title: Audit regulatory reforms and the notion of audit quality in Indonesian Supreme Audit Institution: a middle-range thinking approach
Creators: name: Rahman, Asrarul
Publisher: name: University of Glasgow
Year: 2018
Subjects: subject: Audit quality, audit regulatory reforms, audit regulation, middle-range thinking, theory of communicative action.

description: This thesis offers an analysis of how Indonesian regulatory reforms have affected public-sector audits and been translated into changes in the function of the Supreme Audit Institution (SAI) of Indonesia, and into changes in the notion of audit quality. In contrast to previous research, which concentrates on developed countries, the case studied in this thesis is BPK (Badan Pemeriksa Keuangan), the Indonesian SAI. This case is notable as Indonesia has faced considerable pressure from international agencies to effectively implement regulatory reform. Middle Range Theory (MRT), introduced by Broadbent et al. (1991) and more recently rearticulated by Broadbent and Laughlin (2013), is used to analyse the change process cascading from regulatory reform, through the reconfiguration of the function of the BPK, to changes in public sector audit practice, including a shift in the notion of audit quality held at both institutional and individual levels. As a refinement of Habermas’ Theory of Communicative Actions (TCA), MRT concentrates on individual discourses within the context of organisational change. By utilising MRT, the theoretical foundation of the research moves away from the neo-institutional grounding that underlies much of the previous research on audit regulation and audit quality. The evidence regarding the change process is drawn from legislative documents of the Indonesian parliament, other institutional documents, and interviews with BPK auditors. Thematic analysis using codes generated based on MRT finds that the Indonesian parliament has absorbed international best practice in public sector audit as a result of disturbance from international agencies. It is found that following regulatory reform, the function of BPK changed from ‘state fund protection’ to ‘public accountability and transparency’. This change in function eventually translated, though not without resistance, work, and the exercise of power, into change in practice and the transformation of the notion of audit quality from ‘the recovery of state losses’ to ‘the provision of benefits to the public’. Before the regulatory reforms that provide the starting point for this study, BPK as an institution, and some of the individual auditors within it, had been exposed to international notions of audit quality. However, that exposure had no expression in practice as the authoritarian regime that dominated Indonesian politics was content with the status quo regarding the functioning of BPK, which was in the interests of that regime. After the first wave of reforms, despite some limited organisational changes, new, international, notions of audit quality began to be clearly articulated within BPK but had no, or very little, impact on practice. They existed in the organisation as a latent concept, effectively dormant insofar as practice was concerned, but beginning to affect a “reorientation” (see: Broadbent and Laughlin, 2013, p.89-90) of the BPK’s self-understanding. Eventually, the second wave of reforms was able to activate the latent notion, leading to “evolution”-ary (see: Broadbent and Laughlin, 2013, p. 90) change in BPK. This is an empirical case in which the tendency of ‘colonisation’ to occur following ‘reorientation’, as assumed by Broadbent and Laughlin (2013) and questioned by Oakes and Oakes (2016), does not always hold.