Human Resources Perspective: Audit Fee, Internal Control, and Audit

Materiality Affect Auditor Switching

AMAD BADAWI SALUY1, NOVAWIGUNA KEMALSARI1, UNANG TOTO HANDIMAN1,

PEBY ARWIYA1, AHMAD FARIDI2, BUSTANUL ARIFIN CAYA1, HALIANSYAH MACHMUD1

1Faculty of Economics and Business,

Mercu Buana University

Jl. Raya, RT.4/RW.1, Kel. Meruya Selatan., Kec. Kembangan, Jakarta Selatan,

Daerah Khusus Ibu Kota Jakarta 11650,

INDONESIA

2Faculty of Health Sciences,

Muhamadiyah Prof.Dr. Hamka University,

Jl. Limau II No.2 Kramat Pela Jakarta Selatan,

INDONESIA

Abstract: - Auditor switching is a topic that has garnered significant attention from researchers in the field of

accounting and auditing. Auditor Switching has important implications for audit quality and auditor

independence. Auditor switching is often considered a strategy or approach used by companies to promote

transparency, independence, and accountability in financial reports. Hence, this study aims to analyze factors

that influence auditor switching such as audit fees, internal controls, and audit materiality. 175 in-person

surveys were conducted with public accounting firm auditors from Jakarta Region, Indonesia. The study

revealed that auditors related to auditor switching and indicated that audit fees, internal control, and audit

materiality have a significant influence on auditors switching. Auditor switching seen from the perspective of

human resources has a significant impact on the human resources of public accounting firms. The ability of

public accounting firms to recruit and retain talented professionals, and public accounting firms need to attract

and retain skilled auditors to provide quality services to their clients. Public accounting firms invest significant

resources in training and developing their auditors to ensure they possess the necessary knowledge and skills.

Key-Words: - Audit fee, internal control, and audit materiality, auditor switching

Received: March 30, 2023. Revised: August 6, 2023. Accepted: September 4, 2023. Available online: October 24, 2023.

1 Introduction

Auditor switching has emerged as a prominent

subject of interest among scholars in the fields of

accounting and auditing, [1], [2], [3]. This

phenomenon holds significant implications for audit

quality, auditor independence, financial report

reliability, and corporate credibility, [4], [5].

Moreover, auditor switching can influence the

dynamics between companies and auditors,

providing market signals and insights into a

company's financial condition and management

practices, [6], [7], [8]. Consequently, auditor

switching continues to be a focal point for

researchers in the domain of accounting and

auditing.

The concept of auditor switching pertains to the

practice of companies changing their external audit

firm, usually by appointing a new firm to replace the

previous one in conducting audits. Research

investigating auditor switching has been carried out

across diverse contexts and in various countries,

including Indonesia. Several studies have explored

the factors influencing decisions related to auditor

switching, encompassing aspects such as the quality

of previous audits, company size, management

quality, operational complexity, and the size of

public accounting firms, [9], [10]. Furthermore,

studies have delved into the impact of auditor

switching on audit quality, the credibility of

financial reports, as well as its consequences on firm

value and market reactions, [11], [12], [13].

Additionally, regulatory policies concerning auditor

switching, such as auditor rotation and

independence policies, have been subject to

scholarly discussion, [14]. Exploring these diverse

contexts allows researchers to gain deeper insights

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into the specific dynamics and factors associated

with auditor switching, thus contributing valuable

knowledge to the auditing, accounting, and

corporate governance literature.

William Kinney and Robert Libby pioneered the

study of auditor switching in 1985 with their

research titled "Determinants of the Auditor Switch

Decision." Their findings indicated that companies

tend to change auditors in response to previous

instances of low-quality audits or when there is a

change in company management. Moreover,

company size and operational complexity were also

identified as influential factors guiding the decision

to switch auditors, [15].

Many researchers have researched switching

auditors. According to [16], who states that the

factors that influence a company's decision to switch

auditors are changes in management or company

owners, companies experiencing financial

difficulties, auditors who have just been placed in a

company, and auditors who experience losses tend

to switch auditors. Under, [17], who assert that

switching auditors significantly affects the market's

assessment of firm audit quality, switching auditors

also has a significant effect on a firm's financial

performance, and switching auditors have a greater

effect on small firms. In accord with, [18], who

indicated that there is a significant negative

relationship between auditor switching and earnings

quality. The study, [19], found that auditor

switching was not significant to the cost of equity

capital or the cost of debt. Accordingly, it is

important to note that these factors are not mutually

exclusive, and multiple factors can simultaneously

influence a company's decision to switch auditors.

Companies evaluate a combination of these factors

in light of their unique circumstances and objectives

to determine the most appropriate course of action.

Furthermore, according to, [20], who examine

the factors that influence a company's decision to

change auditors in the Australian financial market.

Then, [21], and [22], analyze the effect of changing

auditors on firm value in the Hong Kong financial

market. Under, [23], examine the factors that

influence a company's decision to change auditors in

the Indonesian financial market.

Hence, the topic of the influence of audit fees,

internal control, and audit risk materiality is a topic

that has long been studied by researchers in the

fields of accounting and auditing. Over time, the

amount of research on this topic has increased as the

interest of researchers and demand from

practitioners has increased. So, it can be assumed

that the topic of the influence of audit fees, internal

control, and audit risk materiality is still a topic that

is widely researched by those in the accounting and

auditing fields. However, this research will discuss

it from the perspective of human resources.

Several researchers have conducted research

related to the relationship between audit fees and

switching auditors. According to, [24], who state

low or substandard audit fees can be a factor

causing switching auditors. The auditor effect of

audit fees on companies' decisions to switch

auditors was studied by, [25]. Different opinions,

[26], [27], [28], express that audit fees affect a

company's decision to change auditors in the

financial market. Therefore, fee is an important

factor that can influence auditor switching

decisions, although its relative importance may vary

depending on the specific circumstances and

priorities of the company. Audit fees are an

important consideration in auditor switching

decisions, companies must strike a balance between

cost considerations and the perceived value and

quality of audit services.

Likewise, many researchers conducted research

related to the relationship between internal control

and auditor switching. The study, [29], stated that

weak internal control systems impact switching

auditors, [30], and declared that the internal control

system and the risk of switching auditors have a

relationship. The effect of the internal control

system on switching auditors in the French financial

market has been examined by, [31]. Then, the

relationship between the internal control system and

the risk of switching auditors in the Indian financial

has been et has analyzed, [32]. Also, [33], examined

the effect of internal control system weaknesses on

the risk of auditing auditors in the Chinese financial

market. Hence, the effectiveness of internal controls

is an important factor that can influence auditor

switching decisions. Internal controls play a

significant role in auditor switching decisions, they

are just one aspect of the broader evaluation

process. Companies consider multiple factors,

including audit quality, industry expertise,

reputation, and the decision to switch auditors.

The following are some researchers who have

researched the relationship between report

materiality and switching auditors. Auditors to, [34],

who investigates the association between audit

effort and audit materiality thresholds, auditor

benchmark choices, and auditors’ use of

benchmarks computed based on non-Generally

Accepted Accounting Principles (non-GAAP). This

The study also measures the materiality switch of

auditor. Auditors analyzed the relationship between

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the materiality of financial statements and the risk of

switching auditors. This study also measures

materiality impact of materiality-switching auditors.

Then, [35], auditors, analyzed the relationship

between the materiality of financial statements and

the risk of switching auditors. Also, [36], examined

the effect of financial report materiality on the risk

of switching auditors. Also, [37], analyzed the

relationship between the materiality of financial

reports and switching auditors in the Indonesian

financial market. Likewise, [38], examined the

effect of financial report materiality on switching

auditors. Audit materiality is a critical factor in the

audit process, its direct impact on auditor switching

decisions may be relatively limited. Materiality can

indirectly influence auditor switching decisions, it is

just one element among several that companies

consider when evaluating the need for a change in

auditors.

A public accounting firm is a company that plays

an important role in auditing or examining the

financial statements of a government or company.

The public accounting firm must provide

independent and objective audit services to the

financial statements presented by the party being

audited, to provide confidence to those who need

the information.

Auditors, as integral employees of public

accounting firms, are entrusted with the critical task

of examining the financial statements of

governmental bodies or companies. The auditor's

role involves ensuring compliance with relevant

accounting standards and objective accounting

principles to present accurate and unbiased financial

information. Independence and objectivity are

paramount attributes that enable auditors to provide

trustworthy audit results to stakeholders. To achieve

this, auditors must comprehensively understand

applicable audit standards and procedures and

employ effective techniques to gather sufficient and

relevant audit evidence.

Moreover, auditors must acknowledge and

mitigate risks associated with audited parties,

including fraud and materiality risks. Subsequently,

they furnish their audit findings in the form of an

opinion on the audited financial statements,

instilling confidence in the financial information

among users.

However, auditors often face challenges in

maintaining independence when confronted with

offers of compensation from clients. Remuneration

poses a critical concern for the auditor profession, as

it can compromise objectivity during the

examination process. Violations of ethical codes or

a failure to uphold independence can lead to severe

consequences, affecting an auditor's professional

reputation and the reputation of their public

accounting firm, potentially resulting in auditor

switching.

This paper highlights the intersection of auditor

switching with human resource management, where

attracting and retaining skilled auditors is essential

for audit firms to offer quality services and sustain

their competitive advantage. Investment in training

and development is pivotal in equipping auditors

with the necessary knowledge and skills. Audit

firms' organizational culture and values significantly

influence auditor retention, with firms fostering

positive work environments, teamwork, and ethical

conduct enjoying long-term relationships with

auditors and clients. Effective leadership and

communication within audit firms are critical in

motivating the workforce and promoting cohesion.

A high level of professionalism and adherence to

ethical standards are prerequisites for auditors when

conducting audits, [39]. Ethical lapses can lead to

legal consequences and tarnish the reputation of

both the auditor and the audit firm. Moreover,

compromised ethical conduct can jeopardize audit

results' quality and integrity, impacting the wider

business community. Failure to meet auditing

standards and professional ethics may result in

client dissatisfaction, leading to undesirable auditor

changes. Conversely, upholding professionalism

enables auditors to avoid issues that could

precipitate auditor switching, [40].

Related to the independence of the auditors in

conducting audits, questions arise that need to be

tested in this study. These questions will be the

formulation of the problem in this study:

• RQ1: Does audit fees affect auditor switching?

• RQ2: Does internal control affect auditor

switching?

• RQ3: Does audit materiality affect auditor

switching?

2 Literature Review

2.1 Switching Auditor

Auditor switching is an act of a company or

organization to replace their auditor with a different

auditor within a certain period. This is done to avoid

conflicts of interest and maintain the independence

of the auditors in carrying out their duties. Auditor

switching is considered a way to improve audit

quality and minimize the risk of accounting fraud.

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Some researchers have succeeded in defining

auditor switching. Auditor switching occurs when

the company does not retain the current auditor and

replaces it with a new auditor, [41]. Auditor

switching is a change in the identity of the auditor

who is responsible for auditing the company's

financial statements, [42]. Auditor switching is

when a company chooses to cut ties with the current

auditor and replace it with a new auditor within a

certain period, [43]. Auditor switching is a change

in auditor identity that is carried out voluntarily by

the company and not as a result of regulatory action

or external pressure, [44].

Auditor switching must be done for several

reasons, including: Increasing auditor independence,

improving audit quality, and maintaining the

company's reputation. Several factors can encourage

companies to conduct auditor switching, including

Audit regulations and requirements, changes in

ownership and management, audit quality issues,

accounting scandals, audit fees, and quality, and

public interest.

2.2 Audit Fee

An audit fee is a fee or honorarium given by the

client or company being audited to the auditor to

conduct an audit of the company's financial

statements. Audit fees usually consist of costs for

auditor time and services, overhead costs, and other

costs related to conducting audits. The amount of

the audit fee may vary depending on the complexity

of the company being audited, the scope of the audit

performed, as well as the reputation and experience

of the appointed auditor, [45].

DeAngelo defines an audit fee as a fee paid by

the company to the external auditor to audit the

company's financial statements, [43]. According to

the definition, [46], state that an audit fee is a fee

paid by the client to the auditor for audit services

and other services related to the audit. A similar

definition stated by, [47], is that an audit fee is a fee

paid by the company to the auditor for services

auditing the company's financial statements,

including additional services required during the

audit.

Audit fees paid by the company to the auditor

can influence the company's decision to change the

auditor, [48]. If the company feels that the audit fees

incurred are too high and not worth the benefits

derived from the audit, the company may look for a

new auditor who offers lower fees, [49]. Audit fees

can also affect the auditor's perception of audit risk,

[50]. If the auditor feels that the audit fee received is

too low, the auditor may perceive a higher audit

risk. Conversely, if the audit fee received is high

enough, the auditor may perceive a lower audit risk.

Several researchers have found a significant

relationship and influence between audit fees and

switching auditors. In his research, [43], found a

relationship between audit fees and switching

auditors in companies that were in poor financial

condition. Then, [47], found that the size of the

audit fee has a significant influence on the

company's decision to change auditors. As well,

[51], found that there was a significant effect

between audit fees and switching auditors, with the

finding that the greater the audit fee, the lower the

probability of a company changing auditors. Even,

[42], found that a higher audit fee reduces the

probability of changing auditors in large companies

that are listed on the stock exchange.

However, there is also research that finds that

audit fees have no significant effect on switching

auditors. The findings indicate that auditors who

provide better audit quality will be more effective in

reducing management's tendency to manipulate

financial reports through discretionary accruals.

This shows the importance of audit quality in

maintaining the integrity of the company's financial

statements, [52].

To better understand auditor switching

phenomena, this study examines audit fees as one of

the factors that influence auditor switching. We

address the guiding research hypothesis:

H1: There is a significant effect between audit fees

on switching auditors.

2.3 Internal Control

Internal control in auditing constitutes a system or

set of procedures devised by an organization's

management to ensure the effective and efficient

achievement of organizational goals, [53]. Its

primary function is to mitigate the risks associated

with fraud, errors, and legal violations arising from

operational activities. Encompassing various aspects

of organizational functioning, internal control

encompasses policies and procedures governing

human, financial, and material resources and

information and technology systems. Within the

audit context, internal control aims to guarantee the

accuracy and reliability of the organization's

financial reports while optimizing the utilization of

organizational resources, [54].

The American Institute of Certified Public

Accountants (AICPA) further defines internal

control as a managerial process that provides

adequate assurance regarding the effectiveness and

efficiency of operations, the reliability of financial

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reports, and compliance with pertinent laws and

regulations.

The correlation between the internal control

system and the risk of auditor switching is premised

on the notion that a robust and efficient internal

control system reduces the likelihood of errors or

inaccuracies in financial statements, [55].

Consequently, an effective internal control system

corresponds to lower risks of auditor switching. A

well-implemented internal control system aids in the

prevention of financial reporting errors and

inaccuracies, thereby mitigating materiality risk and

audit risk. Conversely, an inadequate or ineffective

internal control system raises the likelihood of

errors or inaccuracies in financial statements,

leading to increased materiality risk and audit risk,

which can precipitate the decision to change

auditors, [41].

Some researchers have found that there is a

significant effect between internal control and

auditor switching, [41], [52], [56]. However, several

studies state that there is a positive relationship

between internal control and auditor turnover, where

the weaker the internal control of a company, the

more likely the company is to experience a change

of auditor. Several studies have found that the

internal control system has no significant effect on

auditor switching, [57], [58].

To better understand auditor switching

phenomena, this study examines internal control as

one of the factors that influence auditor switching.

We address the guiding research hypothesis:

H2: There is a significant effect between internal

control on switching auditors.

2.4 Audit Materiality

Audit risk pertains to the likelihood of a material

error in a company's financial statements that may

go undetected during the audit process. Auditors

must carefully consider and assess this audit risk

during planning and execution to minimize the

potential for material errors in the financial

statements, [50].

Materiality, on the other hand, is a concept

linked to the significance of an error or discrepancy

in financial statements. An error is deemed material

if it can influence the decisions of users relying on

the financial statements. When orchestrating and

executing audits, auditors deliberate upon

materiality, directing their efforts toward the

revelation of substantial aberrations or incongruities

within the financial statements, [59].

The consideration of materiality holds potential

ramifications for transitions in auditors, particularly

in instances where the company falls below the

materiality threshold, and the issue remains

unresolved under the auspices of the incumbent

auditor. Under such circumstances, the auditor is

necessitated to apply an escalated level of scrutiny

and embark upon a more comprehensive

examination of the pertinent domain. If the company

cannot resolve the material error or discrepancy or

fails to provide adequate information for resolution,

the auditor may encounter challenges in issuing an

appropriate audit opinion, [60].

Moreover, in situations where uncertainties or

discomfort arise due to a material error or

inconsistency, the auditor might choose to refrain

from providing an audit opinion or may opt to issue

an unfavorable one, [61]. This situation can lead to

company dissatisfaction, potentially prompting them

to seek a different auditor who can better

comprehend the matter and offer a more favorable

audit opinion, [62]. The company's decision to

change auditors may stem from the expectation that

a new auditor will approach the audit with a fresh

perspective and provide a more positive assessment

of the financial statement The auditor cannot better

understand auditor switching phenomena, this study

examines audit materiality as one of the factors that

influence auditor switching. We address the guiding

research hypothesis:

H3: There is a significant effect between audit

materiality on switching auditors.

2.5 Research Model

Based on the framework of the influence of audit

fees on auditor switching, which then becomes the

first hypothesis. The next frame of mind is the effect

of internal control on auditor switching which then

becomes the second hypothesis. The last frame of

mind is the effect of audit materiality on auditor

switching. For each hypothesis can be described in a

research model (Figure 1).

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Fig. 1: Research Model

Source: author’s work

3 Research Methodology

This study was conducted in Jakarta Region,

Indonesia which serves as a public accounting firm

that provides auditing services. Jakarta Region

promotes the location of the audit services industry

from large (global) public accounting firms

partnering with local public accounting firms, and

small and medium public accounting firms owned

by local accountants. The company provides

financial statement audit services from large

(global) companies, local, BUMN to small

companies operating in Indonesia.

Public accounting firms are faced with the

phenomenon of auditor turnover with consideration

of audit fees, internal controls, and audit

materiality. An audit fee is a fee or honorarium

given by the client or company being audited to the

auditor to conduct an audit of the company's

financial statements. Internal control is used to

minimize the risk of fraud, errors, and legal

violations that can occur in the organization's

operational activities.

Some public accounting firms are economically

distressed as a result of the switching auditor's

decision. For example, the public accounting firms

annually got an assignment to examine companies

that have been listed on the stock exchange,

because audit fees continued to increase, making

the company decide to switch auditors to another

public accounting firm with a lower audit fee.

Participants in this study were selected based on

their involvement in audit services businesses,

especially public accounting firms that have

experience with auditor switching. Respondents

from this study were selected auditors who had

been involved in conducting audits for at least three

years.

A preliminary assessment of the study to collect

information regarding factors that greatly influence

auditor switching. Data were collected through

distributing questionnaires to thirty auditors. Based

on the data collected, it can be concluded that the

factors that influence auditor switching are audit

fees, internal controls, and audit materiality.

Hence, the auditor switching variable can act as

the dependent variable, while audit fee, internal

control, and audit materiality variables can act as

independent variables. The auditor switching

variable is supported by four indicator items; the

audit fee variable is supported by nine indicator

items; internal control variables are supported by

nine indicator items; and audit materiality is

supported by thirteen indicator items. Each

indicator is measured using a Likert scale of one to

five. Number one indicates the auditor's opinion

strongly disagrees and five indicates the auditor's

opinion strongly agrees.

Data were collected from the auditor of a public

accounting firm. They were asked to fill out a

closed statement questionnaire for each indicator

for each variable. Auditors' opinions through

survey answers became primary data.

Questionnaires were distributed to each public

accounting firm after obtaining permission from the

human resource manager.

The primary data from the respondents was

sorted whether all respondents had filled out each

questionnaire correctly. Grateful all respondents

answered correctly. The tabulation process uses the

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Excel application. Once complete, the data is

processed using the SMART PLS 3.2.8 application.

Quantitative measurements are used to measure

the effect of audit fees, internal controls, and audit

materiality on auditor switching. The Partial Least

Square (Smart-PLS) application version 3.2.8 PLS

was conducted to evaluate the outer model or

measurement model and assess the inner model or

structural model. The outer model is to measure the

validity and reliability and the inner model is to

measure the hypothesis.

The final step is to discuss the research findings,

whether they are "accepted" or "rejected". Based on

these findings, it is followed by drawing

conclusions and theoretical and practical

implications.

4 Results and Discussion

4.1 Results

Based on questionnaires distributed to auditors in

public accounting firms, data that could be

collected reached 175 respondents from 185

questionnaires distributed to public accounting

firms. After checking, all auditors answered

correctly. Based on the auditor's answers, the

auditor's demographic data can be explained that

the majority of respondents were 103 women and

the rest were 72 men. Then, there are 50% of

auditors aged under 25 years, 30% of auditors with

an age range of 25-35 years, 15% of auditors with

an age range of 36-45 years, and 5% of auditors

with an age more than 45 years old. Moreover, the

data also show that 5% of respondents have a level

education of Diploma were 5%. Followed by

auditors who have level education of bachelor's

degree were 90%, and 10% of respondents have

level education of bachelor master. In addition, the

respondent's data also shows that 66% of the

auditors have worked for 3-5 years. Then followed

by auditors who have worked for more than five

years as much as 16%. The rest, auditors who have

worked for under 3 years as much as 16%.

Based on The measurement model with

reflective indicators, it shows that all data are

normally distributed. The normality test shows that

all indicators have a Skewness value of more than

±2.00 and a kurtosis value of more than 7.00. This

value indicates that all data can be used in

subsequent tests. The measurement model test

refers to the measurement of validity and reliability

tests. The validity test aims to determine whether

the tested data has validity to measure structural

tests. The reliability test aims to determine whether

the data tested has consistency for the next test.

Validity test refers to convergent validity

testing, discriminant validity testing, and average

variance extracted (AVE) testing. Convergent

Validity refers to the results of examining the

loading factor values of the indicators being tested.

The minimum limit for the loading factor value that

can be accepted in the validity test is 0.5, this value

is still acceptable, [63]. In this study, each indicator

has a loading factor value above 0.5, such as the

loading factor value of audit fee 3 is 0.784, and

audit fee 7 is 0,601. Furthermore, the loading factor

value of internal control 2 is 0.546, internal control

3 is 0.859, internal control 6 is 0.742, and internal

control 7 is 0.744. Moreover, all loading factor

values for each latent construct of the audit

materiality and auditor switching are above 0.5. It

indicates that a good correlation between each

indicator and construct or shows that the indicator

works well in the measurement model (Table 1).

Discriminant validity aims to test how far the

latent construct differs from other constructs. A

high value of discriminant validity indicates that a

construct is capable of explaining the phenomenon

being measured. If the loading value of each

indicator on the construct is greater than the cross-

loading value. Average Variance Extracted (AVE)

is used to determine the achievement of

discriminant validity requirements. The minimum

value to state that reliability has been achieved is

0.5. In this study, each construct has an AVE value

above 0.5, such as AVE for the audit fee is 0.523,

internal control is 0.535, audit materiality is 0.562,

dan auditors switching is 0.741. It indicates that the

construct is capable of explaining the phenomenon

being measured (Table 1).

For reliability, Cronbach's Alpha value can be

used. This value reflects the reliability of all

indicators in the model. The minimum value is 0.7

although a value of 0.60 is still acceptable, 63. In

this study, the Cronbach's Alpha value of the audit

fee construct was 0.623, internal control was 0.724,

audit materiality was 0.626, and auditor switching

was 0.825. This indicates that internally each

construct has good reliability or has good

consistency in estimating.

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Table 1. Measurement Model Test Results

Source: author’s work

Table 2. Hypothesis Test Result

T Statistics

(|O/STDEV|)

P-Value

Result

H-1: There is a significant effect between

audit fees on switching auditors.

2,152

0.026

Accepted

H-2: There is a significant effect between

internal control on switching auditors.

2,677

0.008

Accepted

H-3: There is a significant effect between

materiality audit on switching auditors.

2,410

0.016

Accepted

Source: author’s work

Moreover, Composite reliability can be used for

reliability measurement. Composite reliability is

considered better in estimating the internal

consistency of a construct. This value reflects the

reliability of all indicators in the model. The

minimum value is 0.7. In this study, the Composite

reliability value of the audit fee construct is 0.734,

internal control is 0.818, audit materiality is 0.791,

and auditor switching is 0.894. It indicates that

internally each construct has good reliability or has

good consistency in estimating.

A good measurement model is a model that can

support the structural model, [64]. The results of

the measurement model can support the hypothesis

put forward by the theory. In this study, the

adjusted R2 value for the auditor switching variable

is 0.646. It indicates that this study has a moderate

model, [65]. It indicates that the auditor switching

variable can be explained by the variable audit fee,

internal control, and audit materiality of 64%.

While the remaining 36% is explained by other

independent variables that are not in the research

model. The coefficient of determination criterion

(R2) must lie between zero and one (0 < R2 < 1). R2

close to 0 indicates low influence; R2 close to 1

indicates a strong influence. The research

determinant coefficient value of 0.646 indicates a

strong influence on the auditor switching variable

by the audit fee, internal control, and audit

materiality variables.

The structural model refers to the T Statistic test

and P-value. An acceptable T Statistic value must

be above 1.96 with a 95% confidence level, then

the T-table value is 1.96. The acceptable P value or

significance value must be below 0.05. The results

of hypothesis testing can be seen in Table 2.

The results of testing the hypotheses in Table 2

explain that all the hypotheses proposed are

acceptable. Researchers receive H-1, H-2, and H-3.

The H-1 test reveals the following values: The T

Outer

Audit Fee

Audit

Materiality

Internal

Control

Switching

Audit

Cronbach's

Alpha

rho_A

Composite

Reliability

Average

Variance

Extracted

Audit Fee (X1) 0,623 0,656 0,734 0,523

Audit Fee 3 0,784 0,784 0,752 0,578 0,587

Audit Fee 7 0,601 0,601 0,571 0,582 0,558

Audit Materiality 0,626 0,684 0,791 0,562

Audit Materiality 1 0,838 0,429 0,838 0,264 0,646

Audit Materiality 5 0,777 0,351 0,777 0,464 0,484

Audit Materiality 9 0,614 0,264 0,614 0,434 0,303

Internal Control 0,724 0,766 0,818 0,535

Internal Control 2 0,546 0,199 0,067 0,646 0,173

Internal Control 3 0,859 0,079 0,375 0,859 0,626

Internal Control 6 0,742 0,412 0,434 0,742 0,589

Internal Control 7 0,744 0,001 0,374 0,744 0,43

Switching Auditor 0,825 0,839 0,895 0,741

Switching Auditor 1 0,829 0,463 0,601 0,379 0,829

Switching Auditor 2 0,865 0,355 0,452 0,691 0,865

Switching Auditor 4 0,887 0,304 0,682 0,668 0,887

WSEAS TRANSACTIONS on BUSINESS and ECONOMICS

DOI: 10.37394/23207.2024.21.3

Amad Badawi Saluy, Novawiguna Kemalsari,

Unang Toto Handiman, Peby Arwiya,

Ahmad Faridi, Bustanul Arifin Caya, Haliansyah Machmud

E-ISSN: 2224-2899

Volume 21, 2024

statistic is 2.152, and the P is 0.026 (Table 2). It

explains that audit fees significantly affect auditor

switching. This result is in line with previous

research from, [43], who state there is a

relationship between audit fees and switching

auditors in companies that were in poor financial

condition. Then, another finding from, [47], claims

that the size of the audit fee has a significant

influence on the company's decision to change

auditors.

Then, the H-2 test reveals the results of the

statistical T value is 2.677, and P is 0.008 (Table

2). It explains that internal control significantly

affects auditor switching. This result is in line with

previous research from, [41], [52], [56], who claim

there is a significant effect between internal control

and auditor switching.

Finally, the H-3 test reveals the results of the

statistical T value is 2.410, and P is 0.016 (Table

2). It explains that audit materiality significantly

affects auditor switching. This result is in line with

previous research from, [61], who state if

companies feel that the audit opinion is

unsatisfactory, they may decide to change auditors

and seek an auditor who is better able to understand

the matter and provide a more positive audit

opinion.

4.2 Discussion

When a company switches auditors, it may signal

that the previous auditor was not meeting the

company's expectations or was not providing the

level of assurance that the company requires, [21].

The outcomes of the structural model

examination within this research unveil a notable

correlation between audit fees and the act of

changing auditors. The findings propose that a

majority of auditors hold the belief that elevated

audit fees are linked with an amplified probability

of businesses switching their auditors. The

quantum of audit fees might fluctuate contingent on

factors like the intricacy of the audited enterprise,

the scope of the audit conducted, and the reputation

and expertise of the designated auditor. As

corporations contemplate the audit fees disbursed

to auditors, it could impact their choice to shift

auditors. Moreover, the magnitude of audit fees can

function as an indicator for corporations to evaluate

the caliber of services furnished by auditors. If

corporations perceive the audit fees as exorbitant

and not proportional to the advantages gained from

the audit, they could explore alternative auditors

who propose more competitive fees.

These findings align with prior research by

several scholars, demonstrating the relationship and

influence between audit fees and auditor switching.

For instance, [43], found a connection between

audit fees and auditor switching in companies

experiencing financial difficulties. Similarly, [47],

discovered that the magnitude of the audit fee

significantly influences a company's decision to

change auditors. Furthermore, [51], observed a

significant effect of audit fees on auditor switching,

revealing that higher audit fees are associated with

a reduced probability of companies changing

auditors. Finally, [42], reported that higher audit

fees decrease the likelihood of auditor switching in

large companies listed on the stock exchange.

The consistent findings from various researchers

corroborate the importance of audit fees in the

decision-making process of companies regarding

auditor retention or change. As companies carefully

consider the cost-benefit relationship of audit fees,

audit firms may need to provide transparent and

compelling justifications for the fees charged to

enhance client satisfaction and mitigate the risk of

auditor switching. These insights contribute to a

better understanding of the dynamics influencing

auditor-client relationships and the factors affecting

auditor retention in the market.

Switching auditors involves the auditor's

evaluation and disclosure of the risks of material

misstatement and the effectiveness of the

company's internal controls. The level of litigation

risk faced by a company can influence the effort

required by auditors during the audit process, thus

impacting the audit fees charged. Higher litigation

risk may necessitate more extensive audit

procedures and resources to mitigate potential legal

actions, leading to an increase in audit fees.

Conversely, lower litigation risk may result in

lower audit fees due to reduced effort required by

auditors, [56].

Furthermore, the study's findings indicate that

internal control and materiality significantly

influence auditor switching. Auditors consider the

level of internal control and materiality in forming

their opinions, which subsequently impacts their

audit effort. The disclosure of risks of material

misstatement is a requirement mandated by

auditing standards, aiming to inform financial

statement users about potential impacts on the

statements' accuracy. Changes in audit efforts may

influence the auditors' perception of the materiality

of risks and the likelihood of misstatement,

affecting the nature and extent of disclosures in the

auditors' report, [26].

WSEAS TRANSACTIONS on BUSINESS and ECONOMICS

DOI: 10.37394/23207.2024.21.3

Amad Badawi Saluy, Novawiguna Kemalsari,

Unang Toto Handiman, Peby Arwiya,

Ahmad Faridi, Bustanul Arifin Caya, Haliansyah Machmud

E-ISSN: 2224-2899

Volume 21, 2024

These findings align with prior research

demonstrating a relationship between internal

control and auditor switching. An effective internal

control system is associated with a lower risk of

errors or inaccuracies in financial statements,

thereby reducing materiality and audit risks.

Conversely, inadequate internal controls increase

the risk of errors or inaccuracies, leading to higher

materiality and audit risk, which may prompt

auditor switching, [41].

The findings underscore the importance of

considering litigation risk, internal control, and

materiality in the audit process. Auditors must

balance addressing these risks effectively and

setting appropriate audit fees. A robust internal

control system is pivotal in reducing material

misstatement risks and supporting auditors'

conclusions, fostering confidence in financial

statements. These insights contribute to a deeper

understanding of the factors influencing auditor

switching and offer valuable implications for audit

practice and decision-making.

The research findings align with previous

studies that highlight the relationship and influence

between materiality and auditor switching. When

companies change auditors, the new auditor may

need to invest additional effort in setting

materiality thresholds and understanding the

company's accounting policies and practices.

Conducting more tests may be necessary to gain

confidence in the fairness of the financial

statements, especially if concerns were identified in

previous audits. The level of audit effort required

during auditor switching is also impacted by the

materiality level set by the new auditor. A higher

materiality threshold may necessitate less audit

effort due to the lower risk of material

misstatement. Conversely, a lower materiality

threshold may demand more audit effort to detect

potential material misstatements, [36].

Auditor switching can significantly affect the

human resources of public accounting firms.

Companies may need to allocate time and resources

to find and recruit suitable new auditors, which can

be resource-intensive. Additionally, the working

relationship between the company and the previous

auditors may be disrupted, requiring the

development of a new relationship with the new

auditors. This transition may entail explaining

company policies and procedures to the new

auditors, consuming additional time and effort.

Moreover, switching auditors can influence the

company's internal accounting staff. New auditors

may have different requirements and expectations,

impacting the work and responsibilities of the

internal accounting staff, who may need to adjust to

new auditors and invest more time and resources in

fulfilling new assignments. Considering the costs,

time, and effort associated with the change,

companies must carefully assess the reasons and

business needs before deciding to switch auditors.

The intersection of auditor switching with

human resource management in public accounting

firms involves attracting and retaining skilled

auditors to provide high-quality services to clients.

Investing in the training and development of

auditors is crucial for maintaining competitiveness.

A positive work environment, teamwork emphasis,

and ethical conduct are essential for retaining

auditors and fostering long-term client

relationships. Effective leadership that provides

clear direction communicates expectations, and

supports professional growth can contribute to

higher job satisfaction and lower turnover rates

among auditors. Strengthening these aspects of

human resource management enhances the firm's

ability to attract and retain talented professionals,

ensuring continued excellence in audit services.

These insights underscore the significance of

human resource management in the context of

auditor switching, and they offer valuable

implications for audit firms in maintaining a

competent and satisfied workforce.

5 Conclusion and Recommendation

This study explored the effects of audit fees,

internal control, and audit materiality on the

decision to switch auditors. The study's results are

consistent with prior research, indicating that these

factors indeed have a significant impact on choices

related to changing auditors.

From a human resources viewpoint, the act of

switching auditors carries substantial implications

for public accounting firms. The process of

identifying and recruiting suitable new auditors to

meet a company's requirements can demand

considerable time and resources, leading to both

time and financial expenses. Furthermore, the

transition to a new auditor can influence the

dynamic between the company and its former

auditors. The individual responsible for

maintaining the relationship with the previous

auditor must establish a new connection with the

newly appointed one, entailing additional time and

effort to communicate and align on company

policies and procedures.

WSEAS TRANSACTIONS on BUSINESS and ECONOMICS

DOI: 10.37394/23207.2024.21.3

Amad Badawi Saluy, Novawiguna Kemalsari,

Unang Toto Handiman, Peby Arwiya,

Ahmad Faridi, Bustanul Arifin Caya, Haliansyah Machmud

E-ISSN: 2224-2899

Volume 21, 2024

Moreover, considering human resources, the act

of changing auditors can have diverse

consequences, impacting employee growth,

performance enhancement, regulatory adherence,

cost efficiency, and job role separation. Overall, the

decision to switch auditors significantly

reverberates within human resources and corporate

management strategies. Therefore, it is essential for

companies to thoughtfully weigh their objectives

when selecting a new auditor and evaluate how this

decision will impact their workforce and overall

performance.

It is crucial to acknowledge that the choice to

switch auditors is a complex one shaped by

numerous factors. The interrelation between auditor

switching and human resource management

underscores the vital significance of effective talent

management, fostering job contentment, nurturing

professional advancement, and cultivating a

positive organizational culture within the audit

profession. Audit firms that adeptly handle their

human resources are more likely to retain skilled

auditors and uphold enduring client relationships,

thereby lessening the necessity for frequent

changes in auditors.

In light of the study's findings, it is

recommended to offer incoming auditors

opportunities to benefit from the knowledge and

experience of their predecessors. This approach can

amplify employee growth, equip them with new

competencies, and enhance overall performance.

Furthermore, the shift in auditors can serve as

renewed motivation for employees to strive toward

their objectives and elevate the quality of audits.

Additionally, public accounting firms are

strongly advised to prioritize the attraction and

retention of proficient auditors to deliver

exceptional client services. This can be

accomplished through substantial investments in

auditor training and professional development,

ensuring their competence and capabilities align

with the demands of their roles.

In conclusion, this study sheds light on the

determinants of auditor switching and underscores

the pivotal role of human resource management in

shaping the audit profession. By implementing

effective talent management practices and fostering

a supportive work culture, audit firms can retain

talented auditors and provide exceptional services

to their clients, ultimately reducing the need for

frequent auditor switching.

Acknowledgement:

We express our gratitude for the support received

from the Public Accounting Firm as an institution

that has allowed us to examine its auditors. Thank

you also to the accountants who were willing to be

respondents.

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Unang Toto Handiman, Peby Arwiya,

Ahmad Faridi, Bustanul Arifin Caya, Haliansyah Machmud

E-ISSN: 2224-2899

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Unang Toto Handiman, Peby Arwiya,

Ahmad Faridi, Bustanul Arifin Caya, Haliansyah Machmud

E-ISSN: 2224-2899

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DOI: 10.37394/23207.2024.21.3

Amad Badawi Saluy, Novawiguna Kemalsari,

Unang Toto Handiman, Peby Arwiya,

Ahmad Faridi, Bustanul Arifin Caya, Haliansyah Machmud

E-ISSN: 2224-2899

Volume 21, 2024

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Contribution of Individual Authors to the

Creation of a Scientific Article (Ghostwriting

Policy)

- Ahmad Badawi Saluy and Novawiguna

Kemalasari carried out the conceptualization and

the optimization.

- Unang Toto Handyman focused on methodology

and implemented the software SMARTPls.

- Peby Arwiya has organized and executed the

experiments.

- Ahmad Faridi was responsible for formal

analysis and data curation.

- Bustanul Arifin Caya was responsible for

writing—the original draft preparation.

- Haliansyah was responsible for writing—

reviewing and editing.

All authors have read and agreed to the published

version of the manuscript.

Alternatively, in case of no funding, the

following text will be published:

No funding was received for conducting this study.

Alternatively, in case of no conflicts of interest,

the following text will be published:

The authors have no conflicts of interest to declare

that are relevant to the content of this article.

Creative Commons Attribution License 4.0

(Attribution 4.0 International, CC BY 4.0)

This article is published under the terms of the

Creative Commons Attribution License 4.0

https://creativecommons.org/licenses/by/4.0/deed.e

n_US

WSEAS TRANSACTIONS on BUSINESS and ECONOMICS

DOI: 10.37394/23207.2024.21.3

Amad Badawi Saluy, Novawiguna Kemalsari,

Unang Toto Handiman, Peby Arwiya,

Ahmad Faridi, Bustanul Arifin Caya, Haliansyah Machmud

E-ISSN: 2224-2899

Volume 21, 2024