Procedia - Social and Behavioral Sciences 172 ( 2015 ) 63 67

Available online at www.sciencedirect.com ScienceDirect Procedia - Social and Behavioral Sciences 172 ( 2015 ) 63 67 Global Conference on Business & Social Science-2014, GCBSS-2014, 15th & 16th December, Kuala Lumpur Factors influencing audit fee in Indonesian Publicly Listed Companies applying GCG Toto Rusmanto a *, Stephanus Remond Waworuntu b a Binus Business School, Bina Nusantara University, Jakarta 10270, Indonesia b Binus International University, Bina Nusantara University, Jakarta 10270, Indonesia Abstract The objective of this study is to examine the factors influencing audit fee in companies which have applied Good Corporate Governance. This study uses a sample of data from companies listed on the Indonesia Stock Exchange LQ 45 during the year 2011 and 2012. Data is analyzed by using model developed by Wu (2012) using multiple linear regression. The research found that assets (company size) significantly affect/determine audit fee paid by clients to audit firms. Whereas other factors such as profit, business complexity and number of subsidiary are not significant in determining audit fee. 2015 The Authors. Published by by Elsevier Ltd. Ltd. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/). Keywords: Audit Fee; Good Corporate Governance; Indonesia Stock Exchange; Company Size; Business Complexity. 1. Introduction Audit fee sometimes can become an issue when abnormal rate is charged for a certain client. In some cases to have a better audit opinion, a client may pay a higher audit fee rate than it should pay. This research therefore will investigate what factors actually fee rate for audit firms. This research will investigate all companies which have applies good corporate governance. Corporate governance has an important role in providing the investment climate in the economy. The better corporate governance in an economy will be more conducive investment climate for investors. Accounting profession in this case the auditor of a Public Accounting Firm also plays an important role in supporting good corporate governance (GCG). The auditor can support the implementation of good corporate * Corresponding author. Tel.: +62 21 7202222 ; Fax: 62 21 7205555 E-mail address: trusmanto@binus.edu 1877-0428 2015 The Authors. Published by Elsevier Ltd. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/). doi:10.1016/j.sbspro.2015.01.336

64 Toto Rusmanto and Stephanus Remond Waworuntu / Procedia - Social and Behavioral Sciences 172 ( 2015 ) 63 67 governance through accountability and transparency of the company's current audited financial statements which will be a qualified audited report which can be accessed by the public. Research on factors influencing audit fees in good governed companies are still relatively rarely studied, especially in developing countries, including Indonesia. Therefore, the researcher feels the need to examine the factors influencing audit fee rate in good governed companies which will be benefits for the management, audit firm, as well as the investor. Research on audit fee has been conducted by Asthaana and Boone (2012). In their research, Asthaana and Boone (2012) studied the effect of abnormal audit fee to audit quality. Hasan and Naser (2013) conducted their research on factors determinants factors of audit fee in Nigeria. In their research, company size become most determinant factor of audit fee followed by business complexity. Ramzy (1998) found that company size, business complexity and internal control become most determinant factors of audit fees. Research on Corporate Governance have been carried out for instance conducted by Ionescu (2011). In his research, Ionescu (2011) examines the financial crisis as a failure of corporate governance. Whereas research examining the relationship between Corporate Governance and Audit Fee has been done in China by Wu (2012). Research conducted by Wu (2012) examines the corporate governance relationship with audit fees, which the research results indicate that corporate governance has a negative association premises audit fee. This means that the better management of the company the lower the audit fees to be incurred for the company. Study of Wu (2012) has inspired the researchers to conduct similar studies Audit Fee in Indonesia. In relation with the context of the economy and business in Indonesia, the researchers are interested to examine factors influencing audit fee rate in good governed companies in Indonesia. The research will provide insight to business that the company must be managed as good as possible to have a fair audit rate. However, the companies must know well what factors influencing audit rate. Therefore the research question will be as follow: what factors influencing audit fee rate in good governed companies? 2. Literature review Audit fee is the cost incurred by the company to pay a public accounting firm in order to audit the financial statements of the company. There are many studies related with the association of audit fees with audit quality research including Asthaana and Boone (2012). Also the effect of audit fees on auditor independence has been done by previous researchers such Barkess (1995), Supriyono (1988), Rusmanto (2002). In Asthaana and Boone s research (2012) they found that abnormal audit fees (audit fees that are beyond the norm / above average) negatively associated with audit quality issued by the audit firm. In a study conducted by Supriyono (1988) audit fee is one of the factors that may affect the auditor's independence. A similar opinion is also supported by the findings of research conducted by Rusmanto (2002). Both studies Supriyono (1988) and Rusmanto (2002) conducted in Indonesia. While research does not support that the audit fee does not affect the independence of the auditor is to research conducted by Barkess (1995). So there are no conclusive results or the agreement of the results of previous studies on the impact on the audit fee auditor independence or audit quality work. Corporate governance refers to the method by which a company / organization is managed, administered, operated and controlled in accordance with the objectives set (Hutchinson, 2005, p. 118). Hutchinson mentions further that the issue of corporate governance to be very interesting and much talked about corporate bankruptcy since large companies such as HIH insurance companies and telecommunications companies One Tel. Corporate Governance becomes important for the company to be well managed, accountable and transparent. Organization for Economic Co- Operation and Development (OECD) confirms that: "The corporate governance framework should promote transparent and efficient markets, be consistent with the rule of law and clearly articulate the division of responsibilities among different supervisory, regulatory and enforcement authorities" (OECD, 2004, p. 29). Effective corporate governance should therefore uphold transparency and promote market efficiency. This means any information presented companies accountable and can inform the users of the financial statements in the capital market. Corporate governance also upholds the principles of law and obeys the rules at every level. All must meet the applicable law. In other words, if the company is managed, well run and controlled in accordance with the applicable rules, it will create a healthy business climate. Corporate Governance is essential in providing an excellent investment climate in a country with the characteristics of a competitive company in a healthy and efficient capital market support (Sori and Karbhari, 2005).

Toto Rusmanto and Stephanus Remond Waworuntu / Procedia - Social and Behavioral Sciences 172 ( 2015 ) 63 67 65 Companies which have good corporate governance are considered to have the ability to do the recording and reporting of its financial statement better than those which have not. Therefore, such a company will be regarded by the public accounting firm as has a good internal control. And therefore public accounting firm will tend to quote a relatively low fee. Instead, public accounting firm will provide audit services prices relatively higher than to the company that was allegedly not implementing good corporate governance. This is because the company is weak in the implementation of corporate governance has a weak internal control. So the greater the scope of the audit work for the auditor, which will eventually need a lot of time to complete the audit work, many audits processing time, of course, the greater the audit fee will be charged to the company. Therefore, to answer the research question, this research will only focus to investigate those companies which have already applied good corporate governance. Hence, the data or information gathered in this research will be comparable. In common practice company size will become one of audit fee determinant as found by Hasan and Naser in their study (2013). Since the bigger the companies the more transaction and more complicated their business activities. Other independent variables are company receivable/assets, inventory/assets, segment of industry and number of subsidiary. Percentage of receivable and inventory become concern since in audit work they need to be confirmed and stock opnamed. Segment of industry and number of subsidiary become independent variable since these will represent wide of business range activities as found in Hasan and Naser study (2013). Whereas, big four or non big four audit firm and profit/loss companies become dummy variable in this variables. 3. Research method The research s goal is to know what factors influencing audit fee in good governed companies in Indonesia. Data is taken from the Indonesian Stock Exchange LQ 45. This index consists of most liquid companies in the Bursary and known as companies which implement good corporate governance. This study will look at some of the proxy as a variable to be measured as shown in the multiple linear regression equation. This study used purposive sampling. By selecting directly and intentionally companies listed in LQ 45 at the Indonesia Stock Exchange. This selection was based on several reasons: 1) LQ 45 is an index of the best company in which the company alone who are elected to the index. 2) Therefore LQ 45 is a representation of the company and a company that is listed on the Indonesia Stock Exchange. Sources of data used in this study were drawn from secondary data sources. That is the source of data that can be accessed from a third party such as the internet, the Indonesia Stock Exchange web site, or audited statements contained in the Indonesia Stock Exchange and other sources such as public accounting firm web site. The main data source in this study is that the financial statements have been audited by Public Accountant in 2011 and 2012. All data collected is processed using SPSS. Dependent variable is audit fee. Whereas for independent variable are Company assets, Receivable, Inventory, segment and number of subsidiary. Big-four or non big-four audit firm and profit/loss company will be dummy variable. The research model is as follow: Ln fee = β 0 + β 1 TobinQ + β 2 Big4+ β 3 Ln Assets + β 4 Loss+ β 5 Recint + β 6 Invint + β 7 Segment + β 8 Subrt+ e (1) where: Ln fee = natural log for audit fee β 0 = constant β 1 Tobin Q = value of Tobin Q β 2 Big 4 = dummy=1 if audited by big4, 0 = if audited by non-big 4 β 3Ln Assets = Natural log for total Assets β 4 loss = dummy=1 if auditee suffered loss, 0 if auditee gained profit β 5Recint = account receivable/total assets β 6Invint = inventory/total assets β 7 Segment = number of industry in which company involved β 8 Subs rt = square root of number of consolidated subsidiaries e = error

66 Toto Rusmanto and Stephanus Remond Waworuntu / Procedia - Social and Behavioral Sciences 172 ( 2015 ) 63 67 4. Research findings Summary of the data analysis can be seen in the table 1. Table 1: Regression of Factors Influencing Audit Fee Regression Coefficients Dependent Independent R (R 2 ) Unstandardized Standardized Sig tvalue Variables Variable Audit Fee Assets.977 (.955).978.958.000 17.428 Big 4 audit firm -.281 -.031.557 -.593 Loss -.238 -.018.700 -.388 Receivable/assets 5.139.076.095 1.713 Inventory/assets 1.053.040.377.895 Segment -.002 -.016.687 -.407 Subsidiary.079.060 0.185 1.352 Tobin s Q -1.785E006 -.003.945 -.069 From the table it can be seen that from all factors or independent variables such as assets, big audit firm, profit/loss, receivable, inventory, segment, subsidiary and Tobin s Q Value only asset has significant effect to audit fee rate that is 95.5 per cent, while other variables have no significant effect to audit fee rate. 5. Conclusion The research finds that all factors or variables have no significant effect to audit fee except for the assets size of the company. This is understandable since, audit firm in Indonesia always make an easy measurement for the audit fee offer, especially for clients with good corporate governance like this research samples. Therefore, to make an easy measurement normally an audit fee offer provided by audit firm will refer to company assets size of clients. This finding is similar to Hasan and Naser (2013) which found that companies size is the most determinant of audit fee in Nigeria. Hasan and Naser study found that the complexity of business also become significant factor in determining audit fee, but is not applied in this research findings, this perhaps this research samples do not come from various industries. This study also inline with study of Ramzy (1998) which his study found that company size is the most factor influencing audit fee. However, Ramzy (1998) found that business complexity, internal control and number of country where the business operates also become determinant of audit fee. For companies that apply Good Corporate Governance will have similar risk and scope of work. This research finding perhaps will be generating different results if the research samples taken from various background of corporate governance not from LQ 45 index (good companies index) in Indonesia Stock Exchange. References Asthaana, S.C. and Boone, J.P. (2012), Abnormal Audit Fee and Audit Quality, Auditing: A Journal Practice and Theory, 31 (3), 1-22. Barkess, L., R. Simnett and P. Urquhart, (1995) The Effect of Client Fee Dependence on Audit Independence, Working Paper, University of New South Wales. Beattie V at al (2000). The Determinants of Audit Fees - Evidence from the Voluntary Sector Research paper. Cassel, C. A. et al (2012), The Effect of Corporate Governance on Auditor Client Realignment, Auditing: A Journal Practice and Theory, 31(2), 167-188. Grant, G. H. (2003), The Evolution of Corporate Governance and Its Impact on Modern Corporate America, Management Decision, 41 (9), 923-934. Goldman, A. and Barlev, B., (1974), The Auditor-Firm Conflict of Interests: Its Implications for Independence, The Accounting Review, 49, 707 718. Hasan, Y.M. and Naser, K. (2013), Determinants of Audit Fees: Evidence from Emerging Economy, International Business Research, 6(8), 13-25. Ionescu, L. (2011). The Financial Crisis as A Failure of Corporate Governance, Economics, Management, and Financial Markets, 6(2), 827-832. Kleinman, G., Palmon, D., and Anandarajan, A., (1998), Auditor Independence: A Synthesis of Theory and Empirical Research, Research in Accounting Regulation, 12, 3-42.

Toto Rusmanto and Stephanus Remond Waworuntu / Procedia - Social and Behavioral Sciences 172 ( 2015 ) 63 67 67 Knapp, M. C., (1985), Audit Conflict: An Empirical Study of the Perceived Ability of Auditors to Resist Management Pressure, The Accounting Review, LX (2), 202-211. Krathwohl, D. R. (1998), Methods of Educational and Social Science Research: An Integrated Approach, Longman, New York. Lori, V. Ryan, (2005). Corporate Governance and Business Ethics in North America: The State of The Art. Business and Society 44 (1), 40-73. Organisation for Economic Co-Operation and Development (2004). OECD Principles of Corporate Governance. www.oecd.org. Preston, N.(1996), Understanding Ethics, The Federation Press. Pringle, L. M., and T. A. Buchman, (1996) An Examination of Independence in Fact When Auditors Perform Non-Audit Services For Audit Clients, Accounting Enquiries, 6 (1), 91-120. Ramzy, W.A. (1988), The Determinants of Audit Fees: An Analytical Study, Doctoral Thesis, Harriot Watt University. Ryan, L. V. (2005), Corporate Governance and Business Ethics in North America: The State of the Art, Business and Society, 44(1), 40-73. Rusmanto, T. (2002), An Investigation of Factors Influencing Auditor Independence: A Case of Indonesia, Dissertation, University of Wollongong. Sekaran, U. (2003). Research Methods for Business: A Skill Building Approach, 4 th ed. United States: John Wiley & Sons, Ltd. Sori, Z.M. and Karbhari, Y. The Impact of Selected Corporate Governance Programmes to Auditor Independence: Some Evidence from Malaysia, Sutton, M. H.(1997), Auditor Independence: The Challenge of Fact and Appearance, Accounting Horizons, 86-91. Tan, H. T.,(1999), Organizational Levels and Perceived Importance of Attributes for Superior Audit Performance Abacus, 35 (1), 77-90. Teoh, H. Y. and C. C. Lim,(1996), An Empirical Study of the Effects of Audit Committees, Disclosure of Non-audit Fees, and Other Issues on Audit Independence: Malaysian Evidence, Journal of International Accounting, Auditing & Taxation, 5 (2), 231-248. Trotman, K. T.(1998), Audit Judgment Research Issues Addressed, Research methods and Future Directions, Accounting and Finance, 38, 115-156. Wu, X.(2012), Corporate Governance and Audit Fees: Evidence from Companies Listed on The Shanghai Stock Exchange, China Journal of Accounting Research, 5, 321-342.