Increase transparency and accuracy of financial statements

Oct 13, 2025 by talynt.org 38 views

The Effect of Audit Tenure, Auditor Independence, Debt Ratio, and Sales Growth to Profit Management Discretionary Accruals in Property and Real Estate Companies Listed on the Indonesia Stock Exchange

Introduction

The Indonesia Stock Exchange (IDX) is one of the largest stock exchanges in Southeast Asia, with a significant number of property and real estate companies listed on it. These companies play a crucial role in the country's economy, and their financial performance is closely monitored by investors, regulators, and other stakeholders. However, the financial statements of these companies may be subject to manipulation, which can lead to inaccurate representation of their financial position and performance. This study aims to investigate the factors that influence the determination of Discretionary Accruals Profit Management in property and real estate companies listed on the IDX.

Background

Discretionary Accruals are a type of accounting manipulation that involves the use of accounting estimates and judgments to manage earnings. This can be done to achieve specific goals, such as increasing profits, reducing losses, or improving financial ratios. The use of Discretionary Accruals can be detrimental to the accuracy and transparency of financial statements, and can lead to misinformed investment decisions.

Several factors can influence the determination of Discretionary Accruals, including audit tenure, auditor independence, debt ratio, and sales growth. Audit tenure refers to the length of time an auditor works for a particular company, while auditor independence is measured using dummy variables. Debt ratio is an important financial indicator that assesses a company's risk, while sales growth is a key driver of a company's financial performance.

Methodology

This study uses a multiple linear regression analysis to examine the effect of audit tenure, auditor independence, debt ratio, and sales growth on Discretionary Accruals Profit Management in property and real estate companies listed on the IDX. The population of this study consists of property and real estate companies listed on the IDX in the 2011-2013 period. A purposive sampling method was used to obtain samples of financial statements from at least 90 companies.

Results

The results of this study show that sales growth has a significant influence on the determination of Discretionary Accruals. This suggests that companies that experience strong sales growth tend to show more courage in reporting their profits, which may be due to management's desire to show good performance to investors and other stakeholders. However, the results also show that audit tenure, auditor independence, and debt ratio do not have a significant effect on Discretionary Accruals.

Analysis of Factors Affecting Profit Management

1. Audit Tenure

Audit Tenure refers to the length of time an auditor works for a particular company. In the context of this study, although no significant influence on the Discretionary Accruals earnings management was found, it is essential to consider that the duration of the relationship between the auditor and the company can affect the level of confidence and information disclosure. However, in some cases, auditors who have long been tasked can be trapped in a mindset that might reduce their objectivity.

2. Auditor's Independence

Auditor's independence is measured using Dummy Variables in this study. Although theoretically, independent auditors are expected to be able to provide objective opinions, the results show that this variable has no significant influence. This can be caused by various factors, including pressure from management to display better results, which can encourage auditors to be less independent.

3. Debt Ratio

The debt ratio is an important financial indicator in assessing a company's risk. Although there is an assumption that a company with a high debt ratio will tend to use earnings management to maintain a good financial position, this study shows that there is no significant effect of the debt ratio to the Discretionary Accruals. This shows that companies may focus more on growth and innovation rather than just managing their profits.

4. Sales Growth

Sales growth has been proven to have a significant influence on Discretionary Accruals Profit Management. Companies that experience strong sales growth tend to show more courage in reporting their profits. This could be because management wants to show good performance to investors and other stakeholders. Therefore, management may carry out accounting maneuvers to reflect better growth than what actually happens.

Conclusion

This study provides an important insight into the factors that influence the Discretionary Accruals Profit Management in property and real estate companies in Indonesia. Although not all factors have a significant influence, this result can provide guidance for stakeholders to understand the dynamics of financial statements in this sector. By understanding the effect of significant sales growth, companies are expected to take strategic steps to increase transparency and accuracy of their financial statements, as well as maintain investor confidence in the capital market.

Recommendations

Based on the findings of this study, the following recommendations are made:

Increase transparency and accuracy of financial statements: Companies should take steps to increase transparency and accuracy of their financial statements, including providing clear and concise information about their financial performance and position.
Maintain investor confidence: Companies should maintain investor confidence by providing reliable and accurate financial information, and by taking steps to prevent earnings management.
Improve auditor independence: Auditors should be independent and objective in their opinions, and should not be influenced by management pressure to display better results.
Monitor debt ratio: Companies should monitor their debt ratio and take steps to manage their risk, including reducing debt levels and improving cash flow.

Limitations

This study has several limitations, including:

Sample size: The sample size of this study is limited to 90 companies, which may not be representative of the entire population of property and real estate companies listed on the IDX.
Data availability: The data used in this study is limited to the 2011-2013 period, which may not reflect the current financial performance and position of these companies.
Methodology: The multiple linear regression analysis used in this study may not be the most appropriate methodology for examining the effect of audit tenure, auditor independence, debt ratio, and sales growth on Discretionary Accruals.

Future Research Directions

Future research should focus on:

Examining the effect of other factors: Other factors that may influence the determination of Discretionary Accruals, such as management ownership and board composition, should be examined.
Using alternative methodologies: Alternative methodologies, such as panel data analysis, should be used to examine the effect of audit tenure, auditor independence, debt ratio, and sales growth on Discretionary Accruals.
Increasing sample size: A larger sample size should be used to increase the representativeness of the findings.
Frequently Asked Questions (FAQs) about the Effect of Audit Tenure, Auditor Independence, Debt Ratio, and Sales Growth on Discretionary Accruals in Property and Real Estate Companies Listed on the Indonesia Stock Exchange

Q: What is Discretionary Accruals?

A: Discretionary Accruals are a type of accounting manipulation that involves the use of accounting estimates and judgments to manage earnings. This can be done to achieve specific goals, such as increasing profits, reducing losses, or improving financial ratios.

Q: What are the factors that influence the determination of Discretionary Accruals?

A: The factors that influence the determination of Discretionary Accruals include audit tenure, auditor independence, debt ratio, and sales growth.

Q: What is audit tenure?

A: Audit tenure refers to the length of time an auditor works for a particular company.

Q: What is auditor independence?

A: Auditor independence is the ability of an auditor to provide objective opinions, free from management pressure or influence.

Q: What is debt ratio?

A: Debt ratio is an important financial indicator that assesses a company's risk by comparing its total debt to its total assets.

Q: What is sales growth?

A: Sales growth is a key driver of a company's financial performance, measured by the increase in sales revenue over a specific period.

Q: What are the findings of this study?

A: The findings of this study show that sales growth has a significant influence on Discretionary Accruals, while audit tenure, auditor independence, and debt ratio do not have a significant effect.

Q: What are the implications of this study?

A: The implications of this study are that companies that experience strong sales growth tend to show more courage in reporting their profits, which may be due to management's desire to show good performance to investors and other stakeholders.

Q: What are the recommendations of this study?

A: The recommendations of this study are that companies should take steps to increase transparency and accuracy of their financial statements, maintain investor confidence, improve auditor independence, and monitor debt ratio.

Q: What are the limitations of this study?

A: The limitations of this study include a limited sample size, limited data availability, and the use of a multiple linear regression analysis.

Q: What are the future research directions?

A: The future research directions include examining the effect of other factors on Discretionary Accruals, using alternative methodologies, and increasing sample size.

Q: What are the practical implications of this study?

A: The practical implications of this study are that companies should take steps to prevent earnings management, improve transparency and accuracy of financial statements, and maintain investor confidence.

Q: What are the policy implications of this study?

A: The policy implications of this study are that regulatory bodies should take steps to improve auditor independence, monitor debt ratio, and prevent earnings management.

Q: What are the future research directions in this area?

A: The future research directions in this area include examining the effect of other factors on Discretionary Accruals, using alternative methodologies, and increasing sample size.

Q: What are the potential applications of this study?

A: The potential applications of this study include improving financial reporting, preventing earnings management, and maintaining investor confidence.

Q: What are the potential limitations of this study?

A: The potential limitations of this study include a limited sample size, limited data availability, and the use of a multiple linear regression analysis.

Q: What are the potential future research directions in this area?

A: The potential future research directions in this area include examining the effect of other factors on Discretionary Accruals, using alternative methodologies, and increasing sample size.