Investigating audit quality among Big 4 Malaysian firms

Abstract

PurposeThe purpose of this paper is to contemplate the degree to which technical expertise in Malaysian Big 4 auditing practice survives periods of material regulatory inflexion sufficiently to underpin quality financial reporting outcomes.Design/methodology/approachThe adoption of IAS in Malaysia in 2006 introduced a highly technical standard (financial reporting standards – FRS 136) which impacted not only preparers but also auditors of financial statements. This transition period represents a unique opportunity to interrogate the content of financial statements drawn up under new and complex standards, with a view to gaining insight into the quality of oversight offered by the audit profession.FindingsContrary to the view within the extant literature that there is homogeneity in audit quality among Big 4 firms, this paper reports substantial cross‐sectional variation among the sample of Big 4 Malaysian audit firms and reports on distinctly poor compliance levels.Research limitations/implicationsThe research focuses on compliance with various requirements under FRS 136 – Impairment of Assets among a sample of first‐time adaptors drawn from the FTSE Bursa Malaysia Index whose 2006 financial accounts have been audited by a Big 4 auditor.Practical implicationsThe results raise questions about audit quality among the sample firms and the robustness of regulatory oversight institutions operating within Malaysia.Originality/valueThis research illustrates a novel approach to examining the issue of audit quality by introducing a compliance quality approach focusing on note‐form disclosures.

Risk Management Committee and Financial Instrument Disclosure

“…We believe this study provides important implications for standard-setters and regulators in developing and enforcing accounting standards. the issue is particularly relevant to malaysia since the country is still in the process of rapid development, which requires a significant amount of technically competent human capital or regulatory institutions (Carlin et al 2009). …”

“…Therefore, this study aims to examine several firm-specific factors that are likely to influence the quality of financial instrument disclosures of Malaysian listed firms during the regime of mAsB 24 (which is based on iAs 32). in relation to this, the decision by malaysia to delay the adoption of iAs 39 represents an interesting opportunity to examine the impact of firm-specific factors on mAsB 24 prior to the adoption of iAs 39, which was modeled closely to the international Financial reporting standards (iFrs) (Carlin et al 2009). these factors are important to provide evidence regarding the influence of firms' characteristics on the adoption of accounting standards within a jurisdiction which is still in the process of development, particularly when compared with developed jurisdictions (Carlin et al 2009). this paper contributes to the existing literature in several ways.…”

“…in relation to this, the decision by malaysia to delay the adoption of iAs 39 represents an interesting opportunity to examine the impact of firm-specific factors on mAsB 24 prior to the adoption of iAs 39, which was modeled closely to the international Financial reporting standards (iFrs) (Carlin et al 2009). these factors are important to provide evidence regarding the influence of firms' characteristics on the adoption of accounting standards within a jurisdiction which is still in the process of development, particularly when compared with developed jurisdictions (Carlin et al 2009). this paper contributes to the existing literature in several ways. First, the paper provides evidence on the disclosure quality of financial instrument information prior to and immediately after the adoption of the mAsB 24. investigation into this issue would add to our knowledge on firm characteristics and management behavior that have significant effects on disclosure practices under two distinct reporting regimes: voluntary reporting regimes and mandatory reporting regimes.…”

“…the iAs 39 Financial Instruments: Recognition and Measurement was the second accounting standard issued by iAsB, but was not adopted until early 2010. the long delay of adopting iAs 39 may due to the fact that the standard involves highly technical issues relating to fair value accounting. this requires managers to accumulate technical expertise to be technically competent (Carlin, Finch & laili 2009) before the standard may be adopted. the delay may also be due to fact that fair value may cause many companies to incur huge losses, which may lead to the poor performance of the companies due to volatility in the fair value of financial instruments, which might be due to change in their market value.…”

Are Audits of Financial Statements Born Unequal?

“…The question is that in the context of Hong Kong, the result is the same or difference. Moreover, in countries where implementation of IFRS based reporting framework has coincided with other types of structural shifts impacting much on audit services, substantial emphasis has been directed toward auditors (Carlin et al, 2009). So the adoption of IFRS represents a good point to be looked into, in which goodwill impairment is the one of the most difficult issues in practice (Hoogendoorn, 2006;Tran, 2011).…”