The Effect Of Profitability, Company Complexity, Company Risk And Board Of Commissioners On Audit Fees

Vol. 2, No.2 (Jun, 2024) Page 195-202 DOI : https://doi.org/10.5281/zenodo.12722782 The Effect Of Profitability, Company Complexity, Company Risk And Board Of Commissioners On Audit Fees Rimet Universitas Islam Negeri Sultan Syarif Kasim Riau, Pekanbaru, Indonesia *Email : Fakhrul Syakirin Universitas Islam Negeri Sultan Syarif Kasim Riau, Pekanbaru, Indonesia Email : ARTICLE INFO : ABSTRACT Keywords : Audit Fee; Profitability; Company Complexity; Company Risk; Board of Commissioners --------------------------Article History : Received :2024-03-17 Revised : 2024-05-08 Accepted :2024-06-25 Online :2024-06-25 This study aims to determine the effect of profitability, company complexity, company risk, and board of commissioners on audit fees in good and beverages sub-sector companies in the consumer goods sector listed on the Indonesia Stock Exchange. The sample of this study was obtained using purposive sampling technique, so that 45 samples were obtained with the research period 2020-2022. Data analysis using the classical assumption test and hypothesis testing using panel data regression analysis using the eviews version 12 tool. The results of this study indicate that company complexity and board of commissioners have an effect on audit fees, while profitability and company risk have no effect on audit fees. From the results of the study also obtained the coefficient of determination (R2) with a value of 0.49 means that the magnitude of the influence of profitability, company complexity, company risk, and board of commissioners is 49%. INTRODUCTION The financial statements issued by a company can be used by creditors and investors to make very important decisions. According to Huri & Syofyan (2019), public companies must carry out a review of their company's financial statements to increase creditor and investor confidence in financial statement information. Thus, financial reports need to ensure their quality or accuracy. Financial Services Authority Regulation No. 13 / POJK.03 / 2017 concerning "Use of Public Accountant Services and Public Accounting Firms in Financial Services Activities" states that companies on the stock exchange must disclose their audited financial statements (OJK, 2017). Putri & Rasmini (2017) explain that the audit process is an examination that is carried out critically and systematically by an independent individual of management's financial statements, along with accounting records and supporting evidence, with the aim of providing an opinion on the fairness of these financial statements. To ensure that the financial statements have been prepared in accordance with generally accepted accounting principles and contain the information required by users of the financial statements, the financial statements require the expertise of an objective external auditor. Thus, the company must pay an audit fee to the external auditor for the services provided by the external auditor. Audit fees are a dilemma, where the auditor in providing his opinion must be independent, but on the other hand the auditor also gets paid by the client who hired him. The rules regarding the nominal audit fee 195 This is an open access article under the CC BY- SA license. Corresponding Author : Rimet Vol. 2, No.2 (Jun, 2024) Page 195-202 DOI : https://doi.org/10.5281/zenodo.12722782 are contained in the Indonesian Institute of Certified Public Accountants (IAPI) Regulation No. 2/2016 (IAPI, 2016) and are based on an agreement between the auditee and the auditor. Audit fees charged by public accounting firms in Indonesia can range from tens of millions of rupiah to billions of rupiah per year. One of the phenomena related to audit fees in Indonesia is the case of PT Tiga Pilar Sejahtera Food. The company's external auditor could not find any irregularities in the 2017 financial statements which received an unqualified opinion. As a result in 2018, the company suffered a loss of more than nine billion rupiah (Septiadi, 2018). However, despite experiencing losses due to auditor failure, the company's audit fee payments increased by 68.75% compared to the previous year. This increase is quite significant compared to similar subsectors that experienced a 20% increase in audit fees. So it is necessary to conduct an academic study on the audit fee indicator because the audit fee is a closed agreement between the auditor and the client (Fitrian Sari et al., 2023). Previous research related to audit fees including conducted by; Izzani & Khafid, (2022) revealed that profitability has a significant effect on the determination of audit fees. Nazara & Rusmanto (2022) state that company profitability has no effect on audit fees. Sa'diah, et al (2022) show that company complexity has a positive influence on audit fees and is significant. Cristansy and Ardianti (2018) state that company complexity has no effect on audit fees. Humaira & Syofyan (2020), the study found that company risk has a positive effect on audit fees. Nazara & Rusmanto (2022), company risk on audit fees has no significant effect. This study refers to the research of Agustina et al. (2023) by adding the board of commissioners variable. A larger board will conduct better monitoring from external auditors, thus causing an increase in audit costs. Therefore, audit costs are strongly associated with a larger board that has various risk committees (Mundiroh & Khikmah, 2021). LITERATURE RESEARCH A. Agency Theory This theoretical review outlines the main concept, namely agency theory. Agency theory refers to the contract between managers (agents) and investors (principals), Agents are managers or management who manage the company's operational activities. While the principals are shareholders / company owners/investors who provide capital, and facilities for the company's operational activities (Amelia et al., 2022). However, due to human nature that thinks of its own interests, there are differences in interests between the two parties. B. Deep Pocket Theory Deep pocket theory explains the relationship between the service fee received by the auditor and the opinion given. Companies or clients that have a high level of litigation risk will certainly also affect the level of risk that auditors have. Therefore, auditors must work more effectively and thoroughly to avoid or reduce errors in providing opinions. This will be related to the greater service fee for the audit services that the auditor has provided. This litigation risk is assessed by assessing company risk (Andini, 2020). C. Audit Fees Audit fee is a fee obtained by a public accountant after completing his audit assignment. Many things affect the amount of audit fees. Among them, internal audit activity, assignment risk, work complexity, the structure of the public accounting firm concerned and various other professional considerations (Agoes, 2012). Audit fees will generally be based on three factors, namely the number of personnel conducting the audit (...truncated)