Audit Quality in Emerging Markets: Evidence from Indonesia's Consumer Industry

Audit quality serves as a fundamental pillar in safeguarding the credibility of financial statements, which are pivotal for informed decision-making by diverse stakeholders. In Indonesia, the standards for auditor professionalism and independence are stipulated through Law No. 5 of 2011 on Public Accountants and Ministry of Finance Regulation No. 17/PMK.01/2008. Despite these regulatory frameworks, the practical enforcement of audit quality often reveals significant shortcomings. This study examines the impact of audit fees, audit capacity stress, audit firm size, and litigation risk on audit quality. The research targets companies listed in the consumer non-cyclical and cyclical sectors on the Indonesia Stock Exchange (IDX) for the period from 2021 to 2023. Employing a quantitative approach with purposive sampling, the study analyzes 225 firm-year observations from 75 companies. Logistic regression is used to test the proposed relationships. The findings indicate that audit capacity stress has a negative impact on audit quality, whereas litigation risk has a positive influence. These results underscore the need to manage auditor workloads and recognize litigation exposure as a factor that can enhance professional scepticism and diligence among auditors in Indonesia’s consumer sector. The study offers valuable insights for auditors in balancing workload and litigation pressure while also informing investors that high litigation risk may be associated with increased audit rigour and reliability