Auditor Reputation and Auditor Independence: Evidence from an Emerging Market

The paper examines the impact of auditor reputation (i.e. size of audit firm) on auditor independence. Questionnaires and interview survey were used to seek the perceptions of senior managers of Malaysian audit firms, banks and public listed companies. Consistent with the documented evidence, the Big Four firms were perceived to be superior compared to the non-Big Four firms in all aspects relating to independence from their clients. Respondents indicated that Big Four auditors are better able to resist management pressure in conflict situations, are more effective at detecting activities that will affect clients' company continuity, are more risk averse and thus more disinclined to be associated with public scandals and/or audit failures, are more risk averse with regard to litigation arising from fraud/misstatement/irregularities and are more independent than non-Big Four auditors. It may be that the Big Four auditors are more exposed and subject to close scrutiny by the public and regulators, especially when negative behaviour is perceived. The findings suggest that the Big Four auditors are perceived to be more independently than the non-Big Four auditors.