The Effect of Audit Firm Age and Audit Tenure on Audit Quality (An Empirical Study on Trusted Company Awardees Listed in Indonesia Stock Exchange 2011-2016)

Abstract

Indonesia’s go public companies are the main backbone of its economy. As of January 2019, there are 620 listed companies in Indonesia Stock Exchange. The Indonesian Institute for Corporate Directorship yearly acknowledges listed companies and gives award categorized as the most trusted, trusted and fairly trusted companies every year. This study aimed to explain the effect of audit firm age and audit tenure on audit quality for the trusted company awardees from 2011-2016. An explantory method is used in this study since it depicts the cause and effect relationship. Data gathered will be processed, analyzed, presented, interpreted and concluded in a way that it will clarifies the matters about audit firm age and audit tenure on audit quality. There were 36 firm year observation as sample which was derived the companies that were awarded for six consecutive years. A multivariate analysis was used in processing and analyzing the secondary data. The findings partially showed that audit firm age has no significant effect on audit quality while audit tenure showed that there is a significant effect on audit quality. In addition to the findings mentioned, it simultaneously showed that audit firm age and audit tenure on audit quality. When the two variables are combined it affects the audit quality. This means that the two variables, audit firm age and audit tenure should go hand in hand together in achieving audit quality. Audit firm age, although not significant, must be taken
into consideration. The longer the firm, it is expected to increase audit quality. Audit tenure has to do with objectivity in which it will lead to audit quality. Long tenure is avoided by following the government regulations. As much as possible, in every audit engagement, audit work must appear to be very objective, unbiased, and impartial thus resulting to high audit quality. As for recommendation, researcher must add more samples in order to be more representative. Also, other variables may be taken into consideration as a proxy for audit
quality.