3。4Variables definition and discussion

3。4。1Tenure

Tenure is the first hypothesis variable measured by the length of years which audit firms audit their clients (Louwers, 1998; Vanstraelen, 2000)。 Similarly, we argue that auditors are in greater pressures from clients especially if the auditors have served the clients since the clients listed in the stock exchange for many years。 Due to the mixed theories and empirical findings, we do not provide direction for this relationship。

3。4。2Big Five

DeAngelo (1981) theorized that larger audit firms have superior audit quality since they invest more in audit technology and training。 Thus, in term of audit competence, it could be argued that larger audit firm would be more accurately able to detect problems related to going-concern assumption than smaller audit firms。 In term of audit independence, larger audit firms have more spreads of clients’ base when auditing listed companies than smaller audit firms (Md。 Yusof & Che Ahmad, 2000) and thus have less dependence on a particular client。 In addition, Palmrose (1988) found that the larger audit firms were less likely to be involved in audit-related litigation than the smaller one。 Alternatively, Big Five firms have greater risk of losing reputation, which may motivate them to be more objectivity when making an audit reporting decision。 Anandarajan et al。 (2001) however, found no evidence of auditor size effect on auditor going concern reporting。 Such finding warrant a further study, perhaps in Malaysia, since the public perceive differences exist in many aspects of auditing between larger firms and smaller firms including going concern assumption。 In addition, this variable is never tested in Malaysia environment。 (Md。 Yusof, Md。 Saleh & Abdul Hamid, 2002)。

3。4。3Audit committees

Audit committee has been made mandatory in Malaysia since 1993。 (Note 1) It is more likely that interaction between audit committee with external auditors may influence auditor’s choice of issuing going-concern。 (Note 2) An independent audit committee could help mitigate such pressure by supporting the auditor in disputes with management (Knapp, 1987)。 Hence, we expect some characteristics of board of directors, especially non-executive directors, as public watchdog and audit committee will influence auditor’s choice in going-concern。 Knapp (1987) found that in a major audit disputes, audit committee members tended to support the auditors rather than the management。 Similarly, Md。 Yusof and Che Ahmad (2000) found evidence that independent audit committee is associated with going concern opinion。

We argue that placing strategic executive directors on the committee may shadow a measurement of independence of audit committee by proportion of outside directors。 We believe a higher independence of audit committee, which is measured by non-existence of powerful directors especially the managing director and executive directors (Carcello & Neal, 2000) would lend better support for auditors。 Thus, independent audit committees will ensure that the audit opinion really gives a picture the situation of that company。

3。4。4Probability of bankruptcy

Several studies found that a positively relationship between going concern opinion and probability of bankruptcy of a company。 This is due to the fact that, the higher probability of bankruptcy, the higher the need of the auditors to issue going-concern opinion。 Regardless of whatever bankruptcy model being employed in prior researches (Hopwood, McKeown & Mutchler, 1989; Vanstraelen, 2000) in going concern opinion, the results suggest that auditors do assess distress condition of their clients。 Prior research in Malaysia by Md。 Yusof et al。 (2002) used Zmijewski Financial Condition (ZFC) that suggested by Zmijewski (1984) and they found significant result。 Similarly, we employ ZFC to measure financial distress of the companies。 Kleinman and Anandarajan (1999) suggested that a score, which exceed 0。28, is considered as financial distress。 Therefore, there is a positive association between probability of bankruptcy and going concern opinion。