Audit rotation and tax avoidance: comparison mandatory vs voluntary of audit firm rotation regulations in Indonesia
Fitria Magdalena Suprapto (a*), Dian Agustia (b)

(a)(b) Airlangga University

Abstract

This paper examines the effect of audit rotation on tax avoidance. This study also examines whether changes in rotational policy between mandatory and voluntary have different effects. This research was conducted in Indonesia, which applied audit firm and audit partner rotation, but in 2015 audit firm rotation was abolished. This study uses 2,022 observations from 393 companies listed on the IDX for the period 2010-2019. The results show that audit partner and audit firm rotation do not have a significant relationship to tax avoidance, but when the audit firm rotation regulations are mandatory and voluntary, the rotation has a significant relationship to tax avoidance. Audit firm^s mandatory rotation is able to increase the company^s effective tax rate (ETR), while voluntary audit firm rotation shows that companies generally reduce ETR. Audit partner rotation during the audit firm^s voluntary rotation shows a negative and significant relationship, while a positive and significant relationship with tax avoidance is shown when auditing the firm^s mandatory rotation. Although the regulation on audit partner rotation is required in each regulation, it has a different effect on tax avoidance actions because the audit partner is still in the same audit firm. The findings of this study assist audit practitioners and regulators in understanding the impact of rotation on tax avoidance.

Keywords: audit firm rotation- audit partner rotation- audit firm rotation mandatory- audit firm rotation voluntary- tax avoidance

Topic: Audit