AUDIT FIRM SIZE, AUDIT FEE AND AUDIT QUALITY

AUDIT FIRM SIZE, AUDIT FEE AND AUDIT QUALITY Rita Yuniarti Widyatama University Bandung, Indonesia Cikutra No 204 A Bandung, Indonesia ABSTRACT This study aims to examine the determinant factors of audit quality by proposing the hypothesis that the audit firm size (size public accounting firm) and audit fees (audit fees) have an effect on the audit quality. In this study, the unit of analysis is the external auditor who has worked in (Certified Public Accountant) CPA firm, the author takes the CPA Firm in Bandung, West Java, Indonesia. This type of research is descriptive verification research, because it describes the variables and observes the correlation of these variables from the hypothesis that has been made systematically through statistical testing. The statistical test use path analysis and the examination of the hypothesis in this research using two ways: simultaneous test and individual test (partial), using t_test and f_test. Empirical test results that the CPA firm size does not significantly affect to audit quality in public accounting firm in Bandung, whereas the amount of audits significantly affect to quality of audit and simultaneously CPA firm size and audit fees do not significantly affect to quality of audit in public accounting firm in Bandung. Keywords: audit firm size (CPA firm), audit fees, audit quality. 1.0 INTRODUCTION The development of the world business is increase rapidly bring many consequences for the related parties. The complexity of the transaction will further increase over this development. This change was influenced by the external business environment and government through changes in regulations or changes in the overall business climate. Globalization is also believed become a factor in the external business environment that brings a direct impact on business continuity and daily operational practices. To survive in these conditions, the economic actors are always required perform a continuous performance improvement. Corporate responsibilities for all economic events or financial transactions are summarized into a financial statements report. The financial statements have been prepared on the basis of records of transactions that have occurred in the company and created by the people the company itself. Financial statements represent the financial information relating to resources owned by the company and can serve as a basis for decision making. The financial statements contain information regarding the assets, liabilities and capital of the company. The contents of the financial statements are corporate responsibility. 85 JOURNAL OF GLOBAL MANAGEMENT JULY 2011. VOLUME 2. NUMBER 1 In the recording of these transactions may occur an error factor caused by a lack of knowledge of the recorder or because of errors that was intentional. There are several reasons why those statements must be audited by an independent party, among other things: The difference of interest between the management companies with parties outside the company causing the need for a credible third party, financial report is likely to contain both the intentional misstatement or not, and the financial statements which have been audited and received an unqualified opinion is expected by users of financial statements can be sure that those statements can be protected from material misstatement. Arrens, Elder and Beasley (2003) Auditors are needed to examine the fairness of the financial statements which is presented by management. To perform the examination process will be the fairness of financial statements, auditors are required to be an expert as set out in Audit standard. For the attainment of expertise, an auditor must have sufficient knowledge in the field of audit . Accountant is one profession that is needed for the company. Compared with other countries, the accounting profession in Indonesia is alarming both in terms of number and competence. The number of registered accountants on 30 April 2009 as 46,633 people while the number of accountants who have passed the certification exam public accountant only 615 people and not all practice became public accountant. Accountant Media (2009) Since some of corporate failure, audit service users doubted the integrity of Certified Public Accountants, and the public confidence in the quality of audits by public accountants is decline. Public confidence in the world of the audit service profession is increasingly decline. The Public assumes that the auditor profession is a disgraceful profession because it has been duping and lying to the public (Iman, 2007). Besides the issue of corporate failure, there are also violations of the accounting firm auditing standards. It is proved by the closing CPA Firm by the Minister of Finance. Another phenomenon that is getting attention from the public is Justinus Aditya Sidharta Audit Firm who is indicated make mistakes in the audit the financial statements. Great River International, Tbk (Winarto, 2002). The result of audit quality from Justinus Aditya Sidharta Firm is doubted after the findings of auditors from the Indonesian Capital Market Agency’s investigation found indications inflate sales accounts, accounts receivable and assets up to hundreds of billions of dollars in financial statements which resulted in Great River eventually the company cash flow difficulties and failed to pay the debt (Winarto, 2002). In Indonesia, the government as the regulator has also issued a number of provisions which regulate in detail the various matters related to public accounting profession. Regulation of the Minister of Finance Number 17/PMK.01/2008 strictly regulate the public accounting services, both the scope of work of public accountants and public accounting firms, including the rights, obligations, and the system of sanctions against violations committed by public accountants and public accounting firms . Small Public Accounting Firm in Indonesia is higher than big Public Accounting Firm. A large number of small firm cause a high level of competition in the acquisition of clients, this requires a small firm to pay attention to the appearance and quality of staff. To improve the appearance, quality and image of public accountants, investment should be planned and prepared; it caused the firm to leave the lower prices. (Mustafa, 2009)