Indications of The Auditor Resignation from The Affecting Factors

Abstract

This study aims to find empirical evidence on the impact of CEO (Chief Executive Officer) changes, financial performance, and audit fees on indications of auditor resignation. Theoretical framework: Agency theory is based on the contractual relationship between investors (principals) and managers (agents). The theory also explains that the relationship between the two parties is difficult to create due to a conflict of interest (Scott & O'Brien, 2019). The upper echelons theory considers top management as the primary strategic decision-maker in the organization. Thus, strategic decisions made by leaders have a direct impact on organizational outcomes. Because executives have responsibility for the organization as a whole, their characteristics, what they do, and how they do it, in particular, affect organizational outcomes. (Carpenter et al., 2004; Hambrick, 2007). Changes in auditors outside the applicable rules can occur for two reasons: the client decides to dismiss the auditor or the auditor departure from the client (Tanyi et al., 2010). Companies that change auditors show misunderstandings between auditors and managers regarding accounting or auditing matters. When the relationship between the auditor and his client is damaged, the auditor may decide to leave the job or vice versa, and the auditor is fired by the client (Lindrianasari, 2013). Financial performance can be analyzed using many measurements, but in this study, the financial performance measurement uses the ratio of return on assets. Nugroho (2015) said that profitability shows the company's success in generating profits. The audit fee is the number of fees incurred by the external auditor service user, so the amount of the fee that is income for the KAP depends on how complex and comprehensive the audit scope is and the reputation of the KAP in the community, government, and investors. (Hay & Davis, 2004). Methods: A logistic regression model was used to analyze the data. The sample was determined using a purposive sampling technique from the financial reports and reports of independent auditors of financial sector companies listed on the Indonesia Stock Exchange (IDX) for the 2011–2020 period and processed with the help of the SPSS application. Findings: The study results show that CEO turnover and financial performance affect auditor resignation, while audit fees have no effect. The samples tested in this study were taken from the annual reports of financial sector companies only, so the results of this study cannot be generalized to all types of industries. The observation period is also a limitation of the study, and different results may appear when the observation period is extended. Originality/value: The value of the study is expected to provide an understanding of the development of accounting studies related to auditor resignation and the factors that influence it.