Abstract:

ISA 600 states that Group Auditor has full responsibility for all consolidated financial statements, including subsidiaries' financial statements audited by Component Auditor. As the impact, Group Auditor will choose to audit the subsidiary directly to minimize the risk that will be their responsibility. This study aims to examine the impact of the implementation of ISA 600 on market share and audit quality in Indonesia. This study used mixed method. The primary data were obtained from questionnaires and FGD,  244 respondents are collected. Secondary data obtained from 1,062 firm years of parent company (2011-2016). Regression results found that the implementation of SA600 had a negative impact on audit quality. Additional testing by dividing whether the auditor is Big 4 and Non Big 4, shows the same result. But, the impact is greater when auditor is Non Big Four. This may be due to: 1) SA 600 which causes the component auditor to shift to the parent auditor causes the parent auditor to experience an overload of work, thereby reducing audit quality. In the medium tier (second tier and small auditing firms) the human resources are less than the large KAP, 2) the Big 4 has a reputation that must be maintained so they will try to maintain the level of audit quality. After the implementation of ISA 600 in Indonesia, there was a lot of change auditors of subsidiaries companies to group auditor. Since the group auditor is usually a Big 4 and Second Tier accounting firm, then many small accounting firm’s clients move to Big 4 and second tier, so that small accounting firms lose a lot of clients. FGD and Questionnaires distributed to auditors show consistent results. According to ISA 600, subsidiary company should not audit by the GA, it may still be audited by another accounting firm, but the GA must supervise and inspect the subsidiary's audit program and working papers. But it seems that the GA does not want to bear the risk. The implication of this study is that regulators are expected to make regulations to protect small accounting firms from negative impact of ISA 600.