The Effect of Business Strategies and Financial Reporting Irregularities On Audit

Abstract

This research aims to examine and analyze the effect of business strategy and financial reporting irregularities on audit fees. Business strategy is measured by six comprehensive sizes: research and development ratios, employee ratios, revenue changes, sales load ratios, employee turnover ratios, and capital intensity. Financial reporting irregularities are measured by the indication of deviation from financial statements, and the audit fee is measured by the company's logarithmic number of audit fees. Sample selection using the purposive sampling method and selected 314 companies that meet the criteria for this study. The research was conducted from 2017 to 2019. The results of this study indicate that financial reporting irregularities and business strategy have a significant effect on audit fees. In summary, the results of this study support the view that the company's financial information and the complexity of the business represented in the company's business strategy are essential considerations for auditors in setting audit fees. The research findings prove that a business strategy that represents the complexity of the company's business and indications of financial statement irregularities will affect the cost of external auditors. In general, this research has implications for management policies and actions that will have an impact not only on operational costs but also on agency costs. Minimizing irregularities in financial statements will reduce the costs borne by the company. Therefore, shareholders must monitor the policies and actions taken by the company.