Audit Firm Rotation and Audit Quality: Comparison Before vs After the Elimination of Audit Firm Rotation Regulations in Indonesia

Cogent Business & Management (2019), 6: 1695403 DOI/10.1080/23311975.2019.1695403

16 Pages Posted: 20 Apr 2020

See all articles by Inas Aisyah WIdyaningsih

Inas Aisyah WIdyaningsih

Airlangga University

Iman Harymawan

Universitas Airlangga

Agus Widodo Mardijuwono

Airlangga University

Eka Sari Ayuningtyas

Airlangga University

Dyah Ayu Larasati

Airlangga University - Faculty of Economics and Business

Date Written: September 16, 2019

Abstract

This paper examines whether the changes in audit rotation policy affect the relationship between audit firm rotation and audit quality in Indonesia. This study uses 2,403 observations from 371 firms listed on the IDX for the period 2010–2017. This study uses Ordinary Least Squares regression to test the hypothesis. We find that, in the mandatory audit rotation period (pre-period), there is no significant association between audit rotation and audit quality. Interestingly, we find a positive relationship between audit rotation and audit quality in the voluntary audit rotation (post-period). Our result implies that voluntary audit rotation without any coercive regulation is more effective in improving audit quality. This research provides an insight to policy makers that eliminating the regulation of audit firm rotation is an effective decision to enhance audit quality.

Keywords: audit, audit firm rotation, audit quality

JEL Classification: M41, M42, M48

Suggested Citation

Widyaningsih, Inas Aisyah and Harymawan, Iman and Mardijuwono, Agus Widodo and Ayuningtyas, Eka Sari and Larasati, Dyah Ayu, Audit Firm Rotation and Audit Quality: Comparison Before vs After the Elimination of Audit Firm Rotation Regulations in Indonesia (September 16, 2019). Cogent Business & Management (2019), 6: 1695403 DOI/10.1080/23311975.2019.1695403, Available at SSRN: https://ssrn.com/abstract=3561999

Inas Aisyah Widyaningsih

Airlangga University ( email )

Jl. Darmawangsa Dalam 2
Surabaya, 60286
Indonesia

Iman Harymawan (Contact Author)

Universitas Airlangga ( email )

JL. Airlangga no 4
Surabaya, East Java 60286
Indonesia

HOME PAGE: http://www.feb.unair.ac.id

Agus Widodo Mardijuwono

Airlangga University ( email )

Jl. Darmawangsa Dalam 2
Surabaya, 60286
Indonesia

Eka Sari Ayuningtyas

Airlangga University ( email )

Jl. Darmawangsa Dalam 2
Surabaya, 60286
Indonesia

Dyah Ayu Larasati

Airlangga University - Faculty of Economics and Business ( email )

Airlangga 4-6
Surabaya, East Java
Indonesia

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