The Effect Of Auditor Specialization, Audit Rotation, And KAP Size On Audit Quality In Banking Companies Listed On The Indonesia Stock Exchange

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The Effect of Auditor Specialization, Audit Rotation, and KAP Size on Audit Quality in Banking Companies Listed on the Indonesia Stock Exchange

Introduction

The banking sector is a crucial component of any economy, and the accuracy and reliability of financial statements are essential for maintaining public confidence and trust. In this context, the role of auditors in ensuring the quality of financial statements cannot be overstated. However, the effectiveness of auditors in achieving this goal is influenced by various factors, including their specialization, audit rotation, and the size of the Public Accounting Firm (KAP) they work for. This study aims to analyze the influence of these factors on audit quality in banking companies listed on the Indonesia Stock Exchange (IDX) in the 2012-2014 period.

Research Variables

In this study, three independent variables were tested:

  1. Auditor Specialization: Referring to the level of auditor's expertise in a particular field, which is expected to improve audit quality. Auditor specialization is critical in the banking sector, where complex regulations and practices require specialized knowledge.
  2. Audit Rotation: Policy to replace auditors regularly, which is intended to prevent potential conflicts of interest and increase auditor's objectivity. Audit rotation is a widely accepted practice in the auditing profession, but its effectiveness in improving audit quality is still a subject of debate.
  3. KAP Size: The amount of KAP that refers to the capacity and reputation of the audit firm in providing audit services. KAP size is often associated with the quality of audit services, but the relationship between the two is not always straightforward.

The dependent variable studied is audit quality, which includes accuracy and reliability of the company's financial statements.

Research Methodology

This study used a population consisting of 31 banking companies registered on the IDX, and a sample of 27 companies was taken through purposive sampling techniques. The data used are secondary data, and the analysis method applied includes descriptive statistical analysis, multicollinearity tests, logistics regression, and WALD tests.

Research Results

The results of this study showed that:

  1. Auditor Specialization has a positive and significant influence on audit quality. This shows that auditors who have certain specialties in the banking sector can provide added value in the audit process, so as to produce more accurate and reliable reports.
  2. Audit Rotation apparently has a positive but not significant effect on audit quality. Although auditor rotation can be considered a good step to maintain independence, this study found that it does not always have a significant impact in improving audit quality.
  3. KAP Size has a negative but not significant influence on audit quality. This finding may indicate that not all large size KAP guarantees improving audit quality, perhaps because of other factors that affect auditor performance.

Additional Analysis and Explanation

Further analysis of the results of this study shows that auditor specialization is a key factor in improving audit quality, especially in a very complex banking sector. The auditor's expertise in understanding banking regulations and practices allows them to identify more appropriate risks and provide relevant recommendations.

On the other hand, audit rotation, although applied well, does not have a significant impact. This could be caused by the insufficient time for new auditors to understand and analyze the audited entity. Meanwhile, larger KAP sizes do not always produce better audit quality, because there may be factors such as lack of efficient resource management.

Conclusion

Overall, this research shows the importance of auditor specialization in improving audit quality in banking companies. This finding can be a guideline for future audit policies to strengthen the integrity of financial statements and increase public confidence in the banking sector in Indonesia. The results of this study also highlight the need for further research on the effectiveness of audit rotation and KAP size in improving audit quality.

Recommendations

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

  1. Auditor Specialization: Banking companies and stakeholders in relevant industries should consider auditor specialization as an important aspect in improving audit quality.
  2. Audit Rotation: While audit rotation is a widely accepted practice, its effectiveness in improving audit quality should be further researched.
  3. KAP Size: The relationship between KAP size and audit quality is complex, and further research is needed to understand the factors that affect auditor performance.

Limitations of the Study

This study has several limitations, including:

  1. Sample Size: The sample size of 27 companies may not be representative of the entire population of banking companies listed on the IDX.
  2. Data Quality: The secondary data used in this study may not be accurate or reliable.
  3. Research Design: The research design used in this study may not be able to capture all the factors that affect audit quality.

Future Research Directions

Future research should focus on:

  1. Audit Rotation: Further research is needed to understand the effectiveness of audit rotation in improving audit quality.
  2. KAP Size: The relationship between KAP size and audit quality is complex, and further research is needed to understand the factors that affect auditor performance.
  3. Other Factors: Other factors that affect audit quality, such as auditor independence and expertise, should be further researched.
    Frequently Asked Questions (FAQs) about the Effect of Auditor Specialization, Audit Rotation, and KAP Size on Audit Quality in Banking Companies Listed on the Indonesia Stock Exchange

Q: What is the main objective of this study?

A: The main objective of this study is to analyze the influence of auditors' specialization, audit rotation, and size of the Public Accounting Firm (KAP) on audit quality in banking companies listed on the Indonesia Stock Exchange (IDX) in the 2012-2014 period.

Q: What are the independent variables tested in this study?

A: The three independent variables tested in this study are:

  1. Auditor Specialization: Referring to the level of auditor's expertise in a particular field, which is expected to improve audit quality.
  2. Audit Rotation: Policy to replace auditors regularly, which is intended to prevent potential conflicts of interest and increase auditor's objectivity.
  3. KAP Size: The amount of KAP that refers to the capacity and reputation of the audit firm in providing audit services.

Q: What is the dependent variable studied in this research?

A: The dependent variable studied in this research is audit quality, which includes accuracy and reliability of the company's financial statements.

Q: What are the research methods used in this study?

A: The research methods used in this study include descriptive statistical analysis, multicollinearity tests, logistics regression, and WALD tests.

Q: What are the findings of this study?

A: The findings of this study show that:

  1. Auditor Specialization has a positive and significant influence on audit quality.
  2. Audit Rotation apparently has a positive but not significant effect on audit quality.
  3. KAP Size has a negative but not significant influence on audit quality.

Q: What are the implications of this study?

A: The implications of this study are:

  1. Auditor Specialization: Banking companies and stakeholders in relevant industries should consider auditor specialization as an important aspect in improving audit quality.
  2. Audit Rotation: While audit rotation is a widely accepted practice, its effectiveness in improving audit quality should be further researched.
  3. KAP Size: The relationship between KAP size and audit quality is complex, and further research is needed to understand the factors that affect auditor performance.

Q: What are the limitations of this study?

A: The limitations of this study are:

  1. Sample Size: The sample size of 27 companies may not be representative of the entire population of banking companies listed on the IDX.
  2. Data Quality: The secondary data used in this study may not be accurate or reliable.
  3. Research Design: The research design used in this study may not be able to capture all the factors that affect audit quality.

Q: What are the future research directions?

A: The future research directions are:

  1. Audit Rotation: Further research is needed to understand the effectiveness of audit rotation in improving audit quality.
  2. KAP Size: The relationship between KAP size and audit quality is complex, and further research is needed to understand the factors that affect auditor performance.
  3. Other Factors: Other factors that affect audit quality, such as auditor independence and expertise, should be further researched.

Q: What are the practical implications of this study?

A: The practical implications of this study are:

  1. Improved Audit Quality: The findings of this study can help improve audit quality in banking companies listed on the IDX.
  2. Better Decision-Making: The results of this study can provide stakeholders with better information to make informed decisions.
  3. Increased Public Confidence: The study's findings can help increase public confidence in the banking sector in Indonesia.