Audit Quality and its Determinants: Study the Factors that Influence Audit Quality, Including Auditor Independence, Firm Size, and Regulatory Environment

Abstract

Audit quality refers to the accuracy and reliability of audit reports issued by auditors. It is influenced by various factors related to auditors, audit firms, and the regulatory environment. This study aims to examine the key determinants of audit quality with a focus on auditor independence, firm size, and regulatory oversight. Prior studies have documented mixed evidence on the relationship between these factors and audit quality. While larger audit firms are generally expected to have more resources and capabilities to conduct high-quality audits, their independence could be compromised due to client pressure and non-audit service fees. Independence issues also arise for long- tenured auditors who develop close ties with client management over time. Meanwhile, stronger regulatory requirements and oversight are intended to enhance auditors' accountability and discipline but may constrain professional judgment. This study contributes to the existing literature by providing insights from the Indonesian context. A survey will be administered to audit partners and directors of public accounting firms as well as finance officers of listed companies to gather their perceptions on factors influencing audit quality in Indonesia. The survey responses will be analyzed using regression analysis to examine the relative impact of auditor independence, firm size, and regulatory environment on audit quality dimensions. The results are expected to offer implications for policymakers and regulators in further enhancing audit quality within the Indonesian audit market. They may also shed light on best practices for other developing countries seeking to strengthen their audit oversight framework and professional standards.