Audit fees during the COVID-19 pandemic: empirical evidence from financial sector firms in Indonesia

Gatot Soepriyanto, Yesika Kristi and Jovanie Setiawan

Asian Journal of Accounting Research, 2025, vol. 10, issue 4, 384-398

Abstract: PurposeThis study aims to investigate the impact of the COVID-19 pandemic on audit fees in Indonesia’s financial sector. It explores how increased audit risk, regulatory demands and organizational changes influenced audit pricing during a period of global disruption.Design/methodology/approachThe study employs panel data from 88 financial companies listed on the Indonesia Stock Exchange over the period 2018–2022. A two-stage least squares (2SLS) regression model is used to address potential endogeneity in auditor selection, particularly the engagement of Big 4 firms.FindingsThe results show a significant increase in audit fees during the COVID-19 pandemic, especially among companies audited by Big 4 accounting firms and those with greater financial complexity. These firms likely required more extensive audit procedures due to higher risk exposure and regulatory scrutiny. The findings support the view that audit pricing is sensitive to external shocks, with auditors adjusting their fees to reflect the additional effort and professional judgment required in uncertain environments.Research limitations/implicationsThe analysis is limited to Indonesia’s financial sector and may not be directly generalizable to other industries or countries. However, it offers a foundation for comparative studies and encourages further research on audit fee behavior in crisis settings, particularly in emerging markets.Practical implicationsThe findings provide valuable insights for auditors, regulators and firms by highlighting how audit practices and pricing respond to crisis conditions. Regulators may use these insights to consider more flexible audit oversight, while audit firms can better anticipate resource allocation during periods of heightened uncertainty.Social implicationsThis study highlights the broader societal importance of maintaining audit quality and transparency during times of crisis. As financial sector institutions play a key role in economic recovery and public trust, ensuring that their financial reporting is thoroughly audited helps safeguard investor confidence and market stability. By showing that auditors responded to increased risk and complexity with greater audit effort – reflected in higher fees – this study reinforces the role of auditors in upholding public accountability. In emerging markets like Indonesia, where regulatory oversight and audit capacity are still developing, these findings underline the need for strong institutional support to ensure audit resilience during systemic shocks such as the COVID-19 pandemic.Originality/valueThis study contributes to the limited literature on audit fees in emerging markets, particularly during global crises. It offers an integrated theoretical framework combining auditing theory, risk management theory and organizational change theory, providing new perspectives on how external shocks influence audit pricing dynamics.

Keywords: Indonesia; Audit; Financial sector; COVID-19; Audit fee (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ajarpp:ajar-01-2024-0043

DOI: 10.1108/AJAR-01-2024-0043

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