Ensuring auditor independence: the case for small-medium practices in Malaysia

• Main Authors: Zainal Abidin, Nor Hafizah, Puat Nelson, Sherliza, Ahmad, Maslina
• Format: Article
• Language: English
• Published: Faculty of Business & Accountancy, University of Malaya 2021
• Subjects: HF5387 Business ethics; HF5601 Accounting. Bookkeeping
• Online Access: http://irep.iium.edu.my/85468/1/85468_Ensuring%20auditor%20independence.pdf; http://irep.iium.edu.my/85468/; https://ajap.um.edu.my/index.php/AJAP/article/view/28764; https://doi.org/10.22452/AJAP.vol14no1.5

Research aim: The study aims to examine small and medium audit firms’ compliance on independence requirements as stipulated in the International Standard on Quality Control 1 (ISQC 1) in Malaysia. Design/ Methodology/ Approach: This study is qualitative in nature. It uses semi-structured interviews to gather input from twenty-seven managers and partners of small and medium audit firms in Malaysia. Research finding: The findings highlight variations in compliance practices on the extent of independence requirements among small and medium audit firms. Some of these firms partially complied while others showed non-compliance. Findings further indicate that majority documented their independence policies and procedures by means of audit manual or audit checklist, communicated during the year. The study also found that financial and physical resources are considered as the main challenges which hinder greater compliance. Theoretical contribution/ Originality: There is a lack of study looking at the actual practice of independence requirements among small and medium firms in emerging economies. This study addressed that gap by focussing on small and medium audit firms in Malaysia. Majority of previous studies on regulatory inspection had focussed on Anglo-Saxon countries. Practitioner/ Policy implication: Findings suggest that small and medium audit firms had given their best to comply with the independence requirements despite constraints on financial and human resources. As such, further awareness on the importance of independence would enhance the compliance level as well as audit value and quality of other firms. Research limitation: Interview data were extracted from a small sample, hence generalisations may need to be defined more cautiously when applied to other contexts. Moreover, respondents were selected based on their agreement, thus findings reflecting their practices may not be applicable to other small and medium audit firms.