Abstract:

Complexity of information limits information transparency, which may lead to substantial information asymmetry. Thus, companies with complex information require greater audit efforts in auditing their financial statements. In addition, companies that tend to be complex will increase audit risk which results in increased audit costs. Previous research shows that the complexity of company information can originate from tax avoidance activities and related party transactions. The purpose of this paper is to examine the relationship of information complexity and audit fee. This study also investigates the role of institutional ownership on the relationship between information complexity (related party transactions and tax avoidance) and audit fee. This paper employs cash effective tax rate to measure tax avoidance (TA) and the value of related party transactions to measure the extent of related-party transactions (RPT). Using a sample of nonfinancial companies listed in the Indonesia Stock Exchange (IDX) during 2013-2017, the result shows that RPT significantly increase audit fee confirming the hypothesis that auditors will put higher effort to mitigate the higher risk. This research also finds that institutional ownership cannot reduce the positive association between RPT and audit fee.