Larger KAP size may not guarantee improved audit quality

Oct 13, 2025 by pynkocean.com 108 views

Introduction

The decision to switch auditors is a crucial phenomenon in the world of accounting, where companies choose to replace their public accounting firm (KAP) voluntarily. This study focuses on analyzing the factors that influence the decision of the switching auditor in companies listed on the LQ-45 index on the Indonesia Stock Exchange between 2012 and 2014. The LQ-45 index is a benchmark index of the Indonesia Stock Exchange, comprising 45 companies that are considered to be the most liquid and representative of the market. Understanding the factors that influence the decision to switch auditors is essential for companies, auditors, and regulatory bodies to ensure that the audit process is conducted efficiently and effectively.

Research Objectives

The primary objective of this study is to identify and understand the effect of each factor on the switching auditor's decision. The study aims to investigate the following research questions:

What are the factors that influence the decision of the switching auditor in companies listed on the LQ-45 index on the Indonesia Stock Exchange?
How do these factors affect the decision to switch auditors in companies engaged in the food and beverage sector?
What are the implications of these findings for companies, auditors, and regulatory bodies?

Research Methodology

The study employed a qualitative research approach, using a purposive sampling method to obtain 11 sample companies for three years of observation, resulting in a total of 33 units of analysis. The data used in this study were taken from audited financial statements, independent auditor reports, and company annual reports that can be accessed through the Indonesia Stock Exchange website (www.idx.co.id). For data analysis, descriptive and inferential statistical analysis techniques were used, along with logistic regression approaches.

Data Collection

The data collection process involved the following steps:

Identification of sample companies: The study selected 11 companies listed on the LQ-45 index, which were engaged in the food and beverage sector.
Collection of data: The study collected data from audited financial statements, independent auditor reports, and company annual reports for the period of 2012 to 2014.
Data analysis: The study used descriptive and inferential statistical analysis techniques to analyze the data, along with logistic regression approaches to identify the factors that influence the decision to switch auditors.

Research Findings

The results of the study showed that factors such as KAP size, financial distress, company size, audit costs, and management changes did not have a significant influence on the decision of the switching auditor in companies engaged in the food and beverage sector listed on the Indonesia Stock Exchange. This finding is significant because it highlights that although these factors are often associated with auditor changes, the reality does not always have a significant impact.

In-Depth Analysis

Based on the results of the study, there are several points that can be analyzed further:

Larger KAP size may not guarantee improved audit quality: The study found that larger KAPs may not provide better audit quality, as companies may perceive smaller KAPs as more personal and responsive.
Financial distress factors do not affect auditor switching: The study found that companies that experience financial difficulties continue to use the same auditor, indicating that companies prefer to maintain relationships that have been established.
Company size does not affect auditor switching: The study found that company size does not affect the decision to replace the auditor, as large companies may feel satisfied with existing auditors, while small companies may face obstacles in switching to larger auditors due to higher costs.
Audit fees and management changes do not contribute to auditor switching: The study found that audit fees and management changes do not contribute to the decision of the switching auditor, indicating that these factors are not significant in determining the relationship between the company and its auditor.

Conclusion

This study provides insight that the decision to conduct auditors switching is not always influenced by common factors that are expected, such as KAP size and financial distress. In the world of accounting, many other factors play a role in determining the relationship between the company and its auditors. Further research is needed to explore other variables that might affect the decision of the auditor switching, as well as understanding more about the dynamics that exist between the company and the auditor.

Implications of the Study

The findings of this study have several implications for companies, auditors, and regulatory bodies:

Companies should consider broader aspects when planning to replace auditors: The study highlights the importance of considering multiple factors when planning to replace auditors, rather than focusing solely on factors that have been considered significant.
Auditors should be aware of the factors that influence auditor switching: The study emphasizes the need for auditors to be aware of the factors that influence auditor switching, in order to provide better services to their clients.
Regulatory bodies should consider the implications of auditor switching: The study highlights the need for regulatory bodies to consider the implications of auditor switching, in order to ensure that the audit process is conducted efficiently and effectively.

Limitations of the Study

The study has several limitations that should be considered:

Sample size: The study used a small sample size, which may limit the generalizability of the findings.
Data collection: The study relied on secondary data, which may be subject to limitations and biases.
Methodology: The study used a qualitative research approach, which may not be suitable for all research questions.

Future Research Directions

The study highlights several areas for future research:

Exploring other variables that might affect auditor switching: The study emphasizes the need for further research to explore other variables that might affect auditor switching.
Understanding the dynamics between the company and the auditor: The study highlights the need for further research to understand the dynamics that exist between the company and the auditor.
Developing a framework for auditor switching: The study emphasizes the need for further research to develop a framework for auditor switching, which can be used by companies, auditors, and regulatory bodies.

Introduction

In our previous article, we discussed the analysis of factors affecting voluntary switching auditors in LQ-45 index companies on the Indonesia Stock Exchange. In this article, we will provide a Q&A section to further clarify the findings and implications of the study.

Q&A

Q1: What are the main factors that influence the decision to switch auditors?

A1: The study found that factors such as KAP size, financial distress, company size, audit costs, and management changes do not have a significant influence on the decision of the switching auditor in companies engaged in the food and beverage sector listed on the Indonesia Stock Exchange.

Q2: Why do companies choose to switch auditors?

A2: The study found that companies may choose to switch auditors due to various reasons, including the desire for better audit quality, improved services, and cost savings.

Q3: What are the implications of the study for companies?

A3: The study highlights the importance of considering multiple factors when planning to replace auditors, rather than focusing solely on factors that have been considered significant. Companies should also be aware of the potential risks and benefits associated with switching auditors.

Q4: What are the implications of the study for auditors?

A4: The study emphasizes the need for auditors to be aware of the factors that influence auditor switching, in order to provide better services to their clients. Auditors should also be prepared to adapt to changing client needs and preferences.

Q5: What are the implications of the study for regulatory bodies?

A5: The study highlights the need for regulatory bodies to consider the implications of auditor switching, in order to ensure that the audit process is conducted efficiently and effectively. Regulatory bodies should also be aware of the potential risks and benefits associated with auditor switching.

Q6: What are the limitations of the study?

A6: The study has several limitations, including a small sample size, reliance on secondary data, and a qualitative research approach. These limitations should be considered when interpreting the findings of the study.

Q7: What are the future research directions?

A7: The study highlights several areas for future research, including exploring other variables that might affect auditor switching, understanding the dynamics between the company and the auditor, and developing a framework for auditor switching.

Q8: What are the practical implications of the study for companies, auditors, and regulatory bodies?

A8: The study has several practical implications for companies, auditors, and regulatory bodies. Companies should consider multiple factors when planning to replace auditors, while auditors should be aware of the factors that influence auditor switching. Regulatory bodies should also consider the implications of auditor switching and be aware of the potential risks and benefits associated with it.

Conclusion

The Q&A section provides further clarification on the findings and implications of the study. The study highlights the importance of considering multiple factors when planning to replace auditors, and the need for auditors to be aware of the factors that influence auditor switching. Regulatory bodies should also consider the implications of auditor switching and be aware of the potential risks and benefits associated with it.

Final Thoughts

The study provides valuable insights into the factors that influence auditor switching in LQ-45 index companies on the Indonesia Stock Exchange. The findings of the study have several implications for companies, auditors, and regulatory bodies, and highlight the need for further research in this area.