The Direct and mediating effects of an auditor's quality and the legislative's oversight on the follow-up of audit recommendation and audit opinion

The purpose of this study is to analyze the direct and mediating effects of an auditor's quality and the legislative's oversight on the follow-up of audit recommendations and audit opinion. We use Indonesia's local governments' data from 2010-2012. Auditor's quality was measured by auditor's quality index; while the legislative's oversight was measured by the number of legislative member. The empirical test result shows that there is a direct effect between an auditor's quality and the legislative's oversight on the follow up audit recommendation and indirect effect to audit opinion. A high quality auditor is able to produce high quality recommendations that can be implemented by the audited entity. Strong legislative's oversight encourages a closer monitoring over the local government financial management so that the local governments can be more committed to follow-up the audit recommendation. The higher the audit recommendations are acted upon, the better the quality of the local government is, as shown by a better audit opinion.