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Audit firm rotation and audit quality: Comparison before vs after the elimination of audit firm rotation regulations in Indonesia

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  • Inas Aisyah Widyaningsih
  • Iman Harymawan
  • Agus Widodo Mardijuwono
  • Eka Sari Ayuningtyas
  • Dyah Ayu Larasati

Abstract

This paper examines whether the changes in audit rotation policy affect the relationship between audit firm rotation and audit quality in Indonesia. This study uses 2,403 observations from 371 firms listed on the IDX for the period 2010–2017. This study uses Ordinary Least Squares regression to test the hypothesis. We find that, in the mandatory audit rotation period (pre-period), there is no significant association between audit rotation and audit quality. Interestingly, we find a positive relationship between audit rotation and audit quality in the voluntary audit rotation (post-period). Our result implies that voluntary audit rotation without any coercive regulation is more effective in improving audit quality. This research provides an insight to policy makers that eliminating the regulation of audit firm rotation is an effective decision to enhance audit quality.

Suggested Citation

  • Inas Aisyah Widyaningsih & Iman Harymawan & Agus Widodo Mardijuwono & Eka Sari Ayuningtyas & Dyah Ayu Larasati, 2019. "Audit firm rotation and audit quality: Comparison before vs after the elimination of audit firm rotation regulations in Indonesia," Cogent Business & Management, Taylor & Francis Journals, vol. 6(1), pages 1695403-169, January.
    • Handle: RePEc:taf:oabmxx:v:6:y:2019:i:1:p:1695403
    DOI: 10.1080/23311975.2019.1695403
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    Cited by:

    1. Florio, Cristina, 2024. "A structured literature review of empirical research on mandatory auditor rotation," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 55(C).
    2. Munkaila Aminu & Bomi Cyril Nomlala & Kiran Baldavoo, 2024. "Examining Mandatory Audit Firm Rotation and Audit Quality in South Africa: Practitioner and Academic Perspectives," International Journal of Economics and Financial Issues, Econjournals, vol. 14(3), pages 40-47, May.

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