The Impact of Audit Market Concentration and Market Power on Audit Fees: A Comparison of Indonesia and Singapore

Frans Pangeran Adri Mangaraja Situmorang, Fitriany Fitriany, Vitria Indriani

Abstract


ABSTRACT

This study aims to investigate the effect of audit market concentration and market power on audit fees in Indonesia (high audit market concentration) and Singapore (low audit market concentration). The sample is listed companies from 2012-2015. Market concentration was calculated by the Herfindahl–Hirschman Index, while market power is the difference in market share between one audit firm and another audit firm that has the closest market share. Regression result found that the effect of market concentration on audit fees depends on the level of market competition in the country. In countries where the level of competition is low (such us Singapore), if market concentration increases, the rivalry will decrease. The remaining audit firm is not worried about losing clients because the number of players in the market has decreased and eventually dare to increase audit fees. In contrast, countries that have a high rivalry (such us Indonesia), when the market concentration increases, the competition among the remaining audit firms is still high (because there are many audit firms). As a result, the remaining audit firm gives a discounted price to win the competition and thus audit fee will decrease. However, if there are stringent regulations and strong law enforcement (like Singapore), audit fees could not be altered by market concentration, especially by market power in a form of monopoly. Audit market rivalry in Indonesia is relatively high. Hence, robust supervision and monitoring are required from authority to ensure that unfair audit fees will not emanated from the competitive audit market. Additionally, regulators need to pay attention on this topic due to the fact that unhealthy competition may create biased audit pricing that affect audit quality.

Keywords: Audit fees, audit market concentration, audit market power, audit market competition, law enforcement

ABSTRAK

Kajian ini bertujuan untuk mengkaji pengaruh konsentrasi pasar audit dan kekuatan pasar terhadap biaya audit di Indonesia (konsentrasi pasar audit tinggi) dan Singapura (konsentrasi pasar audit rendah). Sampel tersebut adalah syarikat tersenarai dari 2012-2015. Kepekatan pasaran dikira oleh Indeks Herfindahl - Hirschman, sementara kekuatan pasaran adalah perbezaan bahagian pasaran antara satu firma audit dan firma audit lain yang memiliki pangsa pasar terdekat. Hasil regresi mendapati bahawa kesan penumpuan pasaran terhadap yuran audit bergantung pada tahap persaingan pasaran di negara ini. Di negara-negara di mana tingkat persaingan rendah (seperti Singapura), jika konsentrasi pasar meningkat, persaingan akan menurun. Firma audit yang tinggal tidak bimbang kehilangan pelanggan kerana jumlah pemain di pasaran telah menurun dan akhirnya berani menaikkan yuran audit. Sebaliknya, negara-negara yang memiliki persaingan yang tinggi (seperti Indonesia), ketika konsentrasi pasar meningkat, persaingan di antara firma audit yang tersisa masih tinggi (kerana ada banyak firma audit). Hasilnya, firma audit yang tinggal memberikan harga potongan untuk memenangi pertandingan dan dengan itu yuran audit akan menurun. Namun, jika ada peraturan yang ketat dan penegakan hukum yang kuat (seperti Singapura), biaya audit tidak dapat diubah oleh konsentrasi pasar, terutama oleh kekuatan pasar dalam bentuk monopoli. Audit pasaran persaingan di Indonesia relatif tinggi. Oleh itu, pengawasan dan pemantauan yang kuat diperlukan dari pihak berkuasa untuk memastikan bahawa yuran audit yang tidak adil tidak akan dikeluarkan dari pasaran audit yang kompetitif. Selain itu, pengawal selia perlu memperhatikan topik ini kerana persaingan yang tidak sihat dapat menimbulkan harga audit yang berat sebelah yang mempengaruhi kualiti audit.

Kata kunci: Yuran audit, audit konsentrasi pasar, audit kekuatan pasar, audit persaingan pasar, penguatkuasaan undang-undang

 


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