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Indonesia includes as a few countries that apply the rule of audit rotation, not only for audit partners but also for audit firm. This regulation creates quasi (unreal) rotation. This research investigates whether there are difference in audit quality between real and quasi audit rotation, rotation audit firm from Big 4 to Non Big 4 and rotation audit partner from the same and different audit firm. The audit quality is measured by four earning quality (predictive value, timeliness, representational faithfulness and neutrality perspective). The sample data are the public listed companies from period before the regulation (1999-2001) to period after the regulation (2004-2008).
This study found in general it has not found yet the evidence that there are differences between the real rotation of audit quality and quasi rotation. There were no differences in the audit quality between Big and non-Big in other measurements, this indicates that audit quality of the non-Big 4 after regulation is getting better compare to pre regulation period. If there is a change in audit partner , in the pre regulation, it was found that companies that change their audit partner from the different audit firm, has higher audit quality in terms of timeliness but lower in audit quality from neutrality perspective he same audit firm. In the period after regulation, audit partner rotation from different audit firm produces higher quality audits only in terms of predictability. There is no different in audit quality from the side of neutrality, timeliness, and the representation of faithfulness. This is likely due to the new audit partner must re-assertion and re-assessment of risks as well as various other audit procedures to produce better predictability than when audit partner switched from the same audit firm. Based on these findings, it can be concluded that the rules of rotation do not affect to the audit quality, but audit quality from non-big 4 has increases with the rules. Therefore, it needs considering the other rules that can improve the quality of audits.
Fitriany Abdul Mutholib, University Indonesia
Sidharta Utama, University of Indonesia
Dwi Martani, University of Indonesia
Hilda Rossieta, Universitas Indonesia