Abnormal audit fee assessment in manufacturing companies

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Abstract

The audit charge fee is one of the most crucial elements in the audit procedure. Audit fees that deviate from the usual either in higher or lower amounts are considered abnormal audit fees. Abnormal audit fees were found to affect final audit quality based on previous studies. The current study intends to analyze the elements that influence abnormal audit fees in Indonesia by focusing on how firm size, firm complexity, audit firm size, leverage, profitability, and family ownership affect abnormal audit fees. Thirty-two industrial companies represented on the Indonesia Stock Exchange (IDX) were selected as representative manifestations for the 2017–2021 period using a purposive sampling technique. Panel data regression is used to test secondary data that has been collected. This study found that firm size, leverage, profitability, and audit firm size have a positive effect on abnormal audit fees. However, this investigation did not find the effect of family ownership and firm complexity on abnormal audit fees. Therefore, clear and transparent procedures are required for the auditor in determining the optimal audit service fees to increase the credibility of financial reporting. In addition, the regulation is expected to be able to prevent unfair competition between public accounting firms.

Keywords: Abnormal Audit Fee, Firm Size, Company Complexity, Audit Firm Size, Leverage, Profitability, Family Ownership

Authors’ individual contribution: Conceptualization — F.S. and A.I.; Methodology — F.S., A.I., and F.M.; Writing — F.S., A.I., F.M., H.I., and H.; Investigation — F.S., A.I., F.M., H.I., and H.; Resources — F.S. and A.I.; Supervision — F.S. and A.I.; Funding Acquisition — F.S., A.I., F.M., H.I., and H.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: M41, M42, M48

Received: 01.03.2023
Accepted: 30.11.2023
Published online: 04.12.2023

How to cite this paper: Sari, F., Irfan, A., Muklis, F., Indrayani, H., & Harkaneri. (2023). Abnormal audit fee assessment in manufacturing companies [Special issue]. Corporate Governance and Organizational Behavior Review, 7(4), 280–288. https://doi.org/10.22495/cgobrv7i4sip6