Factors influencing auditor independence: Malaysian loan officers' perceptions

PurposeAuditor independence is fundamental to public confidence in financial reporting and the auditing profession. The study aims to provide further understanding of the factors influencing auditor independence from the perspective of commercial loan officers. Loan officers formed the sample as they are relatively sophisticated financial statement users who would understand the importance of audit report and the issues related to auditor independence.Design/methodology/approachThe study examines the perceptions of commercial loan officers in Malaysian‐owned commercial banks and a total of 86 officers responded to the self‐administered questionnaire.FindingsResults indicate that smaller audit firms, audit firms operating in a higher level of competitive environments, audit firms serving a given client over a longer duration, larger size of audit fees, audit firms providing managerial advisory services, and, the non‐existence of an audit committee, are perceived as having a higher risk of losing independence. Audit firm size appears to be the most important factor that affects the auditor independence, followed by tenure, competition, audit committee, audit firms providing managerial advisory services and size of audit fee.Originality/valueThe paper provides important insights into the factors affecting auditor independence and contributes towards better understanding on the ways to improve the confidence in financial reporting and credibility of the auditing profession.

[1]  Hans J. Dykxhoorn,et al.  Perceptions of auditor independence: Its perceived effect on the loan and investment decisions of German financial statement users , 1982 .

[2]  Ferdinand A. Gul,et al.  Size of Audit Fees and Perceptions of Auditors'Ability to Resist Management Pressure in Audit Conflict Situations , 1991 .

[3]  R. K. Mautz,et al.  The philosophy of auditing , 1961 .

[4]  T. P. Leong.  The business of banking in Malaysia , 1998 .

[5]  B. Levi.  Atom Interferometer Measures G with Same Accuracy as Optical Devices , 1999 .

[6]  K. Pany,et al.  An Examination Of The Influence Of Cpa Firm Type, Size, And Mas Provision On Loan Officer Decisions And Perceptions , 1985 .

[7]  H. Teoh,et al.  An empirical study of the effects of audit committees, disclosure of nonaudit fees, and other issues on audit independence: Malaysian evidence☆☆☆ , 1996 .

[8]  David B. Smith,et al.  Auditor Credibility And Auditor Changes , 1983 .

[9]  Linda DeAngelo,et al.  Auditor independence, ‘low balling’, and disclosure regulation , 1981 .

[10]  Ferdinand A. Gul.  Bankers’ Perceptions of Factors Affecting Auditor Independence , 1989 .

[11]  R. N. Holt,et al.  A Behavioral Investigation Of Supplier Differentiation In The Market For Audit Services , 1983 .

[12]  W. Zikmund.  Business Research Methods , 1984 .

[13]  C. Patel,et al.  PERCEPTIONS OF EXTERNAL AUDITORS’ INDEPENDENCE: SOME CROSS-CULTURAL EVIDENCE , 2000 .

[14]  Roger W. Bartlett,et al.  A Scale of Perceived Independence: New Evidence on an Old Concept , 1993 .

[15]  The Impact of Audit Committee and Client Financial Condition on Bankers' Loan Decisions , 1994 .

[16]  L. DeAngelo,et al.  Auditor size and audit quality , 1981 .

[17]  J. McCutcheon,et al.  Some unresolved ethical issues in auditing , 1991 .

[18]  A. J. Stagliano,et al.  Non-Audit Services and Perceived Independence: Some New Evidence , 1981 .

[19]  F. Gul,et al.  An empirical analysis of Hong Kong bankers' perceptions of auditor ability to resist management pressure in an audit conflict situation , 1992 .

[20]  K. Pany,et al.  Auditor independence and nonaudit services: Director views and their policy implications , 1983 .