Effect Of Audit Tenure And Quality Of Internal Control Systems On Audit Quality (Empirical Study Of Manufacturing Companies On The Indonesia Stock Exchange For The 2013-2016 Period)

by ADMIN 182 views

Introduction

The quality of audit is a crucial factor in maintaining investor confidence in a company's financial statements. In the context of companies listed on the Indonesia Stock Exchange (IDX), accurate information is essential for investors to make informed investment decisions. This study aims to investigate the effect of audit tenure and quality of internal control systems on audit quality in manufacturing companies listed on the IDX during the period 2013 to 2016.

Methodology

This study employed a purposive sampling method to select 103 company samples from a population of 150 companies listed on the IDX. The data analysis was conducted using logistical regression. The study analyzed the relationship between audit tenure, quality of internal control systems, and audit quality.

Results

The results of this study showed that there was a negative influence between audit tenure and audit quality at a significance level of 5%. This indicates that the longer the auditor works with a company, the audit quality produced tends to decrease. One explanation for this phenomenon is the possibility of the formation of a relationship that is too familiar between the auditor and company management, which can lead to bias in the auditor's assessment of the financial statements.

On the other hand, the quality of the internal control system has a positive and significant influence on audit quality at a significance level of 5%. This means that the better the internal control system implemented by the company, the higher the quality of the audit produced. A strong internal control system allows auditors to be more confident in conducting audits, because the risk of financial statement errors can be minimized. Good control also gives better access auditors to relevant information, making it easier to make decisions.

Discussion

Audit quality is one of the important factors in maintaining investor confidence in a company's financial statements. The discovery that audit tenure has a negative effect on audit quality can give an idea that the company needs to consider the change of auditor regularly to maintain objectivity and independence in the audit process.

The quality of the internal control system not only has an impact on audit quality, but also has a broad impact on operational efficiency and management effectiveness. Companies that have a good internal control system can more easily detect and prevent cheating, errors, and other risks that can harm the company. Therefore, investment in improving the internal control system can be a strategic step for companies to not only improve audit quality, but also overall performance.

Conclusion

This study provides important insights for companies in the manufacturing sector to pay more attention to the relationship between audit tenure and internal control systems. Better management of these factors can help in improving audit quality which in turn can increase investor confidence and support company growth in the long run.

Recommendations

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

  • Companies should consider changing auditors regularly to maintain objectivity and independence in the audit process.
  • Companies should invest in improving the internal control system to enhance audit quality and overall performance.
  • Companies should pay more attention to the relationship between audit tenure and internal control systems to improve audit quality.

Limitations

This study has several limitations, including:

  • The study only analyzed the data of manufacturing companies listed on the IDX during the period 2013 to 2016.
  • The study only used logistical regression as the data analysis method.
  • The study did not consider other factors that may affect audit quality.

Future Research Directions

Future research should consider the following directions:

  • Investigating the effect of audit tenure and quality of internal control systems on audit quality in other industries.
  • Analyzing the relationship between audit tenure and internal control systems in other countries.
  • Considering other factors that may affect audit quality, such as auditor expertise and company size.

Conclusion

In conclusion, this study provides important insights into the effect of audit tenure and quality of internal control systems on audit quality in manufacturing companies listed on the IDX. The findings of this study suggest that companies should pay more attention to the relationship between audit tenure and internal control systems to improve audit quality.

Q1: What is the significance of audit quality in a company's financial statements?

A1: Audit quality is a crucial factor in maintaining investor confidence in a company's financial statements. Accurate information is essential for investors to make informed investment decisions.

Q2: What is the relationship between audit tenure and audit quality?

A2: The study found that there was a negative influence between audit tenure and audit quality. This means that the longer the auditor works with a company, the audit quality produced tends to decrease.

Q3: Why does audit tenure have a negative effect on audit quality?

A3: One explanation for this phenomenon is the possibility of the formation of a relationship that is too familiar between the auditor and company management, which can lead to bias in the auditor's assessment of the financial statements.

Q4: What is the relationship between the quality of internal control systems and audit quality?

A4: The study found that the quality of the internal control system has a positive and significant influence on audit quality. This means that the better the internal control system implemented by the company, the higher the quality of the audit produced.

Q5: Why is a strong internal control system important for audit quality?

A5: A strong internal control system allows auditors to be more confident in conducting audits, because the risk of financial statement errors can be minimized. Good control also gives better access auditors to relevant information, making it easier to make decisions.

Q6: What are the implications of the study's findings for companies?

A6: The study's findings suggest that companies should pay more attention to the relationship between audit tenure and internal control systems to improve audit quality. Companies should consider changing auditors regularly to maintain objectivity and independence in the audit process.

Q7: What are the benefits of investing in improving the internal control system?

A7: Investing in improving the internal control system can have a broad impact on operational efficiency and management effectiveness. Companies that have a good internal control system can more easily detect and prevent cheating, errors, and other risks that can harm the company.

Q8: What are the limitations of the study?

A8: The study has several limitations, including the fact that it only analyzed the data of manufacturing companies listed on the IDX during the period 2013 to 2016. The study also only used logistical regression as the data analysis method.

Q9: What are the future research directions?

A9: Future research should consider investigating the effect of audit tenure and quality of internal control systems on audit quality in other industries. Future research should also analyze the relationship between audit tenure and internal control systems in other countries.

Q10: What are the practical implications of the study's findings?

A10: The study's findings have practical implications for companies, auditors, and regulators. Companies should pay more attention to the relationship between audit tenure and internal control systems to improve audit quality. Auditors should maintain objectivity and independence in the audit process. Regulators should consider implementing policies to ensure that companies maintain a strong internal control system.

Conclusion

In conclusion, this FAQ article provides answers to frequently asked questions on the effect of audit tenure and quality of internal control systems on audit quality. The study's findings have important implications for companies, auditors, and regulators.