Review Journal "The Determinant Factors of Auditor Switch among Companies Listed on Tehran Stock Exchange"

Title	The Determinant Factors of Auditor Switch among  Companies Listed on Tehran Stock Exchange
Author	Arezoo Aghaei Chadegani
Year	2011

Introduction

The concept of an AC has evolved over many years across developed countries and now has become a mandatory listing requirement in most stock exchanges worldwide. In Malaysia, the new code of corporate governance and the amended stock exchange’s listing requirement provide evidence on the importance of audit committees in ensuring transparency of information and quality financial reporting. The Malaysian Code on Corporate Governance (MCCG) postulates that “an independent audit committee (AC) serves to implement and support the oversight function of the board in several way.

Methodology

The required information, 300 questionnaires (that were pre-tested) were distributed to senior managers of finance and accounting division of Malaysian public listed companies. The questionnaires were designed to collect information on five main aspects of audit committees that are perceived to be associated with auditor independence, such as the composition of the committee. The respondents selected were responsible for the auditing, accounting and finance function in their firm. The seniority of the respondents provides better validity to the information gathered for analysis. Structured interviews were also conducted with senior managers to further clarify issues, seek their perception and insights on the relationship between audit committee activities and the impact on auditor independence. For the purposes of better understanding of perceptions given by respondents from different size of companies, the respondents were stratified based on size of their companies2. Two approaches were taken; (1) classification based on their listing status i.e. main and second board, (2) classification based on size of companies on. The Mann-Whitney test was employed as a statistical tool to investigate the differences. No significant differences were observed between the 20 early and 20 late responses, implying the absence of non-response bias.

4. Results

An effectively functioning audit committee will provide an oversight function consistent with corporate best practice, and will ensure a fair level of auditor independence. respondents were asked to indicate their views on the five issues relating to audit committees and the possible impact on auditor independence, the results are tabulated in Tables 4, 5 and 6 below.

4.1 Active Audit Committee

Information in Table 4 indicates that the majority of the senior managers of the main board (79%) and second board (92%) companies agreed with the suggestion that an active audit committee would have better chance of safeguarding auditor independence.

4.2 Compulsory Audit Committee Reports

A clear majority of the respondents in the main (78%) and second (74%) board companies agreed with the suggestion that auditor independence would be safeguarded if audit committee reports were to be made compulsory in the annual report.

4.3 Approval and Review of Audit Fees by Audit Committees

Table 4 shows that 53% and 46% of the senior managers of main and second board companies respectively agreed with the idea that auditor independence would be safeguarded if audit committees were to assume the role of approving audit fees.

4.4 Audit Committee Members

The majority of the managers of main (90%) and second (85%) board companies agreed with this perception (refer to Table 4). The responses suggest that independent directors would be expected to provide a balanced and independent view, can be impartial when dealing with the role of external auditor. Directors who lack this ‘independence’ criterion may unable to pursue their role as internal enforcers of good financial reporting.

5. Conclusion

This indicates that the respondents have faith in the audit committees to facilitate good corporate governance practices, specifically in this research to enhance communication between auditors and management. An active audit committee is important because it will indicate the commitment to the issues of interest. Audit committee reports show activities undertaken during the financial year and also. A strong and impartial audit committee would support the auditor in situations of conflict or disagreement over accounting principles and enhance their ability to resist management pressure. Overall, the findings are consistent with expectations and documented evidence in developed economies that audit committees, given certain requirements that the committee must have, can play an effective role to ensure external auditor independence.