committees due to the fact that independent director is more likely accurate in term of the whole outside audit committee without any relationships with the company。

77。55% of the sample is companies, which have audit tenure of five years or more。 In order to examine the robustness of the model and results, sensitivity analyses have been conducted。  The sensitivity analysis is done by first  changing the measurement of TENURE to a dichotomous value of TENURE (coded as 1 if the tenure is seven years above and ten years above)。 Finally, by changing the measurement of TENURE to logarithm。 Overall, it can be said that the general results in Table 4 still hold and robust。

The call for mandatory audit rotation may not yield what it hopes for。 We would say our results do not support audit firm rotation and thus change of auditor should be made for necessary and reasonable grounds such as in the event of non-performance of auditors or change of substantial and controlling shareholders and others。

Our results are also consistent with Md。 Yusof et al。 (2002) that related to debt-default status and serious financial distress variable。 Both variables are strong determinants of auditor’s decision in issuing going concern in Malaysia。 These findings also contribute to high pseudo R2 but it is still comparable with prior researches (Geiger & Raghunandan, 2002 had pseudo R2 0。33; Louwers, 1998 had pseudo R2 0。44)。 In addition, assets of the companies are proved to be insignificant factor whether in the main results or in the sensitivity analyses。 There are several explanations。 First is the auditor may investigate the quality of the assets and not just “any assets”。 It is quite possible, if the distressed company has significant portion of assets, which have higher market value and demand such as investment in listed shares or has properties of high value that would make the company more “survive” than others。 Thus auditor may not issue a going concern opinion to such companies。 Secondly, a better proxy for size in the case of going concern opinion such as revenue or turnover of the companies may yield better results。

Interestingly, it seems that in Malaysia, auditors are skeptical or very conservative on going concern assumption made by directors and thus they made lower type II error compare to type I error。 High type I error may lead to self-fulfilling theory which suggest that their clients may face difficulties in obtaining credit or financing facilities from bankers or investors。 The auditors do take to the account these factors in their going concern opinion decision。 Such events may cause higher cost to the auditors i。e。 clients switch their auditors but Ismail (1998) found that going concern opinion alone would not precipitate such effect。 Future research on value relevance of going concern audit opinion may unveil this effect。

5。Conclusions

Mandatory audit rotation debates came from the arguments that long audit tenure would create cozy relationship between auditors and clients and thus would lead to audit failure such as in the case of going concern opinion。 We found no market wide evidence to support that argument in Malaysia but instead we found that longer audit tenure has positive significant association with auditor’s reporting decision。 In addition, we found that auditors in Malaysia made less serious error (type II) or audit failure compared to our model。 However, we did not test on other type of audit failure such as qualified opinion of non-going concern issues。 In this study, we did not discriminate the different types of going concern opinion including modified opinion, qualified opinion or disclaimer opinion as stated in ISA 570 (revised 2000)。

Our results also show that if a client never changes its auditor since listed in Bursa Malaysia, there is a tendency to issue a clean opinion though the client suffers apparent financial problems。 Therefore, we echo the importance of self-regulation and Laissez-faire practice in Malaysia as a better alternative than a mandatory auditor rotation。 Perhaps current national undertakings by regulators such as strengthening audit committee in term of independence and competence and peer audit review process by the MIA would inhibit unethical audit process in Malaysia。