CHALLENGES TO AUDIT QUALITY: HOW AUDIT FIRM TENURE MODERATES AUDIT MARKET CONCENTRATION, BRANCH OFFICES, PARTNER ROTATION, AND ASSIGNMENT LOADS

Abstract

Ensuring the reliability of financial reporting through high-quality audits is essential for attracting and retaining investor confidence. Therefore, our empirical analysis elaborates on how the interaction involving audit firm tenure and audit market concentration, branch offices, partner rotation, and assignment loads affects audit quality. The analysis addresses the gap between investor expectations and auditor responsibilities, highlighting the severe consequences of prolonged relationships on audit quality deficiencies. The empirical analysis incorporated data from publicly traded entities in Indonesia from 2018 to 2022, covering 2,685 firm-year observations. We utilized panel data regression techniques using STATA software. The outcomes demonstrate that audit market concentration and partner rotation have a favorable connection with audit quality, while the assignment loads have a detrimental effect. However, audit firm tenure moderates these relationships, diminishing the positive impact of market concentration and partner rotation and exacerbating the adverse effects of branch offices and assignment loads. The findings emphasize the need for policymakers to formulate policies that prevent prolonged relationships between audit firms and their clients by enforcing dual mandatory rotation, evaluating branch office strategies, and managing assignment workloads to maintain high audit quality. Investors should be cautious about the impact of a prolonged auditor-client association on their investment decisions.