Independence of the Audit Committee

Oct 13, 2025 by vinooalluri.com 103 views

The Effect of Audit Tenure, Independence of the Audit Committee, Auditor Reputation, and Company Size on Audit Quality in Banking Companies Listed on the Indonesia Stock Exchange (IDX)

Introduction

The quality of audits in banking companies listed on the Indonesia Stock Exchange (IDX) is a crucial aspect of maintaining the integrity of financial statements and ensuring the transparency of financial reporting. Several factors can influence audit quality, including audit tenure, independence of the audit committee, auditor reputation, and company size. This study aims to analyze the effect of these factors on audit quality in banking companies listed on the IDX.

Background

Audit quality is a critical aspect of financial reporting, as it ensures that financial statements accurately reflect the financial position and performance of a company. The quality of audits can be influenced by various factors, including the auditor's expertise, the audit committee's independence, and the company's size and resources. In Indonesia, the IDX has implemented various regulations to ensure the quality of audits in listed companies. However, the effectiveness of these regulations in improving audit quality remains a concern.

Methodology

This study used a purposive sampling technique to select 30 banking companies listed on the IDX during the 2012-2016 period. The data used in this study came from audited financial statements and independent auditor reports, which were downloaded from the official IDX website. The data analysis and hypothesis testing were carried out using logistic regression analysis.

Results

The results of this study showed several important findings that were worth observing.

Audit Tenure

The first finding of this study is that audit tenure, which refers to the length of time the auditor conducts an audit of a company, has no significant influence on audit quality. This finding can be interpreted that even though the auditor has worked for a long time with the same company, it does not always guarantee the improvement of audit quality. This can be caused by a habit that leads to a lack of objectivity in the audit process.

Audit tenure is an important factor in determining audit quality, as it can affect the auditor's ability to provide an objective and unbiased opinion on the financial statements. However, the results of this study suggest that audit tenure is not a significant predictor of audit quality. This finding has implications for companies that are considering the length of time an auditor has worked with them when selecting an auditor.

Independence of the Audit Committee

The second finding of this study is that the independence of the audit committee also has no significant effect on audit quality. This shows that although the audit committee has an important role in overseeing financial statements and audit practices, uncertainty about their independence in real practice can affect the effectiveness of their supervision. For example, if an audit committee member has a close relationship with management, this can affect the decisions taken and ultimately affect the quality of the audit.

The independence of the audit committee is a critical aspect of ensuring the quality of audits. However, the results of this study suggest that the independence of the audit committee is not a significant predictor of audit quality. This finding has implications for companies that are considering the independence of their audit committee when selecting an auditor.

Auditor Reputation

The third finding of this study is that the auditor's reputation turned out to have a significant influence on audit quality. This shows that auditors who have a good reputation tend to produce higher audit quality. This reputation can be rooted in the experience and skills of the auditor, as well as from the results of audits that are consistent with high standards. In this context, it is important for companies to choose auditors based on their reputation, because this will have a direct impact on the credibility of their financial statements.

Auditor reputation is an important factor in determining audit quality, as it can affect the auditor's ability to provide an objective and unbiased opinion on the financial statements. The results of this study suggest that auditor reputation is a significant predictor of audit quality. This finding has implications for companies that are considering the reputation of their auditor when selecting an auditor.

Company Size

The fourth finding of this study is that company size also shows a significant effect on audit quality. Larger companies may have more resources to be invested in audit practices, as well as more pressure to maintain the integrity of their financial statements. In addition, large companies often face tighter supervision than regulators and the public, which forced them to ensure that audits were carried out with the highest standards.

Company size is an important factor in determining audit quality, as it can affect the company's ability to invest in audit practices and maintain the integrity of its financial statements. The results of this study suggest that company size is a significant predictor of audit quality. This finding has implications for companies that are considering their size when selecting an auditor.

Conclusion

This study provides valuable insight into the factors that affect audit quality in banking companies in Indonesia. The findings of this study suggest that audit tenure, independence of the audit committee, and company size are not significant predictors of audit quality. However, auditor reputation is a significant predictor of audit quality. This finding has implications for companies that are considering the factors that affect audit quality when selecting an auditor.

Recommendations

Based on the findings of this study, the following recommendations are made:

Companies should consider the reputation of their auditor when selecting an auditor, as this will have a direct impact on the credibility of their financial statements.
Companies should invest in audit practices and maintain the integrity of their financial statements, as this will have a positive impact on audit quality.
Regulators and policymakers should consider the factors that affect audit quality when implementing regulations and policies to ensure the quality of audits in listed companies.

Limitations

This study has several limitations that should be considered when interpreting the results. First, the study only considered banking companies listed on the IDX, which may not be representative of all companies in Indonesia. Second, the study only used data from audited financial statements and independent auditor reports, which may not be comprehensive. Finally, the study only used logistic regression analysis, which may not be the most appropriate method for analyzing the data.

Future Research

This study provides a foundation for future research on the factors that affect audit quality in banking companies in Indonesia. Future research should consider the following:

The effect of other factors on audit quality, such as the auditor's expertise and the company's governance structure.
The impact of regulations and policies on audit quality in listed companies.
The development of a more comprehensive model of audit quality that takes into account multiple factors.

By understanding the factors that affect audit quality, companies can be wiser in choosing auditors and strengthening their audit practices in order to produce more transparent and trustworthy financial statements.
Frequently Asked Questions (FAQs) about the Effect of Audit Tenure, Independence of the Audit Committee, Auditor Reputation, and Company Size on Audit Quality in Banking Companies Listed on the Indonesia Stock Exchange (IDX)

Q: What is the main focus of this study?

A: The main focus of this study is to analyze the effect of audit tenure, independence of the audit committee, auditor reputation, and company size on audit quality in banking companies listed on the IDX.

Q: What is audit tenure, and how does it affect audit quality?

A: Audit tenure refers to the length of time the auditor conducts an audit of a company. The results of this study suggest that audit tenure has no significant influence on audit quality. This means that even though the auditor has worked for a long time with the same company, it does not always guarantee the improvement of audit quality.

Q: What is the role of the audit committee in ensuring audit quality?

A: The audit committee plays a crucial role in overseeing financial statements and audit practices. However, the results of this study suggest that the independence of the audit committee has no significant effect on audit quality. This means that even though the audit committee has an important role in ensuring audit quality, its independence is not a significant predictor of audit quality.

Q: What is auditor reputation, and how does it affect audit quality?

A: Auditor reputation refers to the reputation of the auditor in terms of their expertise, experience, and ability to provide high-quality audits. The results of this study suggest that auditor reputation has a significant influence on audit quality. This means that auditors who have a good reputation tend to produce higher audit quality.

Q: What is the relationship between company size and audit quality?

A: The results of this study suggest that company size has a significant effect on audit quality. Larger companies may have more resources to be invested in audit practices, as well as more pressure to maintain the integrity of their financial statements. This means that larger companies tend to have higher audit quality.

Q: What are the implications of this study for companies?

A: The findings of this study have several implications for companies. First, companies should consider the reputation of their auditor when selecting an auditor, as this will have a direct impact on the credibility of their financial statements. Second, companies should invest in audit practices and maintain the integrity of their financial statements, as this will have a positive impact on audit quality.

Q: What are the implications of this study for regulators and policymakers?

A: The findings of this study have several implications for regulators and policymakers. First, regulators and policymakers should consider the factors that affect audit quality when implementing regulations and policies to ensure the quality of audits in listed companies. Second, regulators and policymakers should provide guidance and support to companies to help them improve their audit practices and maintain the integrity of their financial statements.

Q: What are the limitations of this study?

A: This study has several limitations that should be considered when interpreting the results. First, the study only considered banking companies listed on the IDX, which may not be representative of all companies in Indonesia. Second, the study only used data from audited financial statements and independent auditor reports, which may not be comprehensive. Finally, the study only used logistic regression analysis, which may not be the most appropriate method for analyzing the data.

Q: What are the future research directions based on this study?

A: This study provides a foundation for future research on the factors that affect audit quality in banking companies in Indonesia. Future research should consider the following:

The effect of other factors on audit quality, such as the auditor's expertise and the company's governance structure.
The impact of regulations and policies on audit quality in listed companies.
The development of a more comprehensive model of audit quality that takes into account multiple factors.