Political connections, fees paid to auditors and auditor independence in Malaysia: evidence from going concern audit opinions

Effiezal Aswadi Abdul Wahab, Mazlina Mat Zain and Rashidah Abdul Rahman

International Journal of Accounting, Auditing and Performance Evaluation, 2013, vol. 9, issue 2, 153-183

Abstract: This study examines whether auditor independence will be affected by the magnitude of audit and non-audit services fees provided to audit clients and political connections. We predict that auditor independence will be undermined when audit firms provide non-audit services to the audit clients as the provision of the non-audit services to audit clients increases the economic bond between the audit firm and the client. Furthermore, given the unique institutional background in Malaysia, we also test the relationship between auditor independence and political connections. We use the propensity to issue a going concern opinion as a proxy for auditor independence while political connections are represented by two measures namely the proportion of Bumiputras directors on the board and politically connected firms. Contrary to our prediction, we do not observe any association between the propensity to issue going concern opinions and non-audit fees, total fees and the ratio of non-audit fees to total fees. Interestingly, we find evidence to suggest that audit firms are less likely to issue going concern opinions when audit clients have more Bumiputras directors sitting on board. This result is view to be important as it suggests that political connections could undermine auditor independence in fact and appearance.

Keywords: audit independence; non-audit fees; audit fees; audit opinion; political connections; ethnicity; Malaysia. (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (2)

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