However, the MIA suggested a more lenient way to regulate auditor independence。 A call of mandatory auditor rotation involve only audit partner rotation but not in the case of the audit firm as a whole。 The MIA recommended that there should be a mandatory rotation of the audit partners responsible for the audit of listed companies after a period of not more than five years。 Furthermore, the audit partner rotating after such period should not resume the role of audit engagement partner for the audit client until two years have elapsed。 Prior to this pronouncement, in 1999, the MIA under its former president, Datuk Hanifah Noordin, called for a mandatory rotation of external auditors in every three or five years。 (“MIA”, 1999)。

There is very limited empirical evidence regarding the long audit firm tenure impairs auditor independence by compromising auditor reporting quality in developing countries such as Malaysia。 Most of the studies were done in developed countries。 Furthermore, a strong interest of debate among regulators in the developed countries caused the regulators and policy makers in developing countries to review back their audit legislation。 However, it is still not clear whether the issue arise in such developing countries。 Besides, recent studies in the developed countries do not support the contention that there should be a mandatory audit firm rotation (Johnson et al。, 2002; Geiger & Raghunandan, 2002; Myers, Myers & Omer, 2003; Carcello & Nagy, 2004; Ghosh & Moon, 2005)。 Therefore, the purpose of the study is to examine the effect of auditor-client relationship, namely audit firm tenure on auditor reporting quality, proxies by going concern opinion in Malaysia environment。 Thus, this study tries to support whether the suggestion of auditor rotation can be used in the current situation in Malaysia using Malaysian companies listed on the Bursa Malaysia (Main Board and Second Board)。

Our sample is companies listed in the Bursa Malaysia (formerly known as Kuala Lumpur Stock Exchange, KLSE)。 Prior to 1998, the Malaysian Institute of Accountants (MIA) did not adopt the International Auditing Guideline (IAG) 23 on assessment of going concern assumption。 Later, in 1998, the MIA adopted ISA 570 Going Concern in which issued by the International Federation of Accountants (IFAC)。 Then the standard revised in the year of 2000 and became operative from January 2002。 Among significant changes between IAG 23 and ISA 570 include provision to assess going concern assumption in every audit engagement and additional prescription to guide practitioners in detecting going concern problem。

In sum, our result shows that a positive relationship between audit firm tenure and auditor reporting quality is in line with the recent decision by Malaysian regulators not to regulate mandatory audit firm rotation in public listed companies。 Our results are also consistent with prior studies based in developed countries (Geiger & Raghunandan, 2002) and add to the growing body of literature on mandatory audit firm rotation。 The results from this study are useful for the regulators as a feedback to improve the auditor independence in Malaysia。 The regulators must emphasize the impact of auditor tenure to the audit quality especially if there is a negative relationship between auditor tenure and audit quality。 If this happens, it can be said that long time auditors are deemed to impair their independence when auditing their clients。

The remainder of the paper is organized as follows。 In section 2, we present the arguments supporting and opposing long audit firm tenure and develop the hypothesis。 Methodology for this research is discussed in section 3 whereas in section 4, we discuses our data and findings and finally our conclusions are presented in final section of the paper。

2。Literature review and hypothesis development

Auditor reporting quality is a basic ingredient to enhance the credibility of financial statements to those interested parties。 However, this could not been seen if the auditor is not independence。 Without independence, the process of auditing can be argued to the extend that the auditor would give bias opinion to their clients。 One of the factors that would adversely influence auditor independence in giving their opinion is a close relationship between auditor and clients, namely long audit tenure。 For example, Deis and Giroux (1992) found that the longer the auditors audit their clients the larger that lead to such close relationship between the audit firms and clients and consequently decrease audit quality。