Auditor’s specialization and audit fee in military-connected firms

Almira Zuniga Setiadi; Iman Harymawan

doi:10.20885/jaai.vol24.iss2.art3

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Abstract

The aim of this research is to analyze the association among auditor industry specialization, military connection, and audit fee. This study used 790 observations from 227 different firms that were listed in Indonesian Stock Exchange for the period 2010 to 2017. The analysis technique used in this research was Ordinary Least Square Regression analysis model processed with STATA 14.0 software. This study has found that auditor industry specialization is positively and significantly related to audit fee. The results indicated that the auditors perceived their specializations as a product differentiation which increased audit quality conducted, hence audit fee.

Keywords

Auditor Industry Specialization Military Connection Audit Fee

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References

Balsam, S, J Krishnan, and J S Yang. 2003. “Auditor Industry Specialization and Earnings Quality.” Auditing 22 (2): 71–97. https://doi.org/10.2308/aud.2003.22.2.71.
Beasley, M S, and K R Petroni. 2001. “Board Independence and Audit-Firm Type.” Auditing 20 (1): 97–114. https://doi.org/10.2308/aud.2001.20.1.97.
Benmelech, Efraim, and Carola Frydman. 2015. “Military CEOs.” Journal of Financial Economics. https://doi.org/10.1016/j.jfineco.2014.04.009.
Cahan, S F, J M Godfrey, J Hamilton, and D C Jeter. 2015. “The Association between Client-Specific Investment Opportunities and Audit Fees of Industry Specialists and Non-Specialists.” International Journal of Auditing 19 (2): 57–71. https://doi.org/10.1111/ijau.12029.
Cahan, S F, D C Jeter, and V Naiker. 2011. “Are All Industry Specialist Auditors the Same?” Auditing 30 (4): 191–222. https://doi.org/10.2308/ajpt-10181.
Duffy, Tim. 2006. “Military Experience & CEOs: Is There A Link?” Korn/Ferry International. 2006. https://militarymba.net/resources/MilitaryCEOReport.pdf.
Fisman, Raymond. 2001. “Estimating the Value of Political Connections.” American Economic Review 91 (4): 1095–1102. https://doi.org/10.1257/aer.91.4.1095.
Franke, Volker. 2001. “Generation X and the Military: A Comparison of Attitudes and Values between West Point Cadets and College Students.” Journal of Political and Military Sociology 29 (June): 92–119.
Gramling, Audrey, and Dan Stone. 2001. “Audit Firm Industry Expertise: A Review and Synthesis of the Archival Literature.” Journal of Accounting Literature 20 (January): 1–29.
Gul, Ferdinand A. 2006. “Auditors’ Response to Political Connections and Cronyism in Malaysia.” Journal of Accounting Research 44 (5): 931–63. https://doi.org/10.1111/j.1475-679X.2006.00220.x.
Habib, Ahsan, Abdul Haris Muhammadi, and Haiyan Jiang. 2017. “Political Connections, Related Party Transactions, and Auditor Choice: Evidence from Indonesia.” Journal of Contemporary Accounting and Economics 13 (1): 1–19. https://doi.org/10.1016/j.jcae.2017.01.004.
Harymawan, Iman. 2018. “Why Do Firms Appoint Former Military Personnel as Directors? Evidence of Loan Interest Rate in Militarily Connected Firms in Indonesia.” Asian Review of Accounting. https://doi.org/10.1108/ARA-07-2016-0086.
Harymawan, Iman, and John Nowland. 2016. “Political Connections and Earnings Quality How Do Connected Firms Respond to Changes.” International Journal of Accounting & Information Management 24 (4): 339–56. https://doi.org/10.1108/IJAIM-05-2016-0056.
Owhoso, V E, W F Messier Jr., and J G Lynch Jr. 2002. “Error Detection by Industry-Specialized Teams during Sequential Audit Review.” Journal of Accounting Research 40 (3): 883–900. https://doi.org/10.1111/1475-679X.00075.
Palmrose, Zoe-Vonna. 1986. “Audit Fees and Auditor Size: Further Evidence.” Journal of Accounting Research 24 (1): 97–110. https://doi.org/10.2307/2490806.
Rusmin, R, and J Evans. 2017. “Audit Quality and Audit Report Lag: Case of Indonesian Listed Companies.” Asian Review of Accounting 25 (2): 191–210. https://doi.org/10.1108/ARA-06-2015-0062.

References

Balsam, S, J Krishnan, and J S Yang. 2003. “Auditor Industry Specialization and Earnings Quality.” Auditing 22 (2): 71–97. https://doi.org/10.2308/aud.2003.22.2.71.

Beasley, M S, and K R Petroni. 2001. “Board Independence and Audit-Firm Type.” Auditing 20 (1): 97–114. https://doi.org/10.2308/aud.2001.20.1.97.

Benmelech, Efraim, and Carola Frydman. 2015. “Military CEOs.” Journal of Financial Economics. https://doi.org/10.1016/j.jfineco.2014.04.009.

Cahan, S F, J M Godfrey, J Hamilton, and D C Jeter. 2015. “The Association between Client-Specific Investment Opportunities and Audit Fees of Industry Specialists and Non-Specialists.” International Journal of Auditing 19 (2): 57–71. https://doi.org/10.1111/ijau.12029.

Cahan, S F, D C Jeter, and V Naiker. 2011. “Are All Industry Specialist Auditors the Same?” Auditing 30 (4): 191–222. https://doi.org/10.2308/ajpt-10181.

Duffy, Tim. 2006. “Military Experience & CEOs: Is There A Link?” Korn/Ferry International. 2006. https://militarymba.net/resources/MilitaryCEOReport.pdf.

Fisman, Raymond. 2001. “Estimating the Value of Political Connections.” American Economic Review 91 (4): 1095–1102. https://doi.org/10.1257/aer.91.4.1095.

Franke, Volker. 2001. “Generation X and the Military: A Comparison of Attitudes and Values between West Point Cadets and College Students.” Journal of Political and Military Sociology 29 (June): 92–119.

Gramling, Audrey, and Dan Stone. 2001. “Audit Firm Industry Expertise: A Review and Synthesis of the Archival Literature.” Journal of Accounting Literature 20 (January): 1–29.

Gul, Ferdinand A. 2006. “Auditors’ Response to Political Connections and Cronyism in Malaysia.” Journal of Accounting Research 44 (5): 931–63. https://doi.org/10.1111/j.1475-679X.2006.00220.x.

Habib, Ahsan, Abdul Haris Muhammadi, and Haiyan Jiang. 2017. “Political Connections, Related Party Transactions, and Auditor Choice: Evidence from Indonesia.” Journal of Contemporary Accounting and Economics 13 (1): 1–19. https://doi.org/10.1016/j.jcae.2017.01.004.

Harymawan, Iman. 2018. “Why Do Firms Appoint Former Military Personnel as Directors? Evidence of Loan Interest Rate in Militarily Connected Firms in Indonesia.” Asian Review of Accounting. https://doi.org/10.1108/ARA-07-2016-0086.

Harymawan, Iman, and John Nowland. 2016. “Political Connections and Earnings Quality How Do Connected Firms Respond to Changes.” International Journal of Accounting & Information Management 24 (4): 339–56. https://doi.org/10.1108/IJAIM-05-2016-0056.

Owhoso, V E, W F Messier Jr., and J G Lynch Jr. 2002. “Error Detection by Industry-Specialized Teams during Sequential Audit Review.” Journal of Accounting Research 40 (3): 883–900. https://doi.org/10.1111/1475-679X.00075.

Palmrose, Zoe-Vonna. 1986. “Audit Fees and Auditor Size: Further Evidence.” Journal of Accounting Research 24 (1): 97–110. https://doi.org/10.2307/2490806.

Rusmin, R, and J Evans. 2017. “Audit Quality and Audit Report Lag: Case of Indonesian Listed Companies.” Asian Review of Accounting 25 (2): 191–210. https://doi.org/10.1108/ARA-06-2015-0062.

Auditor’s specialization and audit fee in military-connected firms

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