A study of auditor switch on the Malaysian listed firms (an analysis of its determinants) / Susan Hydra Sikayu

There are many possible reasons for auditor switch. This study attempts to determine the possible linkage between clients' characteristics and the decision to switch auditor of Malaysian listed firms. As reflected in the agency theory, the stewardship hypothesis is used to explain the demand for auditing. Next, the theory of auditor choice and change are derived from this hypothesis. As justified by these theories, operational variables were developed and used to empirically test the proposed relationship. This empirical analysis examines a sample of sixty experimental companies (companies that switched their auditors) and sixty control companies (companies that did not switch their auditors) from 1991 to 1998. In order to examine the characteristics surrounding the auditor switch, this study employs several financial ratios, like average acquisition of fixed assets to total assets, sales growth, total assets growth, liquidity, leverage, average return on assets and earnings per share. Other qualitative variables include management change, audit opinion and changes in audit fee. Management change and audit fees were found to be significantly associated with the decision to switch auditor. In an attempt to make a comparison between the experimental companies and the control companies, sales growth followed by EPS have recorded a marginally higher mean difference, although not statistically significant. In another attempt to compare the mean between the companies that switched to Big Five, to non Big Five and switches within the same class of audit firms, no apparent difference was found in the mean results.