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The importance of using big accounting firm may depend on governance level in each company. If they have good corporate governance and have high concern on improving governance, the company may prefer to use big accounting firm (Lina & Liub 2009; and Houqe, Zijl, Dunstan, & Karim 2015). State-owned enteprise (“BUMN”) may have higher agency problem as their objective is people welfare but still profit-oriented. So, they have higher ability to defer the earning than other company. We include research sample of all BUMN which listed on Indonesia stock exchange (IDX) except those which participate in banking and financial industry (JASICA 8). By using discretionary accrual as proxy of lower earning quality and accounting firm size as proxy of audit quality, we found negative relationship between those variable. In other words, if the company want to improve their earning quality they should consider on usinge big accounting firm. In additional analysis, we found that big accounting firm able to reduce management intention to defer earning and tax expense. I encourage government of Indonesia (“the Government”)to advise BUMN to consider on using big accounting firm to improve earning quality and reduce fraudulent act through financial reporting by management.

STATE-OWNED COMPANY DECISION ON CHOOSING AUDITOR: EVIDENCE FROM EARNING QUALITY ANALYSIS