The Impact of Audit Market Concentration on Audit Quality: Evidence from Indonesia

Mutiara Clarina, Fitriany Fitriany



This study examines the impact of audit market concentration on audit quality when regulation about mandatory audit firm rotation are applied in Indonesia. This study used 2,578 firm-years of data from non-financial companies listed on the Indonesia Stock Exchange (IDX) during 2008–2015. Audit quality was measured by discretionary accruals and abnormal working capital, and market concentration was calculated by the Herfindahl–Hirschman Index. The study found that market concentration decrease the accrual discreationer and improves audit quality. This outcome is likely because auditors experience in a particular industry have a better understanding of industry risk and will thus undertake better audit planning and procedures that tend to improve audit quality. So, regulators need to encourage public accounting firms to specialise in specific areas and have better knowledge of the industry to make audit quality better.

Keywords: Audit market concentration; audit quality; Herfindahl index.


Kajian ini mengkaji impak penumpuan pasaran audit ke atas kualiti audit apabila peraturan diwajibkan penggiliran firma audit dilaksanakan di Indonesia. Kajian ini menggunakan data tahunan 2,578 firma bukan kewangan yang tersenarai di Bursa Saham Indonesia (IDX) bagi tempoh 2008-2015. Kualiti audit diukur menggunakan akruan boleh pilih dan modal kerja abnormal, dan penumpuan pasaran di kira menggunakan Indeks Herfindahl–Hirschman. Hasil kajian mendapati penumpuan pasaran mengurangkan penangguhan akruan dan meningkatkan kualiti audit. Hasil ini adalah kerana pengalaman juruaudit dalam sesuatu industri mempunyai kefahaman yang lebih baik ke atas risiko industri tersebut dan akan mempunyai perancangan dan prosedur audit yang lebih baik dan cenderung untuk menambahbaik kualiti audit. Oleh itu, pembuat dasar perlulah menggalakkan firma perakaunan awam untuk mengkhusus dalam bahagian tertentu dan mempunyai kefahaman yang baik dalam sesuatu industri untuk menjadikan kualiti audit yang lebih baik.

Kata kunci: Penumpuan pasaran audit; kualiti audit; Indeks Herfindahl.

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