Professional Documents
Culture Documents
Junaidi
Universitas Teknologi Yogyakarta
(masjun.junaidi@gmail.com)
Jogiyanto Hartono
Universitas Gadjah Mada
(jogiyantomsi@gmail.com)
Abstract
This paper describes the influence of tenure, auditor reputation, disclosure, and the
size of the client company on a going concern opinion. Audit opinion issued by the auditor
is expected by users of the quality of information, because as the basis for investment
decisions. Going-concern audit opinion is an opinion issued by auditors to ascertain
whether the company can maintain its existence. Studies on the factors that affect the audit
opinion have been carried out both overseas and in Indonesia. The factors used are vary
and the results are not conclusive. This study uses 89 sample firms listed on the Indonesia
Stock Exchange in 2003-2008. Logit regression analysis shows that the tenure, auditor
reputation, disclosure has a significant on going-concern opinion while the client company
size has no effect on going-concern opinion.
Keywords: tenure, auditor reputation, disclosure, size, going-concern opinion
and Rama (2006) affects the reputation of use of accounting methods in preparing
auditor going-concern opinion. Mutchler et al. financial statements, company policies, com-
(1997) found evidence of univariate where pany co-operation with a related party com-
big-six auditors tend to issue going concern pany, as well as events after the balance sheet
audit opinions on the companies that experi- date in terms of giving an opinion going
enced financial distress than non-big six concern.
auditors. Auditors can provide large-scale Firm size can be seen from the company's
audit of a better quality than small auditors, financial condition such as the amount of total
including revealing the going-concern issues. assets. Santosa and Wedari (2007) found that
This was also confirmed by studies of Geiger the size have an effect on going-concern opin-
and Rama (2006). Geiger and Rama (2006) ion, whereas, Januarti and Fitrianasari (2008)
examine the differences in audit quality find empirical evidence that company size
between Big 4 accounting firm and non-Big 4. does not influence the client's opinions issued
Results showed that the level of Type I and II by auditors.
errors generated by the Big 4 were lower than
non-Big 4. Haron et al. (2009) examined the THEORETICAL FRAMEWORK AND
effect of financial conditions, the type of HYPOTHESIS DEVELOPMENT
evidence and disclosure of going-concern
opinion. Multivariate regression analysis 1. Going Concern in The Accounting and
showed that the financial indicators, the type Auditing
of evidence and disclosure affected going- An underlying assumption of the
concern opinion. accounting process will continue as the
Januarti and Fitrianasari (2008) stated that company reported a going concern. This
tenure is not significant, while according to means that an entity will be able to maintain
Geiger and Raghunandan (2002), Gosh and its business in the long term and will not be
Moon (2004), these variables significantly liquidated. The financial statements measure
affect the going-concern opinion. Decision of the financial position information about an
the Chairman of Bapepam and LK No: Kep- entity and the results of operations. Auditors'
310/BL/2008 in Regulation No. VIII.A.2 report adds a qualitative dimension to the
about the independence of public accountants information. Auditors are intermediaries be-
who provide services in the capital markets, tween providers and users of financial
suggests that public accounting firm shall have statements that report. Within the boundaries
quality control with a sufficient level of of GAAP, it is a burden the auditor to
confidence that the public accounting firm or conclude fairness the financial statements.
its employees can maintain an independent Financial statement users entrust independent
attitude. But when the relationship between auditors to mention the situation of concern to
client and accounting firm has been going on those who have an impact on fairness of
for years, clients can be viewed as a source of presentation of financial statements in confor-
income for the accounting firm, which mity with GAAP.
potentially can reduce the independence of the Going-concern audit opinion is an opinion
accounting firm (Yuvisa et al., 2008). issued by auditors to ascertain whether the
Haron et al. (2009) found that disclosure company can maintain its existence (SPAP,
affect going-concern opinion. Disclosure of 2001). In 1988, the Auditing Standard Board
financial statements is very important informa- (ASB) issued Statement on Auditing Standard
tion for the auditors, for example, disclosure (SAS) No. 59: The auditor's consideration of
of financial information about the consistent an entity's ability to continue as a going
2010 Junaidi & Hartono 371
concern, which require auditors to evaluate auditors) where a large accounting firm audits
whether there is substantial doubt about the provide a higher quality than the small firm
ability of the client company to continue as a which has no reputation. This is supported also
going concern. SAS asked the auditor to by Lennox (1999), Li et al. (2005), and
accumulate and evaluate evidence to deter- Francis and Yu (2009) From the description
mine whether the going concern status is above, hypotheses is formulated as follows:
questionable. If auditor finds a reason for
doubt the sustainability of a company based H1: Auditor reputation affects auditors issued
testing, so he/she considers the issuance of a going concern opinion by the auditors.
going-concern opinion. Because auditors are
not looking for such evidence, the acquisition 2.2. Tenure
of information in the normal pattern analysis Tenure is the length of auditor-client
of the audit would encourage consideration the relationship measured by the number of years
possibility of spending going-concern opinion. (Geigher and Raghunandan 2002). When
The decision making in uncertainty condition auditors have long term relationships with
through two stages processes. The first stage is clients, this will encourage a greater under-
to identify the characteristics of the company standing of clients' financial condition and
as a potential recipient of going-concern therefore they will tend to detect a problem of
opinion. The second stage is to produce a final going concern.
opinion in the selection analysis.
Regulation of the Minister of Finance No.
17/PMK.01/2008 about public accountant’s
2. Literature Review and Hypotheses
services mentioned that the provision of
2.1. Auditor Reputation general audit on the financial statements of an
Auditor reputation is indicated by the size entity made by the acconting firm at the latest
of audit firm. Auditors are responsible for six consecutive fiscal year by a public
providing high quality information that is accountant and a maximum of three consecu-
useful for decision making. Reputable auditors tive fiscal year succession. Accounting firm
likely will issue a going-concern audit opinion and public accountants can receive reaudit
if there are problems concerning the client’s services after one year did not audit client.
going concern. DeAngelo (1981) have The study of factors associated with
theoretically analyzed the relationship between duration of the assignment relationship be-
audit quality and accounting firm size. He tween public accountant with a client (tenure)
argued that large auditors will have more has been used by previous researchers
clients and the total fee will be allocated including: Sinason et al. (2001), Geiger and
among its clients. Furthermore, he also argued Raghunandan (2002), Gosh and Moon (2004),
that large auditors are more independent, and Carcello and Nagy (2004), Jackson et al.
therefore, will provide a higher quality of (2007), Januarti and Fitrianasari (2008) and
audits. Yuvisa I et al. (2008).
Krishnan and Schauer (2000) classify Sinason et al. (2001) examine duration of
public accounting firm small and big as the audit relationship with a client and the
follows: (1) is a big accounting firm included factors influencing auditor tenure. Research
in the big six accounting firm, and (2) a small variables used are: size of accounting firm,
accounting firm is not included in the big six size of company clients, client growth, corpo-
accounting firm. Choi et al. (2007) stated that rate risk, unqualified audit opinion and auditor
the big accounting firm is a firm that has a big switching. The result states that auditor tenure
international names (including the big four does not affect the auditor in giving unquali-
372 Journal of Indonesian Economy and Business September
fied opinion on the consolidated financial bigger. Ballesta and Garcia (2005) argue that,
clients. Januarti and Fitriani (2008) states that the big companies have better management in
tenure has no effect on auditor’s going-con- managing the company and their ability to
cern opinion. produce quality financial statements than
Geiger and Raghunandan (2002) exam- small firms. In studies of qualified audit opin-
ined regarding auditor tenure and audit report- ions received by a public company in Spain,
ing failures. In their study, they used multi- they find empirical evidence that, the trend of
variate analysis to examine the relationship companies that received qualified audit
between audit opinion issued when prior to opinion is a company in financial trouble,
bankruptcy and duration of audit relationships. while well-managed company and presenting
Their research shows that significant audit financial statements in accordance with the
reporting failures occurred in the early years quality in terms of the actual state of the
of contact with clients than auditors when company, tend to receive a clean opinion from
auditors have provided services for the long auditors. Santosa and Wedari (2007) found
term. Gosh and Moon (2004) find empirical that the size (size of company) have an effect
evidence that auditor tenure significantly on going-concern opinion, whereas Januarti
affect the improvement of audit quality. and Fitrianasari (2008) found empirical evi-
Therefore, the hypothesis is presented as dence that the client company size has no
follows: effect on going-concern opinion issued by
auditors. Subsequently the hypothesis is
H2: Tenure affects the issuance of going formulated as follows:
concern opinion by the auditor.
H4: Firm size affects the issuance of going-
2.3. Disclosure concern opinion by the auditors.
Geiger and Rama (2006), but differs with the company can maintain its existence (SPAP
findings conducted by Fitrianasari Januarti 2001). The sample consisted of 89 firms from
(2008) who found that reputation does not the years 2003-2008. Of the 534 observations,
affect the auditors' going-concern opinion. 347 firms received a going-concern opinion
Lennox (1999) found evidence of an and 187 receive non going-concern opinion.
auditor of significantly more likely to give Hypothesis testing results indicated that three
going-concern opinion to the company and non-financial variables tested were significant
give failing to non-clean opinion failing com- (tenure, reputation, and disclosure) and 1 non-
pany when compared with a small accounting financial variable is not significant (size). The
firm. Li et al. (2005) also found evidence that auditors and investor can concern this finding
large firm tends to provide a higher quality related to audit quality. Auditor as a mediator
than the small firm. Geiger and Rama (2006) between users of financial statements and
also showed that the level of Type I and II management must be able to give an opinion
errors generated by the Big 4 are lower than which can be accounted for by the user
non-Big 4 information.
This research only tests that are consid-
5.3. Testing Hypothesis 3 ered non-financial variables affect the going-
concern opinion for observations from 2003 to
Hypothesis testing was conducted to
2008. Further research may be extended to test
examine whether the disclosure affect the
the financial factors, non-financial factors and
going-concern opinion. Table 6. shows that
market factors that can affect the expected
disclosure variable p-value of 0.000 is smaller
going-concern opinion, and also expanding the
than 0.05. Therefore we can conclude that H3
research samples.
is supported, statistically. The disclosure,
significantly affect the going-concern opinion
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2010 Junaidi & Hartono 377