. Chan, D., & Wong, K. (2002). Scope of auditors' liability, audit quality, and capital investment. Review of Accounting Studies, 7(2), 97-122.
11. Chen, Y.-S., Hsu, J., Huang, M.-T., & Yang, P.-S. (2013). Quality, size, and performance of audit firms. The International Journal of Business and Finance Research, 7(5), 89-105.
12. Clark, C., De Martinis, M., & Krambia‐Kapardis, M. (2007). Audit quality attributes of European Union supreme audit institutions. European Business Review, 19(1), 40-71. https://doi.org/10.1108/09555340710714144
13. Cooper, D. J., & Neu, D. (2006). Auditor and Audit Independence in an Age of Financial Scandals. In C. R. Lehman (Ed.), Independent Accounts (Vol. 12, pp. 1-15). Emerald Group Publishing Limited.
14. De Martinis, M., & Clark, C. (2003). The Accountability and Independence of the Auditors-General of Australia: A Comparison of their Enabling Legislation. Australian Accounting Review, 13(31), 26-35. https://doi.org/10.1111/j.1835-2561.2001.tb00169.x
15. DeAngelo, L. E. (1981). Auditor size and audit quality. Journal of Accounting and Economics, 3(3), 183-199. https://doi.org/10.1016/0165-4101(81)90002-1
16. Dehkordi, H. F., & Makarem, N. (2011). The effect of size and type of auditor on audit quality. International Research Journal of Finance and Economics, 80, 121-137.
17. Donald R. Deis, Jr., & Gary, A. G. (1992). Determinants of Audit Quality in the Public Sector. The Accounting Review, 67(3), 462-479.
18. Elder, R., & Zhou, J. (2002). Audit firm size, industry specialization and earnings management by initial public offering firms.
19. Ellis, Y., & Booker, Q. L. (2011). Audit fee determinants in the nonprofit sector: A study of community action agencies. Journal of Finance and Accountancy, 8, 1.
20. Fitzgerald, B. C., Thompson, A. M., Omer, T. C., Bentley, K., Boland, C., Bucaro, T., . . . Pomeroy, B. (2012). Audit partner and audit firm rotation and the assessment of internal control deficiencies. Texas A&M University Working Paper.
21. Flint, D. (1988). Philosophy and principles of auditing: an introduction. Macmillan Education.
22. Geiger, M. A., & Raghunandan, K. (2002). Auditor Tenure and Audit Reporting Failures. Auditing: A Journal of Practice & Theory, 21(1), 67-78. https://doi.org/10.2308/aud.2002.21.1.67
23. Gendron, Y., Cooper, D. J., & Townley, B. (2001). In the name of accountability ‐State auditing, independence and new public management. Accounting, Auditing & Accountability Journal, 14(3), 278-310. https://doi.org/10.1108/EUM0000000005518
24. Gul, F. A., Jaggi, B. L., & Krishnan, G. V. (2007). Auditor independence: Evidence on the joint effects of auditor tenure and nonaudit fees. Auditing: A Journal of Practice & Theory, 26(2), 117-142.
25. Gustavson, M., & Sundström, A. (2016). Organizing the Audit Society: Does Good Auditing Generate Less Public Sector Corruption? Administration & Society, 50(10), 1508-1532. https://doi.org/10.1177/0095399716674306
26. Hay, D., & Cordery, C. (2018). The value of public sector audit: Literature and history. Journal of Accounting Literature, 40(1), 1-15. https://doi.org/10.1016/j.acclit.2017.11.001
27. Herda, D. N., & Lavelle, J. J. (2012). The auditor-audit firm relationship and its effect on burnout and turnover intention. Accounting Horizons, 26(4), 707-723.
28. IAASB. (2014). Audit Quality - IAASB'S Framework. Retrieved August 15, 2024, from http://www.accaglobal.com/crsh/en/technical-activities/technical-resources-search/2014/march/audit-quality-iaasb-frwk.html
29. Irmawan, Y., Hudaib, M., & Haniffa, R. (2013). Exploring the perceptions of auditor independence in Indonesia. Journal of Islamic Accounting and Business Research, 4(2), 173-202. https://doi.org/10.1108/JIABR-09-2012-0061
30. Johnsen, Å. (2019). Public sector audit in contemporary society: A short review and introduction. Financial Accountability & Management, 35(2), 121-127. https://doi.org/10.1111/faam.12191
31. Johnson, V., Khurana, I., & Reynolds, J. (2002). Audit-firm tenure and the quality of financial reports. Contemporary Accounting Research, 19(4), 637-660.
32. Kiraka, R., Clark, C., & De Martinis, M. (2002). Public Sector Auditing, Accountability and Independence: a Study of ASEAN Countries. Asian Review of Accounting, 10(2), 43-61. https://doi.org/10.1108/eb060757
33. KPMG. (2016). Audit point of view, what is audit quality? Retrieved from https://home.kpmg.com/content/dam/kpmg/ca/pdf/2016/08/ca-what-is-audit-quality.pdf
34. Lobikoki, E. (2019). Auditor's independence in public and private sectors in Tanzania [Master's thesis]. Mzumbe University.
35. Mautz, R., & Sharaf, H. (1961). The philosophy of auditing. American Accounting Association.
36. Mgbame, C. O., Eragbhe, E., & Osazuwa, N. P. (2012). Audit partner tenure and audit quality: An empirical analysis. European Journal of Business and Management, 4(7), 154-162.
37. Moore, D. A., Tetlock, P. E., Tanlu, L., & Bazerman, M. H. (2006). Conflicts of interest and the case of auditor independence: Moral seduction and strategic issue cycling. Academy of Management Review, 31(1), 10-29.
38. Nagy, A. (2005). Mandatory audit firm turnover, financial reporting quality, and client bargaining power: The case of Arthur Andersen. Accounting Horizons, 19(2), 51-68.
39. Naslmosavi, S., Sofian, S., & Saat, M. B. M. (2013). The effect of audit firm size on independent auditor's opinion: Conceptual framework. Asian Social Science, 9(9), 243.
40. Normanton, E. L. (1966). The accountability and audit of governments: A comparative study. Manchester University Press.
41. Office, U. S. G. A., & Commerce, U. S. C. H. C. o. (1996). The Accounting Profession: Appendixes to Major Issues: Progress and Concerns: Report to the Ranking Minority Member, Committee on Commerce, House of Representatives. The Office.
42. Onwuchekwa, J. C., Erah, D. O., & Izedonmi, F. (2012). Mandatory audit rotation and audit quality: Survey of southern Nigeria. Research Journal of Finance and Accounting, 3(8), 70-77.
43. Osamuede, O. U. (2022). Auditors Independence and Quality of Financial Report in the Public Sector (A case study of Public Sectors in Abuja, Nigeria) [Master's thesis]. National College of Ireland, Dublin.
44. Porter, B., Simon, J., & Hatherly, D. (2014). Principles of external auditing. John Wiley & Sons.
45. Radcliffe, V. S. (2011). Public secrecy in government auditing revisited. Critical Perspectives on Accounting, 22(7), 722-732. https://doi.org/10.1016/j.cpa.2011.01.014
46. Rusmanto, T. (2016). Do Audit Firm Size and Their Services Matter on Auditor Independence: A Case of Indonesia. Journal of Business Studies Quarterly, 7(3), 1.
47. Salih, W. K., & Hila, D. T. (2017). Effect of Audit Quality Assurance on Public Auditors' Performance in Iraq.
48. Sawan, N., & Alsaqqa, I. (2013). Audit firm size and quality: Does audit firm size influence audit quality in the Libyan oil industry? African Journal of Business Management, 7(3), 213.
49. Schelker, M. (2012). The influence of auditor term length and term limits on US state general obligation bond ratings. Public Choice, 150, 27-49.
50. Schelker, M. (2013). Auditors and Corporate Governance: Evidence from the Public Sector. Kyklos, 66(2), 275-300. https://doi.org/10.1111/kykl.12021
51. Securities and Exchange Commission. (2000). Revision of the commission's auditor independence requirements (Releases No. 33-79919). Washington, DC: Author.
52. Skærbæk, P. (2009). Public sector auditor identities in making efficiency auditable: The National Audit Office of Denmark as independent auditor and modernizer. Accounting, Organizations and Society, 34(8), 971-987. https://doi.org/10.1016/j.aos.2009.01.001
53. Sumiyana, S., Hendrian, H., Jayasinghe, K., & Wijethilaka, C. (2021). Public sector performance auditing in a political hegemony: A case study of Indonesia. Financial Accountability & Management. https://doi.org/10.1111/faam.12296
54. Sundgren, S., & Svanström, T. (2013). Audit office size, audit quality and audit pricing: evidence from small-and medium-sized enterprises. Accounting and Business Research, 43(1), 31-55.
55. Tepalagul, N., & Lin, L. (2015). Auditor Independence and Audit Quality: A Literature Review. Journal of Accounting, Auditing & Finance, 30(1), 101-121. https://doi.org/10.1177/0148558x14544505
56. Toha, M. A., Rahman, M. A., & Datta, S. (2015). The Effect of Audit Firm Size & Abnormal Audit Fees on Independent Auditor's Opinion: Conceptual Framework (Bangladesh Perspective).
57. Vaicekauskas, D. (2014). Differences between audit quality provided by international and local audit firms: The research on audit clients' perceptions in the audit market of Lithuania. Ekonomika, 93(4), 157.
58. van Bergen, D. (2013). Auditor Industry Specialization and Audit Quality [Master's thesis]. Tilburg University.
59. Wanna, J. (2006). Insisting on traditional ministerial responsibility and the constitutional independence of the public service: The Gomery Inquiry and the Canadian sponsorship scandal. Australian Journal of Public Administration, 65(3), 15-21.
60. Yahn-Shir, C., Joseph, H., Mei-Ting, H., & Ping-Sen, Y. (2013). Quality size and performance of audit firms. International Journal of Business and Finance Research, 7(5), 89-105.
61. Yuniarti, R. (2011). Audit firm size, audit fee and audit quality. Journal of Global Management, 2(1), 84-97.
62. Zureigat, Q. M. (2011). The effect of ownership structure on audit quality: Evidence from Jordan. International Journal of Business and Social Science, 2(10), 38-46.