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conducted using the International Standard on Quality Control 1 (ISQC-1) which was adopted and implemented in
Indonesia through the Quality Control System 1 (SPM 1) which was effective on January 1, 2013. The results of this
study are in the form of policy and procedure recommendations obtained from qualitative analysis that refers to ISQC-1
which of course will be adjusted to the operating capacity of Sole Proprietorship Public Accounting Firm.

Considering the importance of a Quality Control System in KAP, especially for individual KAP which is just starting
out, the authors are interested in choosing KAP X as the object of the case study. Referring to the Minister of Finance
Regulation 17 / PMK.01 / 2008 Article 16 paragraphs 1 and 2, KAP X is an individual KAP because KAP X is in the form
of an individual business entity established and run by a Public Accountant who also acts as a leader. When viewed
from the number of professionals, branch offices, and affiliations, KAP X is categorized as a small KAP because KAP
X is not affiliated with the big four, does not have branches and on average its clients are small companies and have
professional staff below 25 people (Arens et al. ., 2008: 33). KAP X, which was just established in 2017, at the end of 2018
became the object of review by IAPI. Although there were no obstacles during the review process, IAPI found several
findings that had to be fixed and improved at KAP X, especially in the Quality Control System.

Based on the results of the review conducted by the IAPI team, KAP X Audit Quality Control System has passed the IAPI
review but still has not clearly separated the policies and procedures that refer to the number one SPM issued by IAPI.
In addition, SPM has not included several criteria related to PMPJ (Principles of Recognizing Service Users) in the client
acceptance evaluation form which refers to the Regulation of the Minister of Finance (PMK) No. 55 / PMK.01 / 2017 and
PMK No. 155 / PMK.01 / 2017.

This research is intended to provide guidelines for KAP X in improving audit quality and can assist Public Accountants
who wish to establish a small KAP in designing SPM to maintain the quality of services produced to comply with
various standards as the Public Accountant Professional Standards published by the Indonesian Institute of Certified
Public Accountants ( IAPI 2011). This research is a descriptive qualitative research, using primary data from the Public
Accounting Firm X, the researcher will also conduct in-depth interviews on the implementation of SPM and observations
at KAP X.

2. LITERATURE REVIEW

2.1 Agency Theory
According to Jensen and Meckling (1976), agency theory or what in English is called Agency Theory is a theory that
explains a relationship between principal and agent. This theory focuses on the relationship between parties in
which the principal delegates some decision-making authority to the agent while the agent is the party who carries
out activities on behalf of the principal. In carrying out its duties, the agent will be responsible for maximizing the
investment that has been made by the principal in return.

The differences in duties and responsibilities that occur between shareholders and management create different
interests in the company where each party strives to achieve the desired prosperity. One of the main assumptions
of agency theory is that principals and agents have different interests and goals because management in companies
tends to pursue personal interests, this of course will lead to the tendency of management to focus corporate activities
on projects and investments that provide high returns only for the short term. rather than maximizing the company’s
activities through long-term investment for the welfare of shareholders. This of course raises information asymmetry
between management and owners because management (agent) has more information than the information received
by shareholders (principal).

Agency theory also explains that there is agency cost between shareholders (principal) and managers (agent) in
managing a company. Agency cost appears to reduce information asymmetry. Agency fees include all costs associated
with managing the needs of the conflicting parties, in the process of monitoring, evaluation and dispute resolution.
This fee is also referred to as agency risk.

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