Political connections: a threat to auditor independence?

• Published in: Journal of Accounting in Emerging Economies
• Main Author: Wahab E.A.A.; Zain M.M.; Rahman R.A.
• Format: Article
• Language: English
• Published: Emerald Group Holdings Ltd. 2015
• Online Access: https://www.scopus.com/inward/record.uri?eid=2-s2.0-84939801498&doi=10.1108%2fJAEE-03-2012-0013&partnerID=40&md5=c3f498b7e885647947362f7aa4725865

Purpose – The purpose of this paper is to examine whether political connections further impair auditor independence by investigating the relationship between non-audit fees and audit fees and as to whether political connections moderate such relationship. Design/methodology/approach – This study employs panel regression analysis. The panel data set consists of 379 firm-year observations for three years from year 2001 to 2003. Findings – Based on 379 firm-year observations for the period of 2001-2003, grounded on two proxies of political connections namely politically connected firms and the proportion of Bumiputras directors, the authors find a positive and significant relationship between non-audit fees and audit fees, and the relationship becomes weaker, only for Bumiputra-dominated firms connected firms. Originality/value – This study contributes to the extant literature by examining the role of political connections in the context of auditor independence. In addition, this study is conducted in Malaysia, which provides a unique institutional environment with the existence of political connections that is built on ethnic grounds. © Emerald Group Publishing Limited.