Implementation of Mandatory Auditor Rotation On Audit Quality Among Non-Listed Companies In Malaysia: Auditor's Perspective

Abstract

An audit quality is questionable especially after the incident of several corporate scandals due to inefficiency of auditor independence while performing audit in a client's firm. This study aimed to examine the consequences of implementing mandatory auditor rotation on non-listed companies in Malaysia as to identify whether this step can help to reduce self-interest threat and familiarity threat as well as audit failure risk which would compromise auditor independence and subsequently audit quality. The investigation of this study included assessing the relationship between mandatory auditor rotation and audit quality. A total of 116 responses were received from the web-based questionnaires distributed to audit firms in Wilayah Persekutuan Kuala Lumpur and Selangor Darul Ehsan using Google Form, but only 100 sets of questionnaires are employed for data analysis due to incomplete data from the remaining 16 responses. The data collected were subsequently analysed using Pearson's Correlation Coefficient Analysis and Multiple Regression Analysis to examine the relationship between mandatory auditor rotation and audit quality. The findings revealed that there is no significant relationship between self-interest threat and audit quality. However, other variables such as familiarity threat and audit failure risk are significantly and positively related to the audit quality. This research will be able to provide aid to relevant regulators and Malaysian accounting bodies such as Malaysian Institute of Accountants (MIA) for improving audit quality through implementing auditor rotation on non-listed companies.