Academy of Accounting and Financial Studies Journal (Print ISSN: 1096-3685; Online ISSN: 1528-2635)

Abstract

Auditor Tenure and Auditor Industry Specialization as a Signal to Detect Fraudulent Financial Reporting

Author(s): Mukhlasin Mukhlasin

As a result of investor distrust of management, competent independent parties are needed to detect management's opportunistic attitudes and reduce information asymmetry. Audit ownership reflects independence which in the context of government is a signal whether there is fraudulent financial reporting or not. Furthermore, audit industry specialization shows audit competencies in certain industries, so auditors of industrial specialization have more ability to detect material misstatements as a result of fraudulent financial reporting. This study aims to examine the potentiality of auditor tenure and industry specialization as a signal to detect fraudulent financial reporting. The research was conducted in companies listed on the Indonesia Stock Exchange for the period 2012 to 2015. Logistic regression with paired sampling techniques was used to prove the research objectives. The sample consisted of 46 fraudulents and 46 non-fraudulent. The test results failed to prove that the longer tenure audit can reduce independence so that it becomes fatigue for the company to commit financial reporting fraud. Meanwhile, the specialization industry audit has been successfully proven in this study. Industry specialization auditors are able to detect fraudulent financial reporting.