Retna Safriliana *
Doctoral Student, Universitas of Brawijaya Malang, Indonesia
*corresponding author: This email address is being protected from spambots. You need JavaScript enabled to view it.

Bambang Subroto, Universitas of Brawijaya Malang , Indonesia
Imam Subekti, Universitas of Brawijaya Malang , Indonesia
Aulia Fuad Rahman, Universitas of Brawijaya Malang, Indonesia



This study is a literature study to explore research related to factors affecting the voluntary the Public Accounting Firm (PAF) switching, in terms of contract theory associated with the agency theory stated by Watts & Zimmerman (1986). PAF switching may occur due to a regulation or regulation requiring a company to make a the PAF switching called a mandatory replacement, and the PAF switching due to voluntary corporate wishes outside the applicable regulations or voluntary the PAF switching. The result of the study shows that there are 23.9% of companies that make voluntary PAF changes caused by change of management, Financial Distress, PAF Size, Percentage Change of Return On Assets, Client Size and Auditor Opinion. The contract theory may explain research in the field of auditing practice, such as the auditor or PAF related to the auditor's reputation, professionalism, auditor environment, PAF size, and industry specialization. PAF has a brand image which were considered to have a better reputation than with PAF small (Watts & Zimmerman, 1986), it is also supported by De Angelo (1981) states that, large PAFs are preferred by clients because large firms are considered more independent than small PAFs. Agency Theory is often used in research in the field of auditing, because the information asymmetry is the difference of information between the interests of agents and principal interests. Therefore, an independent third party is needed, the auditor, and the role of the auditor only as the monitoring party.

Keywords: Contract Theory, Agency Theory, Public Accounting Firm, Switching

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