There have been a big figure of surveies on perceptual experiences of hearer ‘s independency. Some illustrations can be Dykxhoorn & A ; Sinning ( 1981 ) in German, Gul ( 1989 ) in New Zealand, Gul & A ; Tsui ( 1992 ) and Lau & A ; Ng ; ( 1994 ) in Hong Kong, and Alleyne et Al. ( 2006 ) in Barbados to call a few. There are merely some published surveies concentrating chiefly on the factors impacting hearer ‘s independency ( i.e Gul & A ; Teoh, 1984 ; Teoh & A ; Lim 1996 ; Abu Bakar et Al. 2005, 2009 ) .The survey Gul and Teoh ( 1984 ) analyses the chief effects of combined audit and direction consulting services provided by public accounting houses and the population sample taken comprised of bankers, public comptrollers, troughs and stockholders. The consequence obtained was that the enlargement by audit houses into non audit services reduced their assurance in the hearer ‘s independency.
The survey Teoh & A ; Lim ( 1996 ) look into the effects of five selected factors of AI of Malaysian populace and nonpublic comptrollers. They make usage of a perennial steps experimental design. The consequences conclude that a big audit fee received from a individual client is the most indispensable factor taking to the hazard of losing AI, followed by the proviso of direction consultancy services. The non-rotation of audit houses is non considered to be a dominant factor but the formation of audit commissions is found to hold a strong positive impact on bettering hearer independency, while the positive impact of revelation of non-audit fees is well less.
Some surveies can be those of Abu Bakar ( 2005 ) who analyses the factors act uponing hearer ‘s independency from the perceptual experiences of Malayan loan officers. The survey examines the perceptual experiences of commercial loan officers who were comparatively sophisticated fiscal statement users who would understand the importance of audit study and the issues related to auditor independency. A sum of 86 officers responded to the ego administered questionnaire. The consequences indicate that audit houses runing in a higher degree of competitory environment, larger size of audit fees, audit house functioning a client over longer continuance, audit house supplying managerial consultative services and non-existence of an audit commission are perceived as holding the hazard of losing hearer ‘s independency. The most of import factor impacting AI is given by Audit house size, followed by term of office, competition, audit commission, MAS and size of audit fee. Another survey by Abu Bakar ( 2009 ) , attempts to research the chief determiners of hearer independency as perceived by Malayan comptrollers. A ego administered mail study was used and a sum of 72 completed questionnaires were received bring forthing useable answers of 14.4 % . From the study, it is evidenced that, larger size of audit fees is the most of import factor that is perceived as holding hazard of losing hearer independency followed by other factors[ 1 ]. Additionally, the survey besides provides a footing for the profession to set up policies associating to auditor independency.
Reappraisal of literature in footings of the different factors
In world there are many factors which impair hearer independency and some surveies concentrated on merely one factor. For illustration, Salehi ( 2009 ) examined non audit services and audit independency. The consequence of this survey strongly agrees that supplying NAS to external hearers to the same client impair hearer independency. Several anterior surveies concluded that NAS has negative effects on hearer patterns and hearer independency. A Survey carried out by Wines ( 1994 ) suggests that hearers having NAS fees are less likely to measure up their sentiment than hearers that do n’t have such fees, based on his empirical analysis of audit study issued between 1980 and 1989 by 76 companies promotion listed on Australian stock exchange. He found that hearers of companies with clean sentiments received higher proportion of non audit fees than did hearers of companies with at least one making.
Harmonizing to Beeler and Hunton ( 2002 ) contingent economic rents such as possible non-audit gross, increase unwilled prejudice in the judgements of hearers. They found by experimentation that audit spouse participants searched more supportively, weighted collateral grounds more to a great extent, and made more luxuriant statements in the presence of low balling and possible non-audit gross than proviso of audit, and NAS claimed that hearers would non execute their audit service objectively and that joint proviso would impair sensed independency ( Glezen and Miller, 1985[ 2 ]; ) . Mitchel et Al. ( 1993 ) believed that the joint proviso of audit and NAS to scrutinize clients would do unjust competition due to the usage of audit services to the same client and therefore would impair AI.
Several anterior surveies besides suggest that NAS has positive effects on hearer patterns and hearer independency. Gul ( 1989 ) who studied the perceptual experiences of bankers in New Zealand found that the consequence of proviso of NAS was significantly and positively associated with hearer independency. Hussey ( 1999 ) reported that the bulk of the UK finance managers that participated in his survey suggested that joint proviso of audit and NAS to scrutinize clients should go on to be allowed. In Malaysia Gul and Yap ( 1984 ) reported that NAS proviso increased their assurance in hearer independency. Arruanda ( 1999, p. 165 ) pointed out that joint proviso of audit and NAS would cut down overall cost, raises the proficient quality of scrutinizing, enhance competition. This would finally increase hearer independency. Kinney et Al ( 2004 ) denoted cognition of a client ‘s information system and revenue enhancement accounting could slop over to the audit, better the information available to the hearer and therefore better audit quality which in bend would increase the chance that jobs are discovered.
The writer Sori ( 2009 ) made the survey of audit Committee and Auditor Independence through the Bankers ‘ Perception. The questionnaire and the interview study reveal that the bulk of the respondents agreed that hearer independency would be safeguarded by the presence of an active and independent audit commission. The audit commission is responsible for O.K.ing and reexamining audit fees as the bulk of audit commission members are independent and non-executive managers. Teoh & A ; Lim ( 1996 ) in their survey happen that the formation of audit commissions has a strong positive impact on heightening hearer independency. Similarly, Patten & A ; Nuckols ( 1970 ) , Knapp ( 1985 ) and Lau & A ; Ng ( 1994 ) find that the being of an audit commission increases the likeliness of bankers ‘ O.K.ing a loan, which is a contemplation of an increased assurance in the hearer. On the contrary, Gul ( 1989 ) suggests that audit commissions did non significantly impact the perceptual experiences of hearer independency.
Many empirical surveies have proven that the high degree of competition in the audit house has resulted in less hearer independency ( e.g. Shockley, 1981[ 3 ]; ) . However, Gul ( 1989 )[ 4 ]who obtains the opposite, in explicating this, he argued that the being of competition caused hearers to be more independent and make a favorable image in order to keep their patronage. In a UK survey ( Beattie et al 1999 ) competition was the factor act uponing hearer AI. The sample comprised of audit spouses and the writer argued that the factors impacting the perceptual experiences of AI are likely to alter over clip owing to alterations in the local economic, political, cultural and regulative environment.
Size of audit house and hearer term of office
About all empirical surveies that attempted to happen relationship between larger audit house size and AI concluded that there is a positive relation between them[ 5 ]( De Angelo 1981 ) . The writer DR Zulkarnain ( 2006 ) analyses the size of audit house and perceived hearer independency in his survey. Questionnaires and interview study were used to seek the perceptual experiences of senior directors of audit houses, Bankss and public listed companies. The consequence concluded that the Big Four houses were perceived to be superior and more efficient compared to the non-big four houses in all facets associating to independence from their clients. The respondents indicated that large four hearers are better able to defy direction force per unit area in state of affairss of struggles and are more effectual at observing activities that will impact clients ‘ company continuity. The non-big four houses are more risk averse with respect to judicial proceeding originating from fraud and abnormalities compare to non-big four houses.
Most authors[ 6 ], who discuss the relationship between term of office and AI, support that audit houses functioning a given client over a longer continuance has the hazard of losing an hearer ‘s independency. However, in surveies conducted by Shockley ( 1981 ) and Teoh & A ; Lim ( 1996 ) term of office was non found to hold a important impact on perceptual experiences of AI.
Audited account and non audit fees
Most empirical surveies conducted on size of audit fees do non look at that factor itself ; alternatively the surveies are inter-related with other factors. For illustration, Shockley ( 1982 ) in his survey suggests that the negative effects of MAS, the size of the audit house and competition on a 3rd party ‘s PAI really arise because of the linkage of these variables to scrutinize fees.
However, there is a survey that proves otherwise. For illustration, Gul ( 1991 ) who analyses banker ‘s perceptual experiences of AI proves that each independence-related variable such as the audit house size, affects bankers ‘ PAI in its ain right. He besides found size of audit fees to be indispensable factor of bankers ‘ PAI. Another survey related to the size of audit fees was by Pany & A ; Reckers ( 1983 ) .They noted that the big size of the client ‘s audit fee ( measured as a per centum of office grosss to the audit house ) , though do non demo any important impacts on PAI, have influenced respondents to experience less assurance in the hearer ‘s independency.
Additionally, where non-audit fees are concerned, several anterior documents have studied the involvements and importance of non-audit fees in footings of hearer independency. Unfortunately, the research watercourse that evaluates the association between non-audit services and hearer independency, by analyzing the consequence of non-audit fees on the hearer ‘s leaning to publish a traveling concern modified sentiment ( hereafter GC ) , has produced instead assorted consequences. For illustration, while in an international context the consequences are slightly assorted and inconclusive ( Lennox, 1999 ; Sharma, 2001 ; Sharma and Sidhu, 2001 ; Basioudis et al. , 2008 ) , modern-day research workers in the U.S. suggest that there is no relationship ( DeFond et al. , 2002 ; Geiger and Rama, 2003 ) 1. Therefore, despite the concerns of the regulators and the fiscal imperativeness, there is no clear grounds that higher non-audit fees negatively affect hearer independency.
Research on audit fees has besides documented that client size is an of import determiner of audit fees ( Simunic, 1980 ; Francis, 1984 ) , while recent research indicates that the comparative magnitude of non-audit fees is besides higher for larger clients ( Abbott et al. , 2002 ) . Further, the proviso of non-audit services by the incumbent hearer leads to better apprehension of the client and cognition spillovers ( Simunic, 1984 ; Francis, 1984 ) , and therefore to a better informed audit coverage determinations. Together, these consequences suggest that audit sentiments may be influenced by the magnitude of non-audit ( and audit ) fees received from clients.
Additionally, high non-audit fees, particularly as a per centum of entire hearer fees, may hold a negative consequence on stock market participants ‘ perceptual experiences of hearer independency. Prior research on the consequence of non-audit fees on hearer independency is besides inconclusive ( for illustration, Wines ( 1994 ) ; Sharma ( 2001 ) ; DeFond et Al. ( 2002 ) ; Basioudis et Al. ( 2008 ) , utilizing GCs as placeholder for hearer independency ; and Frankel et Al. ( 2002 ) ; Francis and Ke ( 2002 ) ; Ashbaugh et Al. ( 2003 ) ; Chung and Kallapur ( 2003 ) , utilizing discretional accumulations as placeholder for hearer independency ) .
In most empirical surveies audit independency is proxied by the comparative magnitude of the audit fee as against the NAF received from a peculiar audit client. Hoitash ( 2007 ) hypothesise that the fees paid to hearers can impact audit quality in two chief ways. First, big fees paid to hearers may increase the attempt exerted by hearers and thereby increase audit quality.