Audit Quality and Earning’s Management After the Implementation of Key Audit Matters – Jakarta’s Public Accountants Perspective

Authors

  • Muhammad Fakhri Universitas Indonesia
  • Fitriany Fitriany Universitas Indonesia

DOI:

https://doi.org/10.31851/jmksp.v9i1.14110

Keywords:

Agency Conflicts, Audit Quality, Auditor Report, Earnings Management, Key Audit Matters

Abstract

The development of SA 701, and changes to SA 700, has led to a greater emphasis on “Key Audit Matters” (HAU) in the independent auditor’s report. HAUs are the parts of the financial statements that are important and require more attention during the audit process. HAUs are considered to increase the transparency and usefulness of the auditor’s report for stakeholders, as well as assist the auditor in communicating significant risk areas during the audit. This study aims to analyse the factors that influence audit quality, earnings management practices, and the impact of HAU implementation on audit reports in Indonesia. This research uses qualitative methods with direct interview data collection with public accountants in the area around DKI Jakarta. the results of this research found that material errors are considered crucial in audit quality. HAU-related changes help to reduce errors. Views on auditor independence influenced judgements on audits and compliance with auditing standards was key.  The introduction of HAU is considered to increase transparency.

References

Alhadab, M., & Clacher, I. (2018). The impact of audit quality on real and accrual earnings management around IPOs. The British Accounting Review, 50(4), 442–461. https://doi.org/10.1016/j.bar.2017.12.003

An, R., Li, W., Wang, D., Wang, Y., & Yu, L. (2023). Do Key Audit Matters Affect Operating Activities? Evidence from Inventory Management. Abacus, 59(1), 300–339. https://doi.org/10.1111/abac.12269

Botes, V., Low, M., & Sutton, A. (2020). Key audit matters and their implications for the audit environment. International Journal of Economics and Accounting, 9(4), 374–396. https://doi.org/10.1504/IJEA.2020.110164

Cassell, C. A., Myers, L. A., & Seidel, T. A. (2015). Disclosure transparency about activity in valuation allowance and reserve accounts and accruals-based earnings management. Accounting, Organizations and Society, 46, 23–38. https://doi.org/10.1016/j.aos.2015.03.004

Çeti̇n, E., & Yaşar, A. (2021). The Association Between Audit Quality and Earnings Management Using Classification Shifting. İşletme Bilimi Dergisi, 9(2), Article 2. https://doi.org/10.22139/jobs.958329

Hamzah, A. H. P., Nurhasanah, N., & Soesanta, P. E. (2023). Population Growth and Environmental Damage Issues (A Review of Environmental Damage on Land Conversion Perspective in North Jakarta). JMKSP (Jurnal Manajemen, Kepemimpinan, Dan Supervisi Pendidikan), 8(2), 614–623. https://doi.org/10.31851/jmksp.v8i2.11281

Hu, Z., Li, Y., Lin, B., & Kleinman, G. (2022). The impact of key audit matter reporting on analyst forecast accuracy and forecast dispersion: Evidence from Chinese listed firms. Managerial Auditing Journal, 38(3), 288–313. https://doi.org/10.1108/MAJ-08-2021-3291

Jensen, M. C., Meckling, W. H., & Holderness, C. G. (1986). Analysis of alternative standing doctrines. International Review of Law and Economics, 6(2), 205–216. https://doi.org/10.1016/0144-8188(86)90004-9

Khader, O. (2023). Impact of Audit Quality on the Firms Performance and the Mediation of Accrual Earning Management—Conceptual Paper. In B. Alareeni & A. Hamdan (Eds.), Sustainable Finance, Digitalization and the Role of Technology (pp. 217–227). Springer International Publishing. https://doi.org/10.1007/978-3-031-08084-5_16

Kilgore, A., Harrison, G., & Radich, R. (2014). Audit quality: What’s important to users of audit services. Managerial Auditing Journal, 29(9), 776–799. https://doi.org/10.1108/MAJ-08-2014-1062

Kristilestari, C. C., & Andesto, R. (2023). Influence of the Independence of the Board of Commissioners, the Competency of the Committee Audit, and Audit Quality on Earnings Management and its Implications on Firm Value (Empirical Study of Non-Financial State-Owned Enterprises that go Public in the. Dinasti International Journal of Education Management And Social Science, 4(4), 526–541. https://doi.org/10.31933/dijemss.v4i4.1797

Kusuma, M. A., & Malau, M. (2023). Analysis of Audit Quality, Bonus Mechanism, and Company Size on Earning Management with Managerial Ownership as Moderating. Journal of Economics, Finance and Accounting Studies, 5(3), Article 3. https://doi.org/10.32996/jefas.2023.5.3.5

Liemmuel, S. E., & Eriandani, R. (2022). Relevance of Accounting Information: Audit Quality and Earnings Management as Moderating Variable. Jurnal Dinamika Akuntansi, 14(2), Article 2. https://doi.org/10.15294/jda.v14i2.37575

Lin, J. W., & Hwang, M. I. (2010). Audit Quality, Corporate Governance, and Earnings Management: A Meta-Analysis. International Journal of Auditing, 14(1), 57–77. https://doi.org/10.1111/j.1099-1123.2009.00403.x

Maijoor, S. J., & Vanstraelen, A. (2006). Earnings management within Europe: The effects of member state audit environment, audit firm quality and international capital markets. Accounting and Business Research, 36(1), 33–52. https://doi.org/10.1080/00014788.2006.9730005

Pratiwi, C. N., Burhanudin, B., Gozali, E. O. D., & Hamzah, R. S. (2022). Auditor quality and real earning management of state-owned enterprises in Indonesia. Journal of Innovations and Sustainability, 6(3), Article 3. https://doi.org/10.51599/is.2022.06.03.02

Preussner, N. A., & Aschauer, E. (2022). The Accuracy and Informativeness of Management Earnings Forecasts: A Review and Unifying Framework. Accounting Perspectives, 21(2), 273–330. https://doi.org/10.1111/1911-3838.12294

Sai, Q., Li, Y., Liu, Y., Zhao, H., & Ouyang, S. (2024). Audit report information improvement and earnings management. International Journal of Finance & Economics, 29(1), 425–442. https://doi.org/10.1002/ijfe.2692

Segal, M. (2019). Key audit matters: Insight from audit experts. Meditari Accountancy Research, 27(3), 472–494. https://doi.org/10.1108/MEDAR-06-2018-0355

Sirois, L.-P., Bédard, J., & Bera, P. (2018). The Informational Value of Key Audit Matters in the Auditor’s Report: Evidence from an Eye-Tracking Study. Accounting Horizons, 32(2), 141–162. https://doi.org/10.2308/acch-52047

Sitanggang, T., Aryati, T., Pamungkas, B., & Agoes, S. (2022). The Role of the Audit Committee to Increase the Influence of Audit Quality and Internal Control on Earning Management. Technium Social Sciences Journal, 29, 399.

Su, M. (2022). Study on the Problems and Countermeasures of Leading Cadres’ Natural Resources Assets Outgoing Audit in S City. Frontiers in Business, Economics and Management, 5(3), Article 3. https://doi.org/10.54097/fbem.v5i3.2025

Wahab, Y. A. A. K., Velashani, M. A. B., & Salehi, M. (2023). A comparative study of the relationship between audit quality and earnings management in the markets of Iraq and Oman. Journal of Infrastructure, Policy and Development, 7(3), Article 3. https://doi.org/10.24294/jipd.v7i3.2813

Wiratno, D. H., Krismiaji, K., Handayani, H., & Sumayyah, S. (2023). Financial Distress, Audit Quality, and Earnings Management–Indonesia’s Mining Sector Evidence. Jurnal Maksipreneur: Manajemen, Koperasi, Dan Entrepreneurship, 12(2), Article 2. https://doi.org/10.30588/jmp.v12i2.1502

Xuan, J. (2022). The Construction of the Evaluation Index for the Outgoing Auditing of the Natural Resource Assets of Local Leading Cadres Based on the Analytic Hierarchy Process. Applied Bionics and Biomechanics, 2022, e1215842. https://doi.org/10.1155/2022/1215842

Zeng, Y., Zhang, J. H., Zhang, J., & Zhang, M. (2021). Key Audit Matters Reports in China: Their Descriptions and Implications of Audit Quality. Accounting Horizons, 35(2), 167–192. https://doi.org/10.2308/HORIZONS-19-189

Downloads

Published

2024-02-01

How to Cite

Fakhri, M., & Fitriany, F. (2024). Audit Quality and Earning’s Management After the Implementation of Key Audit Matters – Jakarta’s Public Accountants Perspective. JMKSP (Jurnal Manajemen, Kepemimpinan, Dan Supervisi Pendidikan), 9(1), 367–382. https://doi.org/10.31851/jmksp.v9i1.14110