Auditor Reputation and Auditor Independence in an Emerging Market

20 Pages Posted: 20 Jan 2006

See all articles by Zulkarnain Muhamad Sori

Zulkarnain Muhamad Sori

INCEIF, The Global University of Islamic Finance

Yusuf Karbhari

Cardiff Business School

Date Written: January 16, 2006

Abstract

The aim of this paper is to examine the impact of auditor reputation (i.e. size of audit firm) on auditor independence. Questionnaire and interview survey were employed to seek the perceptions of senior managers of Malaysian audit firms, banks and public listed companies. Consistent with prior studies, the results indicated that clear majority of the auditors, loan officers and senior managers of public listed companies agreed that auditors in Big Four firms are superior to their counterparts in non-Big Four firms in all of the reputation issues presented to them. The majority of respondents indicated that Big Four auditors are better able to resist management pressure in conflict situations, the Big Four auditors are more effective at detecting activities that will affect clients' company continuity, that Big Four auditors are more risk averse and thus more disinclined to be associated with public scandals and/or audit failures than non-Big Four auditors, the Big Four auditors are more risk averse with regard to litigation arising from fraud/misstatement/irregularities and finally, the majority of the respondents agreed that Big Four auditors are more independent than non-Big Four auditors. It may be that the Big Four auditors are likely to become the subject of interest to the public and regulators, especially when they are suspected to exhibit negative behaviour. Thus, Big Four auditors have more incentive to behave independently than the non-Big Four auditors. The results of the interview survey were found to confirm the questionnaire survey findings.

Keywords: Size, Reputation, Auditor Independence, Resources, and Perceptions

JEL Classification: M40, M49, M47

Suggested Citation

Muhamad Sori, Zulkarnain and Karbhari, Yusuf, Auditor Reputation and Auditor Independence in an Emerging Market (January 16, 2006). Available at SSRN: https://ssrn.com/abstract=876411 or http://dx.doi.org/10.2139/ssrn.876411

Zulkarnain Muhamad Sori (Contact Author)

INCEIF, The Global University of Islamic Finance ( email )

Lorong Universiti A
Kuala Lumpur, Kuala Lumpur 59100
Malaysia
+60376514173 (Phone)
8 (Fax)

HOME PAGE: http://www.inceif.org/

Yusuf Karbhari

Cardiff Business School ( email )

Aberconway Building
Colum Drive
Cardiff, CF1 3EU
United Kingdom
+ 44 0 29 2087 6057 (Phone)
+ 44 0 29 2087 4419 (Fax)

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