Audit fees and related party transactions: Evidence from Indonesia
DOI:
https://doi.org/10.31106/jema.v20i1.20590Keywords:
Related Party Transactions, Audit Fees, Tunneling, Propping, Corporate GovernanceAbstract
This study empirically examines the impact of related party transactions on audit fees, focusing on distinguishing between tunneling-type and propping-type related party transactions. We investigate this causal relationship by analyzing the influence of various related party transactions on audit fees at the account level, allowing us to pinpoint the specific transactions that exert a more substantial influence on audit costs. Our research sample comprises 127 Indonesian manufacturing firms listed on the Indonesian Stock Exchange during the years 2020-2021, resulting in a dataset of 254 observations. Audit fees are quantified using the natural logarithm of the disclosed annual audit fees. We assess tunneling-type related party transactions by examining the proportion of assets and expenses involved in these transactions, breaking them down into categories such as account receivables, other receivables, and other assets. Similarly, propping-type related party transactions are evaluated based on the proportion of liability-based and sales-based transactions, further disaggregated into account payables, other payables, and other liabilities. Our hypothesis testing relies on a Panel Data Regression analysis model. Our findings reveal that tunneling and propping-type related party transactions significantly increase audit fees. Notably, we demonstrate that tunneling-related party transactions exert a more substantial impact on audit fees than propping-related party transactions, highlighting the significance of agency theory in understanding the risks associated with related party transactions.
References
Adhie, M.Y.A. M, & Supatmi. (2022). Pengaruh transaksi pihak berelasi terhadap kompensasi manajemen pada industri keuangan di Indonesia. Jurnal Riset Akuntansi Dan Keuangan, 10(2), 167–182. https://doi.org/10.17509/jrak.v10i2.45016
Agustin, R., & Pramesti, T. (2009). Pengaruh Asimetri Informasi, Ukuran Perusahaan, Kepemilikan Manajerial Terhadap Manajemen Laba. Jurnal Ekonomi, 17(01), 1–10.
Al-Dhamari, R. A., Al-Gamrh, B., Ku Ismail, K. N. I., & Haji Ismail, S. S. (2018). Related party transactions and audit fees: the role of the internal audit function. Journal of Management and Governance, 22(1), 187–212. https://doi.org/10.1007/s10997-017-9376-6
Ayu, P. D., Ida, R., & Apit, S. W. (2019). The Influence of Company Size and Audit Fee on Audit Quality. 65(Icebef 2018), 371–375. https://doi.org/10.2991/icebef-18.2019.83
Barua, A. (2019). Financial versus operating liability leverage and audit fees. March, 231–244. https://doi.org/10.1111/ijau.12157
Budiyanti, H., Husnan, E. T. & S. H., & Hanafi, M. (2020). Related party transactions on tunnelling and propping perspective. 25(1), 46–72.
Cheung, Y., Jing, L., Lu, T., Rau, P. R., & Stouraitis, A. (2009). Paci fi c-Basin Finance Journal Tunneling and propping up : An analysis of related party transactions by Chinese listed companies. Pacific-Basin Finance Journal, 17(3), 372–393. https://doi.org/10.1016/j.pacfin.2008.10.001
Cho, S., & Lim, K. M. (2018). Tunneling by Related party transactions: Evidence from Korean Conglomerates. Asian Economic Journal, 32(2), 147–164. https://doi.org/10.1111/asej.12146
Dwiyani, T., Purnomo, & Poniman. (2022). Controlling Shareholder, Independent Commissioner, Board Of Commissioner Characteristics, And Audit Committee On Tunneling Policy With Tax Avoidance. International Journal of Economics, Business and Accounting Research (IJEBAR), 2022(Vol-6, Issue-3, 2022 (IJEBAR)). https://jurnal.stie-aas.ac.id/index.php/IJEBAR%0ACONTROLLING
El-Helaly, M. (2018). Related party transactions: a review of the regulation, governance and auditing literature. Managerial Auditing Journal, 33(8–9), 779–806. https://doi.org/10.1108/MAJ-07-2017-1602
Fang, J., Lobo, G. J., Zhang, Y., & Zhao, Y. (2018). Auditing Related Party Transactions: Evidence from Audit Opinions and Restatements. A Journal of Practice & Theory, 37(2), 73–106. https://doi.org/https://doi.org/10.2308/ajpt-51768
Fujianti, L., & Satria, I. (2020). Firm size, profitability, leverage as determinants of audit report lag: Evidence from Indonesia. International Journal of Financial Research, 11(2). https://doi.org/10.5430/ijfr.v11n2p61
Gordon, E. A., & Henry, E. (2005). Related Party Transactions and Earnings Management. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.612234
Gordon, E. A., Henry, E., Louwers, T. J., & Reed, B. J. (2007). Auditing Related Party Transactions. Accounting Horizons, 21(1), 81–102.
Habib, A., Muhammadi, A. H., & Jiang, H. (2017). Political connections and related party transactions: Evidence from Indonesia. The International Journal of Accounting, 52, 45–63.
Hajeb, H. R. (2021). The Influence of Corporate Governance on the Relationship between Related Party Transactions and Audit Fees. 8(7), 517–528.
Harijanto, A.V. N. (2019). Pengaruh Struktur Kepemilikan Dan Ukuran Kantor Akuntan Publik Terhadap Tingkat Kepatuhan Pengungkapan Transaksi Berelasi Berdasarkan Psak No 7 Tentang Pengungkapan Pihak-Pihak Berelasi. Nominal: Barometer Riset Akuntansi Dan Manajemen, 8(1), 59–70. https://doi.org/10.21831/nominal.v8i1.24499
Henry, E., Gordon, E. A., Reed, B. J., & Louwers, T. J. (2007). The Role of Related Party Transactions in Fraudulent Financial Reporting. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.993532
Ikatan Akuntan Indonesia. (2021). Pernyataan Standar Akuntansi Keuangan 7 penyesuaian 2015 tentang Pengungkapan Pihak-pihak Berelasi. Diakses dari www.iaiglobal.or.id.
Jensen, M. C., & Meckling., W. H. (1976). Theory of the Firm: Managerial Behaviour, Agency Cost and Ownership Structure. Journal of Financial Economics, 4(2), 305–360.
Johl, S. K., Khan, A., Subramaniam, N., & Muttakin, M. (2016). Business Group Affiliation, Board Quality and Audit Pricing Behavior: Evidence from Indian Companies. International Journal of Auditing, 20(2), 133–148. https://doi.org/10.1111/ijau.12061
Johnson, S., LaPorta, R., Lopez-de-Silanes, F., dan Shleifer, A. (2000). Tunneling. The American Economic Review, 90(2), 22–27
Kohlbeck, M., & Mayhew, B. W. (2010). Valuation of firms that disclose related party transactions. Journal of Accounting and Public Policy, 29(2), 115–137. https://doi.org/10.1016/j.jaccpubpol.2009.10.006
Kohlbeck, M., & Mayhew, B. W. (2017). Are Related Party Transactions Red Flags? Contemporary Accounting Research, 34(2), 900–928. https://doi.org/10.1111/1911-3846.12296
Kristiyani, D. (2020). Transaksi Pihak Terkait atas Biaya Audit: Peran Efektivitas Komite Audit. E-Jurnal Akuntansi, 30(10), 2619. https://doi.org/10.24843/eja.2020.v30.i10.p14
Kushwaha, N. N, Annd, A., Jayadev, M., Raghunandan, K.. (2022). Related Party Transactions and Audit Fees : Indian Evidence. IIMB Working Paper-667.
Milhaupt, C. J., & Pargendler, M. (2018). RPTs in SOEs: Tunneling, Propping, and Policy Channeling. European Corporate Governance Institute Working Paper, March..
Mu’nis, H., & Komaladewi, R. (2019). Pyramid of Structure, Pengungkapan Transaksi Pihak Berelasi, dan Tata Kelola Perusahan: Indikasi Ekspropriasi. Jurnal Ekonomi Modernisasi, 1(3), 16–29.
Pertiwi, M. P. (2019). Pengaruh Ukuran Perusahaan, Reputasi Auditor, Dan Audit Delay Terhadap Audit Fee. JASa (Jurnal Akuntansi, Audit Dan Sistem Informasi Akuntansi), 3(2), 315–327.
Perwita, F. O., & Harymawan, I. (2021). Related party transactions and Audit Fees. Jabe (Journal of Accounting and Business Education), 5(2), 31. https://doi.org/10.26675/jabe.v5i2.15984
Purba, J. T., Ermaya, H. N. L., & Ajengtiyas, A. (2020). Determinasi Pengungkapan Transaksi Pihak Berelasi Berdasarkan Psak No.7 Tahun 2018. JIAFE (Jurnal Ilmiah Akuntansi Fakultas Ekonomi), 6(1), Press. https://doi.org/10.34204/jiafe.v6i1.1849
Putra, D. M. (2020). Dampak Covid-19 Terhadap Kinerja Keuangan dan Kinerja Layanan Badan Layanan Umum di Indonesia. Jurnal Manajemen Perbendaharaan, 1(1), 51–67. https://doi.org/10.33105/jmp.v1i1.344
Rasheed, Abdul, Hawaldar, I. T., & T, M. (2021). Related party transactions and audit risk. Cogent Business and Management, 8(1). https://doi.org/10.1080/23311975.2021.1888669
Riyanto, Y. E., & Toolsema, L. A. (2008). Tunneling and propping : A justification for pyramidal ownership q. 32, 2178–2187. https://doi.org/10.1016/j.jbankfin.2007.12.044
Sari, R. C., Djajadikerta, H. G., & Baridwan, Z. (2014). Asset Tunneling : Does Corporate Governance Matter? Evidence from Indonesia. Jurnal Akuntansi Dan Keuangan Indonesia, 11(2), 165–176.
Sinaga, E. A., & Rachmawati, S. (2018). Besaran Fee Audit Pada Perusahaan Yang Terdaftar Di Bursa Efek Indonesia. Media Riset Akuntansi, Auditing & Informasi, 18(1), 19–34. https://doi.org/10.25105/mraai.v18i1.2577
Steppani, S. (2021). The Effect of Propping on the Performance of Manufacturing Companies in Indonesia. Berkala Akuntansi Dan Keuangan Indonesia, 6(2), 152. https://doi.org/10.20473/baki.v6i2.25839
Supatmi, S., & Wukirasih, K. (2022). Pengaruh Struktur Kepemilikan Terhadap Transaksi Pihak Berelasi. Owner, 6(2), 1398–1411. https://doi.org/10.33395/owner.v6i2.798
Supatmi, Sutrisno, T., Saraswati, E., & Purnomosidhi, B. (2019). The effect of related party transactions on firm performance: the moderating role of political connection in indonesian banking. Business: Theory and Practice, 20, 81-92. https://doi.org/10.3846/btp.2019.08.
Tagesson, T., Blank, V., Broberg, P., & Collin, S.-O. (2009). What explains the extent and content of social disclosures on corporate websites? Corporate Social Responsibility and Environmental Management, 16(March), 352–364.
Tambunan, M. E., Siregar, H., Manurung, A. M., & Priyarsono, D. S. (2017). Related party transactions and firm value in the business groups in the Indonesia Stock Exchange. Journal of Applied Finance dan Banking (Vol. 7). online) Scienpress Ltd.
Tarighi, H., Sadeghi, M. S., Dari, S. Z. A., & Saravani, M. (2020). Corporate Ownership Structures and Audit Risk. Asian Journal of Economics and Finance, 369–384.
Ubaidillah, M. (2022). The Role of Corporate Governance Structures and Financial Performance on Tunneling Phenomenon in Indonesia. 2(3), 177–197. https://doi.org/10.47153/afs23.4512022
Ullah, H., Shah, A., Hamid, S., & Shah, A. (2019). Do Capital Markets Punish Tunneling Behaviour of Business Groups? Agency Perspective of Related Party Transactions. Journal of Applied Economics and Business Studies, 3(1), 15–40. https://doi.org/10.34260/jaebs.312
Utama, S., Utama, C. A., & Yuniasih, R. (2010). Related Party Transaction - Efficient or Abusive: Indonesia Evidence. Asia Pacific Journal of Accounting and Finance, 1(1), 77–102. https://accounting.feb.ui.ac.id
Vaes, S. A., Banafi, M., & Vasi, S. (2016). Investigating the Effect of Auditor Expertise on the Relationship between Related Party Transactions and Audit Fees. Gournal Of Iranian Accounting Review, 3(12), 111–130. https://doi.org/10.22055/JIAR.2017.20355.1077
Wong, M.K., Raymond, Bon, K., Jeong, Lo, & W.Y., A. (2015). Are related party sales value-adding or value-destroying? Evidence from China. Journal of International Financial Management and Accounting, 26(1), 1–38. https://doi.org/10.1111/jifm.12023
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2023 JEMA: Jurnal Ilmiah Bidang Akuntansi dan Manajemen
This work is licensed under a Creative Commons Attribution 4.0 International License.
