The Impact of Auditor Rotation on Financial Statement Quality in the Manufacturing Sector

Abstract

Auditor independence is a critical factor in maintaining the credibility of financial statements, prompting the Indonesian government to implement an auditor rotation policy through Minister of Finance Regulation No. 17/PMK.01/2008. However, the effectiveness of this policy in improving financial reporting quality remains a subject of academic debate. This study aims to analyze the impact of auditor rotation on financial reporting quality in manufacturing companies listed on the Indonesia Stock Exchange during the 2021–2023 period. A quantitative associative causal-comparative approach was employed using purposive sampling, resulting in 90 observations. Auditor rotation and financial reporting quality were measured using dummy variables, with audit opinion serving as a proxy for financial reporting quality. Data were analyzed using panel logistic regression with a random effect model, selected based on the Hausman test results. The findings indicate that auditor rotation has an odds ratio of 1.304 with a significance value of 0.563 (p>0.05), suggesting that its effect on financial reporting quality is not statistically significant. The McFadden Pseudo R² of 0.003 further indicates that the model has very limited explanatory power regarding variations in financial reporting quality. These findings conclude that auditor rotation is not the sole determinant of financial reporting quality, as internal factors such as internal control systems, corporate governance, and management integrity also play significant roles. This study recommends that regulators and companies not rely solely on rotation policies but also strengthen auditor oversight and competency more comprehensively.