Audit Tenure and Investor's Perception on Audit Quality Before and After Implementation of The SA 240

Abstract

Rampant cases of fraud in financial reporting raises questions about the independence and quality of the audit. Some parties claimed that audit quality may increase in line with a longer time of audit engagement. However, others believe that audit quality is getting worse by the longer time of audit engagement because it may reduce the independence. The financial statements resulting from a quality audit process is important because the information will be used by investors in making economic decisions. The present study aims to see the influence of public accountant audit tenure and public accounting firm audit tenure toward the perception of investors about the quality of audit as reflected from the earning response coefficient. This study also aims to find out the difference in influence of audit tenure on the perception of audit quality before and after implementation of the SA 240. This study was conducted by using multiple regression analysis on manufacturing companies listed in the Indonesia Stock Exchange in 2012 and 2013. The results of the study cannot prove the influence of public accountant audit engagement toward the audit quality perception. However, the result of this study proves that company profits that are audited by longer time audit engagement actually have a negative effect on investors' perception on the quality of audit. The study also proves that the public accountant engagement during the period of implementation of the SA 240 has a significant negative effect, but there is no significant effect on the period before the SA 240 implementation. The implication of this study is that the rules of the audit engagement should be reassessed to determine the appropriate time length of the audit engagement in order to improve the audit quality, thereby reducing the capital cost and does not create any false rotation.

Keywords: Audit Tenure, Audit Quality and Earning Response coefficient