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The Contribution of PAF Industry Specialization to the Audit Quality Metric Score and Implications for the Tobin's Q of Manufacturing Firms

Author

Listed:
  • T. Husain

    (Widuri Institute of Social and Technology, Jakarta, Indonesia)

  • Nor Balkish Zakaria

    (Universiti Teknologi MARA, Selangor, Malaysia)

Abstract

In the context of the growing complexity of the business environment for manufacturing enterprises, the industry specialisation of auditors is becoming a key factor that potentially increases the quality of audits. This study aims to empirically verify the contribution of Public Accounting Firm (PAF) industry specialisation to audit quality, measured by the Audit Quality Metric Score (AQMS), and to examine its implications for firm value in Indonesian manufacturing companies using Tobin's Q as a proxy. The research sample comprises 126 manufacturing companies registered at the Indonesian Stock Exchange (IDX) between 2022 and 2024. For the analysis, the authors collected data from annual financial reports available on the IDX website (www.idx.co.id) and company websites. Data analysis includes descriptive statistics, multiple regression analysis, and linearity tests for model specification, as well as hypothesis-testing model verification. The results show that PAF industry specialisation plays a highly significant role in determining audit quality, accounting for 95.17% of the variance in AQMS. Thus, specialised auditors possess superior industry knowledge and competence, which translates into stronger audit quality outcomes. At the same time, audit quality has only a very weak negative effect on firm value. Thus, although audit quality is important for governance, firm value is more influenced by external factors such as economic conditions, managerial decisions, industry performance, and investor expectations. To increase public confidence in audit results, regulatory authorities should ensure that audit services for specific industries are provided by specialised audit firms whose representatives possess the necessary industry-specific expertise. In turn, companies can receive more practical recommendations from specialised auditors on improving financial reporting indicators or correcting errors. Investors should remember that audit quality cannot be a sole indicator in assessing a firm's value, as its influence is often weak and indirect.

Suggested Citation

  • T. Husain & Nor Balkish Zakaria, 2025. "The Contribution of PAF Industry Specialization to the Audit Quality Metric Score and Implications for the Tobin's Q of Manufacturing Firms," Oblik i finansi, Institute of Accounting and Finance, issue 4, pages 133-143, December.
    • Handle: RePEc:iaf:journl:y:2025:i:4:p:133-143
    DOI: 10.33146/2518-1181-2025-4(110)-133-143
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    References listed on IDEAS

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    1. Veena L. Brown & Jodi L. Gissel & Daniel Gordon Neely, 2016. "Audit quality indicators: perceptions of junior-level auditors," Managerial Auditing Journal, Emerald Group Publishing Limited, vol. 31(8/9), pages 949-980, September.
    2. Veena L. Brown & Jodi L. Gissel & Daniel Gordon Neely, 2016. "Audit quality indicators: perceptions of junior-level auditors," Managerial Auditing Journal, Emerald Group Publishing, vol. 31(8/9), pages 949-980, September.
    3. Malik Muneer Abu Afifa & Isam Saleh & Fatima Taqatqah, 2023. "Mediating influence of earnings management in the nexus between audit quality and company value: new proof from Jordanian market," Accounting Research Journal, Emerald Group Publishing Limited, vol. 36(2/3), pages 148-165, April.
    4. repec:eme:maj000:maj-01-2016-1300 is not listed on IDEAS
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    Keywords

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    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing

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