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The objective of this research is two fold. First, it test the audit quality of companies that change their auditors, either voluntarily or mandatorily. Indonesia has a regulation, since 2002, that mandates companies to rotate their auditor after six years of consecutive engagements (five years prior to 2008). However, auditors seems to find their own way to deceive the mandatory regulation by a tactic so called pseudo mandatory rotation. We, therefore, divide mandatory rotation into pure and pseudo mandatory rotation. Second, we test the financial characteristics that may be a factor for an accounting firm to engage in such pseudo mandatory rotation.

We collect data of rotation since the Ministrial decree became effective in 2003. The results indicate that companies that rotate their auditors mandatorily have higher audit quality than that of voluntarily. We cannot find evidence, however, that pseudo and pure mandatory rotation have different audit quality. The results also indicate that, among other types of switching, switching among bigger accounting firm has the highest audit quality, while switching between smaller ones has the lower audit quality. Lastly, motives for an accounting firm whether to engage in pseudo or pure mandatory rotation are related to the financial size of their clients. Future research must consider the limitation stated in this study.

audit quality, auditor switching.discretionary accruals, pseudo and pure mandatory rotation, voluntary rotation