ABSTRACT
An audit quality is questionable especially after the incident of several corporate scandals due to inefficiency of auditor independence while performing audit in a client's firm. This study aimed to examine the consequences of implementing mandatory auditor rotation on non-listed companies in Malaysia as to identify whether this step can help to reduce self-interest threat and familiarity threat as well as audit failure risk which would compromise auditor independence and subsequently audit quality. The investigation of this study included assessing the relationship between mandatory auditor rotation and audit quality. A total of 116 responses were received from the web-based questionnaires distributed to audit firms in Wilayah Persekutuan Kuala Lumpur and Selangor Darul Ehsan using Google Form, but only 100 sets of questionnaires are employed for data analysis due to incomplete data from the remaining 16 responses. The data collected were subsequently analysed using Pearson's Correlation Coefficient Analysis and Multiple Regression Analysis to examine the relationship between mandatory auditor rotation and audit quality. The findings revealed that there is no significant relationship between self-interest threat and audit quality. However, other variables such as familiarity threat and audit failure risk are significantly and positively related to the audit quality. This research will be able to provide aid to relevant regulators and Malaysian accounting bodies such as Malaysian Institute of Accountants (MIA) for improving audit quality through implementing auditor rotation on non-listed companies.
- Heras, E. d. l., Canibano, L. & Moreira, J. A., 2012. The Impact of the Spanish Financial Act (44|2002) on audit quality/El impacto de la Ley Financiera (44|2002) en la calidad de auditoría. Revista Española de Financiación y Contabilidad, 41(156), pp. 521--546.Google Scholar
- Soltani, B., 2014. The Anatomy of Corporate Fraud: A Comparative Analysis of High Profile American and European Corporate Scandals. Journal of business ethics, 120(2), pp. 251--274.Google ScholarCross Ref
- Dandago, K. I. & Zamro, N. D. B., 2012. Effects Of Rotation On Auditor Independence And Quality Of Audit Service In Malaysian Banking Industry. Issues in Social and Environmental Accounting, 6(3/4), pp. 249--263.Google ScholarCross Ref
- EYGM Limited., 2013. Point of view: Q&A on mandatory firm rotation. Retrieved 10 February 2017 from, http://www.ey.com/Publication/%20vwLUAssets/EY-qa-on-mandatory-firm-rotation-march-2013/$FILE/EY-qa-on-mandatory-firm-rotation-march-2013.pdfGoogle Scholar
- Nasser, A., Wahid, E. & Nazri, S. &. H. M., 2006. Auditor- client relationship: The case of audit tenure and audit switching in Malaysia. Managerial Auditing Journal, 21(7), pp. 724--737.Google ScholarCross Ref
- The Financial Times Ltd, 2017. Financial Times. Retrieved 8 March 2017 from, http://lexicon.ft.com/Term?term=unlisted-companyGoogle Scholar
- Jr., J. F. H., Money, A. H., Samouel, P. & Page, M., 2007. Research Methods for Business. England: John Wiley & Sons Ltd.Google Scholar
- Sekaran, U., 2003. Research methods for business: A skill building approach. 4th ed. New York: John Wiley & Son, Inc.Google Scholar
- Motulsky, H., 1999. Analyzing data with graphpad prism. A companion to graphpad prism version 3.San Diego CA: GraphPad Software Inc.Google Scholar
- Kwon, S. Y., Lim, Y. D. & Simnett, R., 2010. Mandatory Audit Firm Rotation and Audit Quality: Evidence from the Korean Audit Market.Google Scholar
- Shafie, R., Yusof, M. '. M. & Hussain, M. H. M., 2004. Examination on Audit Tenure, Auditor Size, Independence of Onwuchekwa, J. C., Erah, D. & Izedonmi, F., 2012.Google Scholar
- Mandatory Audit Rotation and Audit Independence: Survey of Audit Committee and the Issuance of Going Concern Opinion, Langkawi: Universiti Utara Malaysia.Google Scholar
- Southern Nigeria. Research Journal of Finance and Accounting, 3(7), pp. 2222--2847.Google Scholar
- Arens, A. A. et al., 2014. Auditing and Assurance Services inSaid, K. & Khasharmeh, H., 2014. Auditors' perceptions on Malaysia - An Integrated Approach. 3rd ed. Kuala Lumpur: Pearson Malaysia Sdn Bhd.Google Scholar
- Nasution, D., 2013. Essays on Auditor Independence, Abo, impact of mandatory audit firm rotation on auditor independence - Evidence from Bahrain. Journal of Accounting and Taxation, 6(1), pp. 1--18.Google Scholar
- Finland: Abo Akademi University. Firth, M., Rui, O. M. & Wu, X., 2012. How Do Various Anis, A., 2014. Auditors' perceptions of audit firm rotation impact on audit quality in egypt. Accounting and taxation, 6(1), pp. 105--120.Google Scholar
- Forms of Auditor Rotation Affect Audit Quality? Evidencefrom China. The International Journal of Accounting, Volume 47, pp. 109--138.Google Scholar
- Sayyar, H., Basiruddin, R. & Rasid, S. Z. A., 2014.Carey, P. & Simnett, R., 2006. Audit Partner Tenure and Mandatory Audit Firm and Audit Partner Rotation. EuropeanAudit Quality. The Accounting Review, 81(3), pp. 653--676.Google Scholar
- Journal of Business and Management, 6(26), pp. 2222--2839.Google Scholar
- Cameran, M., Vincenzo, D. D. & Merlotti, E., 2005. The Audit Firm Rotation Rule: A Review of the Literature, Milan: SDA Bocconi Research Paper.Google Scholar
Index Terms
- Implementation of Mandatory Auditor Rotation On Audit Quality Among Non-Listed Companies In Malaysia: Auditor's Perspective
Recommendations
Determinants Of Client-Initiated Auditor Switching Among Public Listed Companies In Malaysia
EBIMCS '19: Proceedings of the 2019 2nd International Conference on E-Business, Information Management and Computer ScienceAuditors serve a critical job in lessening data hazard, which is the fundamental monetary reason of the interest for evaluating administrations. The main purpose of this work was to explore the determinants of client-intitaed auditor switching among ...
Factors Affect the Audit Quality of External Auditor at Klang Valley
EBIMCS '19: Proceedings of the 2019 2nd International Conference on E-Business, Information Management and Computer ScienceInvestors evaluate and make their decisions based on the financial statements of the company, thus they will be always concern about the quality of the external auditor's report. External auditors will express their opinion on the fairness of the ...
Factors Affecting External Audit Quality In Malaysia
EBIMCS '19: Proceedings of the 2019 2nd International Conference on E-Business, Information Management and Computer ScienceThe aims of this study are to understand the importance of audit quality and determine potential factors that might affect the external audit quality and also to highlight its importance of maintaining the external audit quality in Malaysia. This work ...
Comments