Since the auditor is an agent to the shareholders in monitoring managers’ duties to create wealth for the principals (shareholders), auditor’s failure to inform shareholders on the going concern of the principal’s business is a serious matter。 With the introduction of the US Sarbanes Oxley, auditor’s relationship with the client is now being regulated to at least of the engagement audit partner’s tenure。

In contrast, Petty and Cuganesan (1996) argued that when mandatory auditor rotation is regulated, clients might be forced to accept a lower quality of service from an auditor who is a generalist, especially if fewer auditors invest in specialized industries such as banking, insurance or natural resources。 Moreover, Louwers (1998); Johnson, Khurana, and Reynolds (2002) found no evidence of reduced financial quality for longer audit firm’s tenures。 Recently, Geiger and Raghunandan (2002) studied a sample of 117 bankrupt companies and suggested that auditors may be more influenced by their newly obtained clients in the earlier years of the engagement。 In addition, Chi and Huang (2004) found that audit firm tenure helps to produce higher earnings quality due to familiarity effect, but excessive familiarity results in lower earnings quality。 Furthermore, they found that audit firm tenure plays a key role in the transmission of learning experience。 Thus, audit independence issue or audit competence issue is crucial and problematic in early years of engagement and not in later years。

Overall, prior researches suggested that there should not be any fast rules on mandatory audit firm rotation。 In United States, many auditors have served their clients for more than twenty years (Geiger & Raghunandan, 2002) and some since listed in the stock exchange。 In such cases, auditors would be under greater pressure from clients and thus would unlikely issue a going concern opinion。 However, auditors may be argued to have in-depth knowledge and thus would be able to defend themselves if such difficult situation arises。 In addition, they would be able to advise their clients if going concern assumption is no longer appropriate。 Therefore, the derived hypothesis as follows (in alternate form):

H1: Ceteris paribus, there is a positive relationship between audit firm tenure and the issuance of  going concern opinion。

3。Research method

3。1Sample and data

The sample comprises all listed non-finance distressed companies identified using a list of financial indicators under ISA 570 (revised) Going Concern。 The data is primarily from annual reports of public listed companies in Bursa Malaysia。 The year of 2002 is selected since the ISA 570 (revised) came into force from 1 January 2002。 We found 187 companies, which fulfilled the distress characteristics。

3。2Explanations of the Model

This study replicates the model from the previous established studies in going concern audit opinion。 (Louwers, 1998; Geiger & Raghunandan, 2002)

The research model (in logistic form) is as follows:

GC = Į + b1 TENURE + b2 BIGFIVE + b3 ACOM + b4 ZFC + b5 DFT + b6 LOGASSETS + e

The measurements of the variables are as follows: Dependent Variable Measurement

GC = 1 if auditor issued going-concern opinion, else 0 Hypotheses Variables

TENURE = Audit firm tenure in number of years

3。3Control variables measurement

BIGFIVE = Dummy variable, 1 if the auditor is the Big Five firm, and else 0

ACOM = Dummy variable, 1 if the audit committee is comprised of all non-executive directors, else 0 ZFC = Probability of bankruptcy calculated from Zmijewski Financial Condition (1984)

DFT = Dummy variable having a value of 1 if the company is in default, else 0 LOGASSETS = Natural log of total assets of clients

e = Error term of residual

Į i = constant (i = 0)

b = coefficients (i = 1, 2, 3, 4, 5, 6, 7)