Impact of Abnormal Audit Fee to Audit Quality: Indonesian Case Study

Abstract

This study investigates the economic bonding between auditor and client by examining the association between abnormal audit fee and audit quality with Indonesian setting where there is high audit market competition and strong client bargaining power because of regulation on mandatory audit firm rotation. We found that positive abnormal audit fees are negatively associated with audit quality and imply that the audit fee premium is a significant indicator of compromised auditor independence due to economic auditor-client bonding. Audit fee discounts could also increase audit quality, maybe due to the mandatory audit firm rotation and high audit market competition in Indonesia, so that the auditor must keep their independency and high audit quality to maintain good reputation.