Political Connections: A Threat to Auditor Independence?

Abstract

This study examines whether political connections further impair auditor independence when auditor provides non-audit services in Malaysia. We examine whether political connections moderate the relationship between non-audit fees and audit fees. Based on two proxies of political connections namely politically connected firms and the proportion of Bumiputras directors, we find a positive and significant relationship between non-audit fees and audit fees, and the relationship becomes weaker, only for politically connected firms. Nonetheless, the results suggest that political connections could pose a threat to auditor independence in both appearance and in mind.

Keywords: audit independence, non-audit fees, audit fees, political connections, ethnicity

JEL Classification: G34, G38, M41, M42