ABSTRACT
This study aimed to prove that debt covenant violations have impact on firm’s audit fee. The samples used in this study were loan agreements owned by non-financial public companies listed on the Indonesia Stock Exchange from 2012 to 2015. This study found evidence that firm’s audit fee increases when company violates debt covenants. This study found that the debt covenant violations led to an increase in audit fees in the first year after the violation. External auditors considered debt covenant violations as an indicator of financial distress that increases audit risk. Auditor’s risk of litigation also increases due to debt covenant violations. Furthermore, company’s risk also increases due to debt covenant violation.
