FINANCIAL DISTRESS AND MANAGERIAL ABILITY ON AUDIT FEE

Jovan Krishna Lauwangsa, Vanya Amartyazenna Suryadi, Yang Elvi Adelina, Vania Pradipta Gunawan

Abstract


Research Purposes. This paper examines the effect of managerial ability on audit fees, examines the effect of financial difficulties on the relationship between managerial ability and audit fees, and examines the effect of opportunistic reporting carried out by management in the form of earning management on audit fees.

Research Method. The studies that were carried out used secondary data from 139 non-financial companies listed on the Indonesia Stock Exchange from 2016 to 2020.

Research Result and Findings. Through a linear regression of panel data, the study found that higher amount of audit fees was positively influenced by the manager's ability to manage company resources and found that abnormal cash flow real earning management had a positive influence on audit fees. The study also found that financial difficulties did not moderate the relationship between a company's managerial ability and its audit fees, but found that companies with financial difficulties had higher audit fees.

Save to Mendeley


Keywords


Earnings Management; Audit Fees; Managerial Ability; Financial Distress

Full Text:

PDF

References


Adams, R. B., & Ferreira, D. (2007). A Theory of Friendly Boards. The Journal of Finance, 62(1), 217–250. https://doi.org/10.1111/j.1540-6261.2007.01206.x.

Alali, F. (2011) Audit Fees and Discretionary Accruals: Compensation Structure Effect. Managerial Accounting Journal, 26(2), 90-113. https://doi.org/10.1108/02686901111094994.

Antle, R., Gordon, E., Narayanamoorthy, G., & Zhou, L. (2006). The Joint Determination of Audit Fees, Non-Audit Fees, and Abnormal Accruals. Revie of Quantitative Finance and Accounting, 27(3), 235–266. https://doi.org/10.1007/s11156-006-9430-y.

Azizah, W. (2017). Opportunistic Perspective of Accrual and Real Earnings Management in Indonesia. IOSR Journal of Business and Management, 9(11), 1-5. https://doi.org/10.9790/487X-1911070105.

Baik, B., Farber, D. B., & Lee, S. (2011). CEO Ability and Management Earnings Forecasts. Contemporary Accounting Research, 28(5), 1645–1668. https://doi.org/10.1111/j.1911-3846.2011.01091.x.

Beattie, V., & Fearnley, S. (1994). The Changing Structure of the Market for Audit Services in the UK—a Descriptive Study. British Accounting Review, 26(4), 301–322. https://doi.org/10.1006/bare.1994.1021.

Cheung, K. T. S., Naidu, D., Navissi, F., & Ranjeeni, K. (2017). Valuing Talent: Do CEOs’ Ability and Discretion Unambiguously Increase Firm Performance. Journal of Corporate Finance, 42(1): 15–35. https://doi.org/10.1016/j.jcorpfin.2016.11.006

Choi, J. H., Kim, J. B., & Zang, Y. (2006). The Association Between Audit Quality and Abnormal Audit Fees. Retrieved from https://papers.ssrn.com/sol3/papers.cfm?abstract_id=848067.

Choi, A., Lee, E. Y., Park, S., & Sohn, B. C. (2021). The Differential Effect of Accrual-Based and Real Earnings Management on Audit Fees: International Evidence. Accounting and Business Research, 52(3) 254-290. https://doi.org/10.1080/00014788.2021.1911779.

DeAngelo, L. E. (1981). Auditor Size and Audit Quality. Journal of accounting and economics, 3(3), 183-199. https://doi.org/10.1016/0165-4101(81)90002-1.

Demerjian, P., Lev, B., & McVay, S. (2012). Quantifying Managerial Ability: A New Measure and Validity Tests. Management Science, 58(7), 1229–1248. https://doi.org/10.1287/mnsc.1110.1487.

Demerjian, P. R., Lev, B., Lewis, M. F., & McVay, S. E. (2013). Managerial Ability and Earnings Quality. The Accounting Review, 88(2), 463–498. https://doi.org/10.2308/accr-50318.

Ebhodaghe, L., & Omoregie, N. (2020). The Effects of Accounting Scandals on Public Confidence in Financial Reports. Retrieved from https://www.researchgate.net/publication/342945124_THE_EFFECTS_OF_ACCOUNTING_SCANDALS_ON_PUBLIC_CONFIDENCE_IN.

Francis, B., Hasan, I., & Li, L. (2016). Abnormal Real Operations, Real Earnings Management, and Subsequent Crashes in Stock Prices. Review of Quantitative Finance and Accounting, 46, 217–260. https://doi.org/10.1007/s11156-014-0468-y

Ghozali, I. (2018). Aplikasi Analisis Multivariate dengan Program IBM SPSS 25. Semarang: Badan Penerbit Universitas Diponegoro.

Greiner, A., Kohlbeck, M. J., & Smith, T. J. (2017). The Relationship Between Aggressive Real Earnings Management and Current and Future Audit Fees. A Journal of Practice & Theory, 36(1), 85–107. https://doi.org/10.2308/ajpt-51516.

Gul, F. A., Khedmati, M., Lim, E. K., & Navissi, F. (2018). Managerial Ability, Financial Distress, and Audit Fees. Accounting Horizons, 32(1), 29–51. https://doi.org/10.2308/acch-51888.

Hackenbrack, K., Jenkins, N., & Pevzner, M. (2014). Relevant but Delayed Information in Negotiated Audit Fees. Auditing: A Journal of Practice & Theory, 33(4), 95–117. https://doi.org/10.2308/ajpt-50830.

Halim, A. (2015). Auditing (Dasar-Dasar Audit Laporan Keuangan). Yogyakarta: UPP STIM YKPN.

Hanmei, C., Jia, W., Li, S., & Liu, Z. (2021). Governmental Customer Concentration and Audit Pricing. Managerial Auditing Journal, 36(2), 334-362. https://doi.org/10.1108/MAJ-01-2019-2159.

Hendry, J. (2002). The Principal’s Other Problems: Honest Incompetence and Management Contracts, The Academy of Management Review, 27(1), 98–113. https://doi.org/10.2307/4134371.

Houston, R., Peters, M., & Pratt, J. (2005). Non-Litigation Risk and Pricing Audit Services. Auditing: A Journal of Practice & Theory, 24(1), 37–53. https://doi.org/10.2308/aud.2005.24.1.37.

Jensen, M. C., & Meckling, W. H. (1976). Theory Of The Firm: Managerial Behavior, Agency Costs and Ownership Structure. Journal of Finance Economics, 3(4), 305–360. https://doi.org/10.1016/0304-405X(76)90026-X.

Krishnan, G., & Wang, C. (2015). The Relation Between Managerial Ability and Audit Fees and Going Concern Opinions. Journal of Practice & Theory, 34(3), 139–160. https://doi.org/10.2308/ajpt-50985.

Lisic, L. L., Neal, T. L., Zhang, I. X., & Zhang, Y. (2016). CEO Power, Internal Control Quality, and Audit Committee Effectiveness in Substance Versus in Form. Contemporary Accounting Research, 33(3), 1199-1237. https://doi.org/10.1111/1911-3846.12177.

Maher, M. W., Tiessen, P., Colson, R., & Broman, A. J. (1992). Competition and Audit Fees. The Accounting Review, 67(1), 199–211.

Majid, M., Lysandra, S., Masri, I. & Azizah, W. (2020). Pengaruh Kecakapan Manajerial terhadap Manajemen Laba Akrual dan Riil. Jurnal Ilmiah Akuntansi dan Manajemen, 16(1), 70–84. https://doi.org/10.31599/jiam.v16i1.115.

Ohlson, J. (1980). Financial Ratios and The Probabilistic Prediction of Bankruptcy. Journal of Accounting Research 18(1), 109–131. https://doi.org/10.2307/2490395.

Puspita, E., & Kusumaningtyas, D. (2017). Pengaruh Mekanisme Kepemilikan Manajerial, Kecakapan Manajerial, Tingkat Pengungkapan Laporan Keuangan terhadap Manajemen Laba dengan Kualitas Audit sebagai Variabel Intervening. Efektor, 4(2), 31-35. https://doi.org/10.29407/e.v4i2.968

Raghunandan, K., & Rama, D. V. (1995). Audit Reports for Companies in Financial Distress: Before and After SAS No. 59. Auditing: A Journal of Practice & Theory, 14(1), 50-63.

Ratmono, D. (2010). Manajemen Laba Riil dan Berbasis Akrual: Dapatkah Auditor yang Berkualitas Mendeteksinya. Prodising. Simposium Nasional Akuntansi XIII: Purwokerto.

Schelleman, C., & Knechel, W. R. (2010). Short-Term Accruals and The Pricing and Production of Audit Services. Auditing: A Journal of Practice & Theory, 29(1), 221-250. https://doi.org/10.2308/aud.2010.29.1.221.

Schipper, K. (1989). Commentary on Earnings Management. Accounting Horizons, 3(4), 91-102.

Scott, J. (1976). A theory of optimal capital structure. The Bell Journal of Economics, 7(1), 33- 54. https://doi.org/10.2307/3003189.

Siregar, S. V., & Utama, S. (2008). Type of Earnings Management and The Effect of Ownership Structure, Firm Size, and Corporate-Governance Practices: Evidence from Indonesia. The International Journal of Accounting, 43(1), 1–27. https://doi.org/10.1016/j.intacc.2008.01.001

Skaife, H. A., Veenman, D., & Wangerin, D. (2013). Internal Control Over Financial Reporting and Managerial Rent Extraction: Evidence from The Profitability of Insider Trading. Journal of Accounting and Economics 55(1), 91–110. https://doi.org/10.1016/j.jacceco.2012.07.005.

Sulistiawan, D., Januarsi, Y., & Liza, A. (2011). Mengungkap Manajemen Laba dan Skandal Akuntansi. Jakarta: Salemba Empat.

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

Tian, J. (2014). Board Monitoring and Endogenous Information Asymmetry. Contemporary Accounting Research, 31(1). 136–151. https://doi.org/10.1111/1911-3846.12022.

Whisenant, S., Sankaraguruswamy, S., & Raghunandan, K. (2003). Evidence on the Joint Determination of Audit and Non‐Audit Fees. Journal of Accounting Research, 41(4), 721-744.

Wolfe, D. T., & Hermanson, D. R. (2004). The Fraud Diamond : Considering the Four Elements of Fraud. CPA Journal, 74(12), 38–42.

Zhang, T., & Huang, J. (2013). The Risk Premium of Audit Fee: Evidence from The 2008 Financial Crisis. China Journal of Accounting Studies, 1(1), 47–61. https://doi.org/10.1080/21697221.2013.781766.

Zhu, W. (2016). Accruals and Price Crashes. Review of Accounting Studies, 21(2), 349–399. https://doi.org/10.1007/s11142-016-9355-1.




DOI: https://doi.org/10.33508/jako.v15i1.4127