Factors Affecting Audit Switching In Manufacturing Companies Consumer Goods Industry Sector Listed On The Indonesia Stock Exchange

Factors Affecting Audit Switching in Consumer Goods Sector Manufacturing Companies Listed on the Indonesia Stock Exchange

Introduction

Audit switching is a crucial aspect of corporate governance, particularly in the manufacturing sector of consumer goods listed on the Indonesia Stock Exchange. This phenomenon involves a change in the auditor or public accountant appointed by a company, which can have significant implications for the company's financial reporting and transparency. In this study, we aim to investigate the factors that influence audit switching in manufacturing companies in the consumer goods sector listed on the Indonesia Stock Exchange.

Background

Audit switching can be voluntary or involuntary, and it can be triggered by various factors, including changes in management, financial difficulties, and company size. The auditor's term of office is also an important consideration, as it can impact the relationship between the auditor and management. In this study, we focus on the impact of audit switching on audit opinion, management changes, auditor's term of office, financial difficulties, and company size.

Methodology

This descriptive qualitative research was conducted on companies listed on the Indonesia Stock Exchange in the manufacturing sector of consumer goods during the period 2009 to 2018. Using purposive sampling techniques, 220 observational data were collected from 37 companies registered for ten years. The data analysis method used is logistical regression analysis.

Results and Findings

The results of this study showed that management changes have a positive and significant influence on audit switching with a significance level of 5%. This means that when there is a change in management in a company, it is likely that the company will conduct an audit switching. Conversely, the term of office of the auditor has a negative and significant influence on audit switching. This indicates that the longer the auditor's term, the less likely the company to switch to other auditors.

On the other hand, this study also found that factors such as financial difficulties and company size had no effect on audit switching in the manufacturing sector of consumer goods listed on the Indonesia Stock Exchange. This suggests that although the company's financial conditions may be difficult, it does not necessarily encourage companies to make auditor changes.

Further Analysis

The positive influence of management changes on audit switching can be understood by considering that new management often has different views and policies regarding financial governance and transparency. They may be more likely to find auditors in line with the company's new vision and mission, thus creating opportunities for new auditors to be involved.

On the other hand, a decrease in the possibility of audit switching along with the increase in the term of office of the auditor shows the importance of the relationship between the auditor and management. Auditors who have worked long with companies may have built deep trust and understanding of the company's operations and challenges. This creates dependence that can reduce the urge to switch to new auditors, although there may be incentives to do so.

The powerlessness of financial difficulties and company size in influencing audit switching indicates that these factors may not be a top priority in management decisions to replace auditors. There may be other factors that are more dominating, such as auditors' reputation, audit costs, and interpersonal relationships between management and existing auditors.

Conclusion

This study provides an important insight into the factors that influence audit switching in manufacturing companies in the consumer goods sector listed on the Indonesia Stock Exchange. The results showing the significant effect of changes in management and the term of office of the auditor are important considerations for companies in decision making related to auditor selection. For further research, it will be very interesting to explore other factors that may play a role in the Audit Switching decision, as well as comparing this result with other industrial sectors. With a deeper understanding, the company is expected to take more strategic steps in the management of their audits and finance.

Recommendations

Based on the findings of this study, we recommend that companies in the manufacturing sector of consumer goods listed on the Indonesia Stock Exchange should consider the following:

• Changes in management: Companies should be aware of the potential impact of changes in management on audit switching. New management may have different views and policies regarding financial governance and transparency, which can lead to changes in auditors.
• Auditor's term of office: Companies should consider the importance of the relationship between the auditor and management. Auditors who have worked long with companies may have built deep trust and understanding of the company's operations and challenges, which can reduce the urge to switch to new auditors.
• Financial difficulties: Companies should not rely solely on financial difficulties as a reason to switch auditors. Other factors, such as auditors' reputation, audit costs, and interpersonal relationships between management and existing auditors, may be more dominating.
• Company size: Companies should not assume that company size is a determining factor in audit switching. Other factors, such as changes in management and the auditor's term of office, may be more influential.

Limitations

This study has several limitations that should be considered when interpreting the results. Firstly, the study was conducted on companies listed on the Indonesia Stock Exchange in the manufacturing sector of consumer goods, which may not be representative of other industries or sectors. Secondly, the study used logistical regression analysis, which may not capture the complexity of the relationships between the variables. Finally, the study was based on observational data, which may be subject to biases and limitations.

Future Research Directions

This study provides a foundation for further research on audit switching in the manufacturing sector of consumer goods listed on the Indonesia Stock Exchange. Some potential future research directions include:

• Exploring other factors: Further research should explore other factors that may influence audit switching, such as auditors' reputation, audit costs, and interpersonal relationships between management and existing auditors.
• Comparing with other industrial sectors: Further research should compare the results of this study with other industrial sectors to identify any differences or similarities.
• Investigating the impact of audit switching: Further research should investigate the impact of audit switching on audit opinion, management changes, auditor's term of office, financial difficulties, and company size.

Conclusion

In conclusion, this study provides an important insight into the factors that influence audit switching in manufacturing companies in the consumer goods sector listed on the Indonesia Stock Exchange. The results showing the significant effect of changes in management and the term of office of the auditor are important considerations for companies in decision making related to auditor selection. For further research, it will be very interesting to explore other factors that may play a role in the Audit Switching decision, as well as comparing this result with other industrial sectors. With a deeper understanding, the company is expected to take more strategic steps in the management of their audits and finance.
Frequently Asked Questions (FAQs) on Factors Affecting Audit Switching in Consumer Goods Sector Manufacturing Companies Listed on the Indonesia Stock Exchange

Q: What is audit switching?

A: Audit switching is a change made voluntarily or not voluntarily to the auditor or public accountant appointed by a company.

Q: Why is audit switching important?

A: Audit switching is important because it can have significant implications for the company's financial reporting and transparency. It can also impact the relationship between the auditor and management.

Q: What are the factors that influence audit switching?

A: The factors that influence audit switching include changes in management, auditor's term of office, financial difficulties, and company size.

Q: How does management change affect audit switching?

A: Management change has a positive and significant influence on audit switching. New management may have different views and policies regarding financial governance and transparency, which can lead to changes in auditors.

Q: How does the auditor's term of office affect audit switching?

A: The auditor's term of office has a negative and significant influence on audit switching. The longer the auditor's term, the less likely the company to switch to other auditors.

Q: Do financial difficulties affect audit switching?

A: No, financial difficulties do not affect audit switching. Other factors, such as auditors' reputation, audit costs, and interpersonal relationships between management and existing auditors, may be more dominating.

Q: Do company size affect audit switching?

A: No, company size does not affect audit switching. Other factors, such as changes in management and the auditor's term of office, may be more influential.

Q: What are the implications of audit switching for companies?

A: The implications of audit switching for companies include changes in financial reporting and transparency, impact on the relationship between the auditor and management, and potential changes in auditors.

Q: What are the recommendations for companies in the manufacturing sector of consumer goods listed on the Indonesia Stock Exchange?

A: The recommendations for companies in the manufacturing sector of consumer goods listed on the Indonesia Stock Exchange include considering the impact of changes in management on audit switching, the importance of the relationship between the auditor and management, and not relying solely on financial difficulties as a reason to switch auditors.

Q: What are the limitations of this study?

A: The limitations of this study include the study being conducted on companies listed on the Indonesia Stock Exchange in the manufacturing sector of consumer goods, which may not be representative of other industries or sectors, the study using logistical regression analysis, which may not capture the complexity of the relationships between the variables, and the study being based on observational data, which may be subject to biases and limitations.

Q: What are the future research directions?

A: The future research directions include exploring other factors that may influence audit switching, comparing the results of this study with other industrial sectors, and investigating the impact of audit switching on audit opinion, management changes, auditor's term of office, financial difficulties, and company size.

Q: What are the conclusions of this study?

A: The conclusions of this study are that management change and the auditor's term of office are significant factors that influence audit switching in manufacturing companies in the consumer goods sector listed on the Indonesia Stock Exchange. The study provides an important insight into the factors that influence audit switching and has implications for companies in decision making related to auditor selection.