An empirical study of the effects of audit committees, disclosure of nonaudit fees, and other issues on audit independence: Malaysian evidence

• Published in: Journal of international accounting, auditing & taxation Vol. 5; no. 2; pp. 231 - 248
• Main Authors: Teoh, Hai Yap, Lim, Chui Choo
• Format: Journal Article
• Language: English
• Published: Elsevier Inc 1996
• Subjects: Accounting; Accounting standards; audit committees; Auditing; auditor independence; Enterprises; Malaysia; Management; nonaudit fee disclosure; repeated measures experimental design; rotation of audit firm; size of audit fee management consultancy services; rotation of audit firm; audit committees; nonaudit fee disclosure; repeated measures experimental design; size of audit fee management consultancy services; auditor independence
• ISSN: 1061-9518; 1879-1603
• DOI: 10.1016/S1061-9518(96)90007-5

This study reports the results of an empirical investigation of the effects of five selected variables on the perceptions of auditor independence of Malaysian public and nonpublic accountants. The growth of multinational companies which have been a catalyst for Malaysia 's development, and the concomitant increase in audit activity have magnified the importance of understanding perceptions of independence in different socio-economic environments such as Malaysia. Recent corporate scandals in Malaysia which have raised public concern about professional ethics and a newly-implemented mandatory requirement to set up audit committees have prompted this study. A repeated measures experimental design was employed. The results show a large audit fee received from a single client is the most important factor leading to impairment of perceptions of auditor independence, followed by the provision of management consultancy services. Nonrotation of audit firms is not a dominant factor. The formation of audit committees is found to have a strong positive impact on enhancing auditor independence, while the positive impact of disclosure of nonaudit fees is considerably less.