Similarly, Stice (1991) found the relationship between auditor tenure and a lawsuit against the auditor。 In the study, he found that auditor tenure was shorter for those audit engagements that resulted in a lawsuit against the auditor。 This happened in the case of control sample that matched only on time period。 However, it is not true when compared to an industry pair-matched control sample。

De Angelo (1981) also mentioned that the quality of auditors pided to two parts。 First is to detect anything misleading in financial statements of the client and secondly is to report the misleading information。 The first quality is regarding the competence and skills of the auditors to detect any fraud while the second one is related to the auditors’ independence。 In the case of long time auditor, it is argued that the auditor’s independence will be reduced because the auditor feels comfortable with the clients whether in term of revenue and also their expertise on the clients’ system。 Subsequently they will not report any misleading information to ensure there is no any change of auditors。 In that case, an unqualified report (clean report) will be issued。

The studies on auditor tenure could not be separated from the auditor switching studies。 Many studies found that financially distressed firms were more likely to switch auditors than non distressed companies due to the reason that these types of companies need to hire a new quality of auditor compared to the previous one (Krishnan, 1994; Krishnan & Stephens, 1995)。 Sinason, Jones, and Shelton (2001) found that auditor tenure is longer for clients who received unqualified or unqualified-modified opinions。 Interestingly, in Malaysia, Ismail (1998) found such behavior is less apparent using data from 1975-1995。 In one extreme case, the auditor was not even replaced after issuing five consecutive times of a disclaimer opinion to a client。 But, the results statistically equivalent, meaning that no evidence exists to indicate that auditor tenure is longer for clients with unqualified opinions。

Similarly, Krishnan (1994); Krishnan & Stephens (1995) found that switching companies were no more likely to have their modified report removed than were similar companies that did not switch auditors。 Therefore, it is argued that if the financially distressed firms still maintain the same auditors and by the same time, if an unqualified report is  issued, it may be perceived that the auditors’ independence is impaired。

It is often argued that mandatory audit firm rotation is one of the solutions to solve auditor’s cozy relationship with their clients。 Auditor firm rotation supporters argue that its benefits stem from greater audit independence, which in turn improves audit quality。 However, the cost of imposing mandatory audit firm rotation would lead to higher start-up cost, impedes learning curve, as well as the failures to attract new-blood to the accounting profession and lower investment from the audit firms to enhance knowledge and expertise in certain industries (Petty & Cuganesan, 1996)。 In the case of Malaysia where foreign direct investment is still a major economic contributor, the country looks less attractive than its neighboring counterparts especially Singapore since the appointment of auditors is usually for the company affairs and not for regulators as stated under Section 9 (6) of the Malaysian Companies Act 1965。 For example, the Monetary Authority of Singapore (MAS) has requisitioned all banks incorporated in Singapore to change their audit firms every five years under a new ruling。 The new audit requirement is one of a series of control measures on corporate governance introduced by the Singapore authorities (“Bank”, 2002)。 According to Ravi Menon, executive director of the authority’s supervisory policy and banking departments, the mandatory audit firm rotation would help prevent audit firms from having excessive focus on maintaining long-term commercial relationships with the banks they audit。 However, in Malaysia there is no regulation binding the banks or the companies to change the audit firms within a certain period。