The effect of political connection and effectiveness of audit committee on audit fee

Fitri Nurjanah; Erina Sudaryati

doi:10.14414/tiar.v9i2.1848

Vol. 9 No. 2 (2019), Articles

Vol. 9 No. 2 (2019)

The effect of political connection and effectiveness of audit committee on audit fee

Articles

DOI: 10.14414/tiar.v9i2.1848

Published 2019-10-29

Fitri Nurjanah
Erina Sudaryati

Fitri Nurjanah

Erina Sudaryati

PDF

Supplementary Files

Turnitin

Translate Article

Sunting article

PDF

Keywords

political connection
effectiveness of audit committee
and audit fee

How to Cite

Nurjanah, Fitri, and Erina Sudaryati. “The Effect of Political Connection and Effectiveness of Audit Committee on Audit Fee”. The Indonesian Accounting Review, vol. 9, no. 2, Oct. 2019, pp. 227-34, https://doi.org/10.14414/tiar.v9i2.1848.

This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.

Abstract

This study analyzes the effect of political connection and effectiveness of audit committee on audit fee. This study uses the sample of non-financial companies listed on the Indonesia Stock Exchange (IDX) in 2015-2017. They were take using a purposive sampling method. The total number of companies is 444 companies. The data were analyzed using SPSS 20 and the hypothesis testing was done using linear regression with a significance level of 5%. The F test indicates that the research model is stable and significant. The value of R square is 38.4%, indicating that there are other variables that can affect the model by 61.6%. The results of this study show that political connection has a significant positive effect on audit fee and the effectiveness of audit committee also has a significant positive effect on audit fee because audit committee wants a higher audit quality from the auditor.

References

Abbott, L. J., & Parker, S. 2000. Auditor selection and audit committee characteristics. Auditing: A journal of practice & theory, 19(2), 47-66.

Ali, M. J., Singh, R. K. S., & Al-Akra, M. 2018. The impact of audit committee effectiveness on audit fees and non-audit service fees: Evidence from Australia. Accounting Research Journal, 31(2), 174-191.

Arens, A. A., Elder, R. J., & Beasly, m. S. 2014. Auditing and assurance services (15 edition ed.): pearson education.

Ariningrum, I., & Diyanty, V. 2017. The Impact of Political Connections and the Effectiveness of Board of Commissioner and Audit Committees on Audit Fees. Australasian Accounting, Business and Finance Journal, 11(4), 53-70.

Arnold, V., Bedard, J. C., Phillips, J. R., & Sutton, S. G. 2012. The impact of tagging qualitative financial information on investor decision making: implications for XBRL. International Journal of Accounting Information Systems, 13(1), 2-20.

There are 51 references. More references >>

Abbott, L. J., & Parker, S. 2000. Auditor selection and audit committee characteristics. Auditing: A journal of practice & theory, 19(2), 47-66.

Ali, M. J., Singh, R. K. S., & Al-Akra, M. 2018. The impact of audit committee effectiveness on audit fees and non-audit service fees: Evidence from Australia. Accounting Research Journal, 31(2), 174-191.

Arens, A. A., Elder, R. J., & Beasly, m. S. 2014. Auditing and assurance services (15 edition ed.): pearson education.

Ariningrum, I., & Diyanty, V. 2017. The Impact of Political Connections and the Effectiveness of Board of Commissioner and Audit Committees on Audit Fees. Australasian Accounting, Business and Finance Journal, 11(4), 53-70.

Arnold, V., Bedard, J. C., Phillips, J. R., & Sutton, S. G. 2012. The impact of tagging qualitative financial information on investor decision making: implications for XBRL. International Journal of Accounting Information Systems, 13(1), 2-20.

Bedard, J. C., & Johnstone, K. M. 2004. Earnings manipulation risk, corporate governance risk, and auditors' planning and pricing decisions. The Accounting Review, 79(2), 277-304.

Carcello, J. V., Hermanson, D. R., Neal, T. L., & Riley Jr, R. A. 2002. Board characteristics and audit fees. Contemporary Accounting Research, 19(3), 365-384.

Chaney, P. K., Faccio, M., & Parsley, D. 2011. The quality of accounting information in politically connected firms. Journal of accounting and Economics, 51(1-2), 58-76.

Chen, E. T., & Nowland, J. 2010. Optimal board monitoring in familyâ€owned companies: Evidence from Asia. Corporate Governance: An International Review, 18(1), 3-17.

Craswell, A. T., Francis, J. R., & Taylor, S. L. 1995. Auditor brand name reputations and industry specializations. Journal of accounting and Economics, 20(3), 297-322.

Faccio, M. 2006. Politically connected firms. American economic review, 96(1), 369-386.

Fama, E. F., & Jensen, M. C. 1983. Separation of ownership and control. The journal of law and Economics, 26(2), 301-325.

Fernandez, A. 2018. Para pengusaha di balik partai politik/Interviewer: T. Hadiyantono. KONTAN.co.id, jakarta.

Fisman, R. 2001. Estimating the Value of Political Connections. The American Economic Review, 91(4), 1095-1102.

Francis, J. R., & Wilson, E. R. 1988. Auditor changes: A joint test of theories relating to agency costs and auditor differentiation. Accounting Review, 663-682.

GarcÃa-Ramos, R., & GarcÃa-Olalla, M. 2014. Board independence and firm performance in Southern Europe: A contextual and contingency approach. Journal of Management & Organization, 20(3), 313-332.

Ghosh, A. A., & Tang, C. Y. 2015. Assessing financial reporting quality of family firms: The auditors×³ perspective. Journal of Accounting and Economics, 60(1), 95-116.

Ghozali, I. 2009. Ekonometrika, Teori dan Aplikasi dengan Program SPSS. Semarang: Badan Penerbit Universitas Diponegoro.

Ghozali, I. 2013. Analisis Multivariate dengan Program IBM SPSS 21: Semarang: Universitas Diponegoro.

Goodwinâ€Stewart, J., & Kent, P. 2006. Relation between external audit fees, audit committee characteristics and internal audit. Accounting & Finance, 46(3), 387-404.

Gul, F. A. 2006. Auditors' response to political connections and cronyism in Malaysia. Journal of Accounting Research, 44(5), 931-963.

Huang, C.-J. 2010. Board, ownership and performance of banks with a dual board system: Evidence from Taiwan. Journal of Management & Organization, 16(2), 219-234.

Jensen, M. C., & Meckling, W. H. 1976. Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of financial economics, 3(4), 305-360.

Johnson, S., & Mitton, T. 2003. Cronyism and capital controls: evidence from Malaysia. Journal of Financial Economics, 67(2), 351-382.

Karamanou, I., & Vafeas, N. 2005. The association between corporate boards, audit committees, and management earnings forecasts: An empirical analysis. Journal of Accounting Research, 43(3), 453-486.

Khan, A., Mihret, D. G., & Muttakin, M. B. 2016. Corporate political connections, agency costs and audit quality. International Journal of Accounting & Information Management, 24(4), 357-374. doi:10.1108/ijaim-05-2016-0061

Knechel, W. R., & Willekens, M. 2006. The role of risk management and governance in determining audit demand. Journal of Business Finance & Accounting, 33(9â€10), 1344-1367.

Kroszner, R. S., & Stratmann, T. 1998. Interest-group competition and the organization of congress: theory and evidence from financial services' political action committees. American economic review, 1163-1187.

Li, H., Meng, L., Wang, Q., & Zhou, L.-A. 2008. Political connections, financing and firm performance: Evidence from Chinese private firms. Journal of development economics, 87(2), 283-299.

Lin, J. W., Li, J. F., & Yang, J. S. 2006. The effect of audit committee performance on earnings quality. Managerial Auditing Journal, 21(9), 921-933.

Muniandy, B., & Ali, M. J. 2012. Ownership Concentration, Political Connection And Audit Fees: Some Evidence From Malaysian Capital Market. Corporate Ownership & Control, 400.

Musah, A. 2017. Determinants of audit fees in a developing economy: evidence from Ghana. International Journal of Academic Research in Business and Social Sciences, 7(11), 716-730.

Ramsay, I., Stapledon, G., & Vernon, J. 2001. Political donations by Australian companies. Federal Law Review, 29(2), 179-221.

Rittenberg, L. E., & Nair, R. D. 1993. Improving the effectiveness of audit committees: Institute of Management Accountants.

Safari, M. 2017. Board and audit committee effectiveness in the post-ASX Corporate Governance Principles and Recommendations era. Managerial Finance, 43(10), 1137-1151.

Salehi, M., & Shirazi, M. 2016. Audit committee impact on the quality of financial reporting and disclosure: Evidence from the Tehran Stock Exchange. Management Research Review, 39(12), 1639-1662.

Septyaningsih, I. 2017. OJK: Pasar Modal Indonesia Berkembang Sangat Pesat. republika.

Setyawan, F. A. 2017. Ombudsman: 222 Komisaris BUMN Rangkap Jabatan. cnn indonesia.

Simunic, D. A. 1980. The pricing of audit services: Theory and evidence. Journal of accounting research, 161-190.

Srinidh, B., Zhang, H., & Zhang, T. 2011. Transparency in politically connected firms: Evidence from private sector firms in China City University of Hong Kong Working Paper.

Sulistyanto, S. 2008. Manajemen Laba (Teori & Model Empiris): Grasindo.

Tee, C. M. 2018. Family firms, political connections and audit fees: evidence from Malaysian firms. Managerial Auditing Journal, 33(6/7), 613-632.

Vafeas, N. 2005. Audit committees, boards, and the quality of reported earnings. Contemporary Accounting Research, 22(4), 1093-1122.

Vafeas, N., & Waegelein, J. F. 2007. The association between audit committees, compensation incentives, and corporate audit fees. Review of Quantitative Finance and Accounting, 28(3), 241-255.

Veronica, S., & Bachtiar, Y. S. 2005. Corporate governance, information asymmetry, and earnings management. Jurnal Akuntansi dan Keuangan Indonesia, 2(1), 77-106.

Wahab, E. A. A., Zain, M. M., & James, J. 2011. Political connections, corporate governance and audit fees in Malaysia. Managerial Auditing Journal, 26(5), 393-418.

Wahab, E. A. A., Zain, M. M., James, K., & haron, H. 2009. Institutional investors, political connection and audit quality in Malaysia. Accounting Research Journal, 22(2), 167-195.

Walker, G. R., & Reid, T. 2002. Upgrading corporate governance in East Asia: Part 1.

Wu, X., & Li, H. 2015. Board independence and the quality of board monitoring: Evidence from China. International Journal of Managerial Finance, 11(3), 308-328.

Yu, F., & Yu, X. 2011. Corporate lobbying and fraud detection. Journal of Financial and Quantitative Analysis, 46(6), 1865-1891.

Zaman, M., Hudaib, M., & Haniffa, R. 2011. Corporate governance quality, audit fees and nonâ€audit services fees. Journal of Business Finance & Accounting, 38(1â€2), 165-197.

The effect of political connection and effectiveness of audit committee on audit fee

Supplementary Files

Keywords

How to Cite

Download Citation

Abstract

References