The Impact of Ex-auditors’ Employment with Audit Clients on Perceptions of Auditor Independence

Abstract

It is a common knowledge that auditors often being offered a position in their clients' firms. However, following the collapse of Enron and other infamous financial scandals like Global Crossing and Waste Management in the US, the accounting profession was brought into sharp focus particularly regarding issues that may affect auditor independence. One of the issues is the practice of auditors seeking employment with their audit clients. Therefore, the main objective of this study is to examine whether the practice of ex-auditors' employment with audit clients affects perceptions of auditor independence from the perspective of financial statement users in Malaysia.

The auditor‐to‐client revolving door: A structured literature review

“…However, academic literature on this issue is very limited and most importantly is inconclusive, resulting in many research questions being unaddressed. For example, while Ahmad () concludes that the appearance of auditor independence is negatively affected by the auditor–client employment issue, in agreement with a number of prior studies (e.g., Firth, ; Imhoff Jr., ; Kilcommins, ; Koh & Mahathevan, ; Law, ; Wright & Booker, ), Sori and Mohamad () and Geiger et al () generally do not support concerns of significantly impaired auditor independence in these hiring situations. This inconclusive evidence applies to similar issues of ARD impact in relation to audit quality, effectiveness of the cooling‐off period, reporting quality, and possible benefits resulting from ARD.…”

“…Another round of searching was carried out using the same terms in leading databases (e.g., Business Complete Source, Scopus, Science Direct, and JSTOR). Also, a bibliography of the most recent articles collected in the previous two rounds of searching (e.g., Abbott et al, ; Ahmad, ; Tepalagul & Lin, ; Wilson, , ) was examined to pick up any missing data. These rounds of searching were repeated by the third author to ensure that all relevant research had been collected.…”

“…Of the various threatening behaviors to actual and apparent auditor independence, and therefore to audit quality, perhaps the one that is much less explored is the revolving door phenomenon between external auditors and their audit clients (henceforth “audit revolving door” or “ARD”). ARD occurs when an audit client hires from the current external audit firm personnel, usually audit managers/partners, for corporate financial reporting (or management/oversight) positions such as chief financial officer (CFO), chief accounting officer, controller, director, or any equivalent position (e.g., Abbott, Brown, & Higgs, ; Ahmad, ; Wilson, , ) . The ARD phenomenon is likely to happen in either a direct move or indirect move from audit firms to audit clients.…”

“…Countries are different in the enforcement of the cooling‐off period and its length, if it is required. While a 2‐year cooling‐off period was introduced in the UK (Basioudis, ), Australia (Martinov‐Bennie, Cohen, & Simnett, ), Malaysia (Ahmad, ), and Germany (Schlaich & Ziegler, ), a 1‐year cooling‐off period was announced in Singapore (Koh & Mahathevan, ) and Hong Kong (Law, ).…”

A Study of Energy Intensity and Carbon Intensity from Olefin Plants in Thailand

“…The main cause of global warming is the emission of greenhouse gases from industry sector [1], mainly due to burning fossil fuels to produce energy and products. As a result of climate change at the global scale, changes in both physical and biological system [2] regarded as a major issue in all regions have been concerning very closely as seen from The twenty-first session of the Conference of the Parties (COP21) in Paris (2015 United Nations Climate Change Conference, COP21).…”