Auditor Independence Factors

This assignment investigates the factors that influence auditor independence within medium-sized auditing firms located in Nairobi. It focuses on the potential impact of non-audit services provided to clients, the length of client relationships, the level of competition within the market, and the personal characteristics of auditors. The research aims to understand how these factors can potentially compromise auditor objectivity and independence.

Running head: AUDITOR’S INDEPENDENCE
Factors Affecting Auditor Independence
Name of Student: Ehsanul Quayoum
Student ID:1642610
Name of University: Angila Ruskin University
Author Note

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AUDITOR’S INDEPENDENCE
Acknowledgement
I would also like to take this opportunity to thank my professor without whose, constant support
and guidance, the research would not have been possible.
Firstly, I would like to thank God the Almighty in giving me the strength and courage without
which I could not have completed the entire study. Secondly, I would like to thank my family
and relatives who gave me constant support mentally and physically so that I can complete the
study on time. Lastly, I would like to give thanks to my peers and the friends who have helped
me in providing the appropriate information throughout the project and helped me in doing the
in-depth analysis of the research. Without their proper guidance, it is impossible for me to
complete the project.
Thanks and Regards,
Yours Sincerely,

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Abstract
The main aim of this research process was to study the factors that will help in creating an
impact on the independence of the auditors within the profession of auditing. It is considered to
be one of the main factors in this profession, as it has helped in diagnosing the objective factors
and the personal ones that can affect the independent factors of the auditors. The literature
review has helped in analyzing the various literature and theories that are present with the
auditing profession. The identification of the factors has helped in gaining better insights
regarding the factors that help in influencing the factors of independence.
The researcher has collected the data from the respondents in a true and honest manner that has
helped in carrying out the research process in a better manner and the manipulation that was not
done helped the researcher in carrying out the research in a professional manner. the analysis and
the findings have been done according to the statistical manner with the help of graphs and charts
so that it can result in presenting the figures in an efficient manner. Lastly, the researcher was
able to provide better recommendations regarding the factors so that it can help the auditors in
understanding the important factors, which will help them in doing the business in a better way.

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Table of Contents
Chapter 1: Introduction:...................................................................................................................6
1.1 Introduction:..........................................................................................................................6
1.2 Problem Statement:................................................................................................................7
1.3 Aim of Study:........................................................................................................................8
1.4: Research Objectives.............................................................................................................8
1.5 Research Questions................................................................................................................8
1.6: Research Hypothesis.............................................................................................................9
1.7 Significance of the Study:......................................................................................................9
1.8 Structure of Dissertation:.....................................................................................................10
Chapter 2: Literature Review.........................................................................................................11
2.1 Conceptual Framework:.......................................................................................................11
2.1.1 Auditor’s Independence: General Overview................................................................12
2.1.2 Terms and Definitions:.................................................................................................13
2.2 Factors Affecting Auditor’s Independence:.........................................................................14
2.2.1 Personality:...................................................................................................................14
2.2.2 Rules and Regulations:.................................................................................................15
2.2.3 Familiarity:...................................................................................................................15
2.3 Social Identity Theory:........................................................................................................16
2.4 Audit Quality Theory:..........................................................................................................17

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2.5 Agency Theory:...................................................................................................................17
2.6 Auditing Pillars: Competence and Independence................................................................19
2.7 Testing Auditor’s Competence and Independence:.............................................................19
2.8 Empirical Studies on factors affecting Auditor’s Independence:........................................21
Factors affecting independence of external auditors.....................................................................23
Objective factors........................................................................................................................23
Size of audit firm...................................................................................................................23
Provision of non-audit services.............................................................................................24
Tenure with the client............................................................................................................24
Competition level in the audit service market.......................................................................25
Chapter 3: Research Methodology................................................................................................26
3.0: Introduction........................................................................................................................26
3.1: Research Outline.................................................................................................................26
3.2: Research Philosophy...........................................................................................................27
3.2.1: Justification of positivism philosophy.........................................................................28
3.3: Research Approach.............................................................................................................28
3.3.1: Justification for deductive approach............................................................................29
3.4: Research Design.................................................................................................................30
3.4.1: Justification for descriptive design..............................................................................30
3.5: Research strategy................................................................................................................31

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3.5.1: Justification for the survey strategy.............................................................................31
3.6: Sampling technique and sampling size...............................................................................32
3.6.1: Justifying the selection of probability sampling technique.........................................33
3.7: Data collection technique...................................................................................................33
3.7.1: Justifying the primary data collection technique.........................................................34
3.8: Data analysis technique......................................................................................................34
3.8.1: Justification for SPSS..................................................................................................34
3.9: Ethical Considerations........................................................................................................35
3.10: Summary...........................................................................................................................35
Chapter 4: Analysis and Findings..................................................................................................36
Chapter 5: Conclusion and Recommendations..............................................................................69
5.1: Conclusion..........................................................................................................................69
5.2: Linking with objectives......................................................................................................69
5.3: Recommendations..............................................................................................................70
5.4: Scope of the research..........................................................................................................71
Reference List................................................................................................................................72
Appendix........................................................................................................................................79
Survey Questionnaire.................................................................................................................79

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Chapter 1: Introduction:
1.1 Introduction:
The independence and neutrality of the auditor is the most significant principles that is
being recognized by the consecutive global conferences held during the previous year’s Supreme
Audit Institutions of the representatives of the nations on global basis. It has been one of the key
concerns for both the shareholders and became the relevance of this principle is predictable in
securing a main concern over the money of the public in efficient manner for managing of the
economy (Alzeban and Gwilliam 2014).
The independence of the external auditor is stated to be one of the most significant issues
received by the audit with substantial attention since the initiation of the concerto of the audit
profession is viewed as a fundamental player in suggesting the corporate management and
organizations in performing their roles and responsibilities in proper manner. It is important for
the auditor on executing their functions with apt responsibility and professional mode, the
significance of the autonomy of the external auditor cannot be exaggerated. It has been one of
the important factors in understanding the factors having the capability in influencing the
exercise of audit through jeopardizing the independence factor of external auditor (Tepalagul and
Lin 2015).
In this perspective, the aim of this paper is in studying the factors impacting the
independence of the external auditor in the profession of auditing, and the liberty of the external
auditor has got with bigger interest by the researchers in the auditing field. The reason for the
same is that independent auditors as the prime basis for the eminence of the process of audit and
then the investors’ confidence in the non-financial and financial information, this area have been

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tried by many of the articles undertaking the relationship between the external auditor’s
independence and audit process quality (Abbot et al. 2016). There exists difference in the views
among all the revelries interested within the audit concept about the auditor’s independence and
the audit quality indicating the crystallization of the thought of the auditor’s independence and
the significant factors influencing it in the profession of audit (Dhaliwal et al. 2015).
The researcher would be following both the historical method in keeping track of the
prior studies that have to make the study relevant, inductive approach along with descriptive
approach in determining the influence of the factors on the factor of independence of external
auditors. This would be increasing the efficacy and competence level of the process of audit
through the extrapolation of the studies and the research in describing the impact of external
auditor’s independence on the profession of audit (He et al. 2017).
1.2 Problem Statement:
Audit is fundamentally entrusted with the task of exposure in the statements financially
and this realism is what the users of the information of accounting expect. However, the auditors
might not ensure this reality and this reality might fall short of the expectation of the users. This
deficit within the effectiveness of audit is being broadly branded as the expectation gap of audit.
On most occasions the users of financial statement deem an auditor report to be the clean
statement for health (Cannon and Bedard 2016). Thus most of the expectations of the users
towards the auditor is actually more than what it should be. The expectation within the gap
occurs when there are dissimilarities between the expectations of the public from the auditor and
the actual offerings of the auditor (Knechel and Salterio 2016).
This generally put the auditor’s reporting and investigative independence in peril that
might defeat the principle of the audit of public and corrode the independence. It is therefore not

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much clear if the factor of independence of the auditor has any considerable impact on the
accountability of the private industry. Auditor’s independence is primary to the confidence of the
public in the factor of financial reporting along with the profession. This study focuses on
providing added understanding of the factors influencing the independence of the auditor
(DeFond and Zhang 2014).
1.3 Aim of Study:
The primary aim of this study is in identifying the factors that affects the independence of
the external auditor. The sub-aims are:
a. To identify the factors that is being classified into the intent factors and other personal
affecting the varying degrees on the factor of independence of the external auditor
b. To evade the negative effects of the factors on the independence
1.4: Research Objectives
a. To identify the competitive level among the auditors regarding the independent factors
b. To identify the factors that lead to independence of the auditors
1.5 Research Questions
The problem of this particular study is in answering the following questions, including:
a. What are the aspects influencing the independence of the external auditor in the profession of
auditing?
b. What is the precedence of the factors that affects the independence of the external auditor in
the profession of auditing?

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c. What is the consequence of the size of the fee of audit on the auditor’s independence factor?
d. How does the audit agency capability influence the independence of the auditor?
1.6: Research Hypothesis
The research will be based on the following hypothesis:
H0- The other services that are provided by the auditors will not help in gaining a competitive
advantage
H1- The other services that are provided by the auditors will help in gaining a competitive
advantage
1.7 Significance of the Study:
The key importance or significance of the study lies in the fact that it would be shedding
light to proclaim the factors that impact on the independence and impartiality the external auditor
in the profession of auditor. The present study recognized by the several factors influencing the
auditor’s independence among the organizations in depicting the most consistent financial
statements. Auditors have been facing several challenges in their endeavor of ensuring ethical
and accurate depiction of the financial reports of the organization for which they work. The fact
that auditor is generally been employed or tapered by the corporations for which they are
auditing signifying they have been at the mercy of the employers and the way they illustrate
information is critical. This present study would shed light on the aspects and the ways they can
be functional in making the process of auditing appropriate. The upshot of the study would
importantly advance the knowledge frontier adding to the existing academic literature on the
independence of auditor.

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1.8 Structure of Dissertation:
This dissertation would be consisting of 5 segments or chapters that would be taken into
consideration by the researcher. The 1st chapter introduced the topic to the reader along with the
research questions, its objectives and significance of the same. The second chapter dealt with the
literature review on the subject, focusing on what the previous researches had to say or discussed
on the matter. The third chapter is about research methodology taking in the sorts of research
types and the ways data would be collected or gathered from various sources for analysis. The 4th
chapter is about the analysis part where the researcher would be evaluating the data gathered
from various sources. The last chapter is the conclusion and recommendation part where the
researcher would provide a full summary of the research along with suggestions on the things
that could be done to better the situation. The limitations of the study and the scope for future
research would be taken into account to for this research study.

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Chapter 2: Literature Review
2.1 Conceptual Framework:
(Source: Created By Author)
Size of the audit
firms
Non-audit
services
Tenure of client
Level of
competition
Personality
Familiarity
Auditor
Independence
Hypothesis

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2.1.1 Auditor’s Independence: General Overview
In the business scenario, Rahmina and Agoes (2014) stated that the need has arrived for
an audit in ensuring the precision and veracity of the financial information that depends mainly
on the users of the financial statements in the coherent decision-making as audit lends the factor
of credibility along with confidence to financial statements. Important questions have cropped up
on the factor of honesty of the fiscal reports of auditor, and it has been reigned a state of distrust
in the profession of auditing along with the suspicion of the quality of the services of audit. The
profession of auditing has been facing more pressures and condemnation in the purpose of the
study along with assessing the audit quality.
According to Donovan et al. (2014), the significance of the auditor’s independence has
been underpinned after the several scandals of the corporate. From the filing of the bankruptcy of
Enron in 2001, an exceptional string of large bankruptcies have emerged with various corporate
scandals. Six of the ten biggest corporate bankruptcies occurred during that period that
negatively impacted the perception of public of the function of audit. In regard to this, Dogui,
Boiral and Heras-Saizarbitoria (2014), most of the regulators for the profession of auditing have
been stating that such incidence has the aptitude in threatening the occupation of audit and
broader economic influence. Failures of audit can have negative impact on the firms who have
been making use of the same auditor. It is therefore clear that the function of audit might have a
huge economic impact if it is not being handled properly.
Christ et al. (2015) stated that independence is stated to be the primary justification along
with the hallmark of existence of the profession of auditing. It is being recognized as a main
feature that is to be maintained by the auditors under all circumstances. Independence of audit in
organizations along with other interest groups is expendable precondition n conducting of an

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audit. Auditors need to strive not only for being independent of the auditing organizations along
with related interest groups, but also to be purposeful in tackling with the issues that are under
consideration. Being neutral is not enough, but it is also important in being proper in behavior
and personal manifestation.
2.1.2 Terms and Definitions:
The independence of auditors and the things he has of the individual specifications like
knowledge of specialized nature, professional capability along with the auditor’s liability are
significant factors impacting the professional judgment quality of auditor. The independence
needs an attitude of the responsibility from the interest of the client. The auditor needs to
maintain an attitude a proper attitude of the healthy professional cynicism (Lennox, Wu and
Zhang 2016).
According to Gerakos and Syverson (2015), the auditor’s independence notion is having
a suitable position for taking an unbiased perspective in the performance of the tests of the audit,
results of the analysis, confirmation and authorization within the report of audit. The
independence of auditor refers to the ability of auditor in persevering the objective, impartial
mental stance and the neutrality factor throughout the process of audit. As independence means,
as per the operatives of rules that is being issued by the Auditing Standards Council taking an
unbiased standpoint on the auditor’s part while conducting of the check process.
According to Lennox, Wu and Zhang (2014), the auditor’s independence can be defined
as the capability in withstanding the compression from the influence of the management while
conducting of an audit or offering of audit-related services, so that the professional veracity of
the client while conducting of the audit. One of the significant points is that without the factor of

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independence, there would be no requirement for the external auditors as the corporate
management would be having their way of paving elimination of the basic factors of simplicity
and accountability of the management of the firm.
2.2 Factors Affecting Auditor’s Independence:
There are generally 3 factors that affect the auditor’s independence in a form which are
personality, rules and regulations along with familiarity. Certain factors have been discussed in
the following segments to understand how the auditor’s independence is being affected by the
same.
2.2.1 Personality:
Brown, Preiato and Tarca (2014) was of the view that the experience that is personal
interests introduces the danger of destabilized impartiality with the profitability of high extent
that the interest can be expected prudently in influencing the outcome of the audit report.
Connections of interpersonal nature might bring in the auditor for supporting personal goals over
the expert ones that might influence the capacity of the auditor in practicing a fitting extent of the
distrust factor of the expert.
Adding to that Gaynor et al. (2016) stated that the factor of personality playing a major
role in the independence of the auditors which might be giving threat to the Auditors through
phone calls from fully displaying his professional behavior. The major threats include undue
confidence on the customers, beneficial interests in trusts, voting on the audit appointment and
loan factor. Therefore there are high chances that the auditor might get intimidated by such
threats with the pressure coming from dominant personalities like the client, third party or the
director along with customers being much understanding to their interests. Alternatively, the

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auditors might become arrogant while representing the management and thereby, are not
stringent enough in their testing of the audit.
2.2.2 Rules and Regulations:
As per Pizzini, Lin and Ziegenfuss (2014), on their research stated the fact that the
constructive outcome on the procurement of NAS on the factor of independence is being fortified
by the rules along with the policies received by the professions and the firms. As per (), the rules
implemented within the information gathered of the auditor would be impacting on the cost
services. So the auditor would be taking in time for understanding the rules improving the system
for managing of the risks of nonconformity. In order to ply with much obedience of the new
federal and state regulations, the auditor should preserve substantive manuscript in support of the
transaction and might be required for exposing the public to the new sort of arrangements.
As per Svanberg and Ohman (2015), the fresh rules would be complying within the
market of audit where the competition might be less as the auditor is not being able to compete,
even though there is existence of some better alternatives. Somehow, the regulations of the
independence requires the new audit firm to immediately stop any sort of incompatible services
with auditors independence and in some of the cases need the period prescribed for the purpose
of independence.
2.2.3 Familiarity:
According to Kang (2014), there is existence of many studies that has been done in
recognizing the threat of familiarity on the independence of the auditors. The threat of familiarity
takes place when the auditors cooperate on the objectivity front due to their strong establishment
with the customers. This was ably supported in a scenario where a family member would be

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holding on to a susceptible position of the customers of the firms having significant impact on
the team conducting the audit task. A close relationship of excessive nature with the client would
be bringing in unnecessary trust within the client. Moreover, Yoon, Hoogduin and Zhang (2015)
stated that the auditor might to be someone whom can be trusted excessively of the
representations of the administration for being thorough in the process of testing them. This is
mainly because the auditors within the stage of development are much confident about their
knowledge on the client firm. Somehow, the repetitive personality of the long-term commitment
between the auditors along with the client leads to discontent and accordingly in underweighting
the sign for warning. Some commentators do discuss about the requirement of fresh mind that
sometimes leads to better research for the clients.
2.3 Social Identity Theory:
This theory states about the individuals deriving results from the process of self-
classification, offering clients in influencing their auditors to a greater extent. Individuals forms
themselves to social groups of multiple nature, these groups are detached organizational
classification and can compete with each other, found in different setting with auditors included.
From this point social identities have the ability in influencing the thinking way along with the
process of decision making for the individuals, with individuals taking on the values of the group
and standards (Duellman, Hurwitz and Sun 2015).
In this regard, the theory predicts which employees of the audit firm are having lots of
contact with one particular client would be identifying with the ad of the client. This is mainly
being applied on the auditors who have been working for longer epoch of time with the same
clients. In all probability it would be determining the auditors with their clients as they know the
businesses of the clients along with the process of accounting with chances are they may even

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need to put up with the options of employment. Auditors have the ability in identifying with their
profession, their organization and their clients and that the theory of social identity forecasts
these numerous identifications (Samaha, Khlif and Hussainey 2015).
2.4 Audit Quality Theory:
The audit quality and the discernment of the quality of audit have been taken in as two
different concepts. For keeping the distinction between among these two perceptions there has
been us age of factors like ‘reputation’ and monitoring strength’ for referring to the audit quality
of perceived nature. The monitoring strength helps in impacting and preserving the information
quality within the financial nature. The auditor’s monitoring strength can be calculated via the
components of the quality of audit that are auditor’s competence degree along with independence
(Griffith 2015).
The auditor’s repute can influence the credibility that is being perceived by the stakeholders
related to the auditors. The reputation of the auditor is certainly difficult to scrutinize or measure
for the fact they are generally based on the beliefs of the users. The frameworks of audit quality
incarcerate the existing relationship between the components of audit quality, products of the
same along with the influences over information within the statements of financial nature. The
‘monitoring strength’ factor assists in impacting and handling of the information quality within
the financial statements (Almer, Philbrick and Rupley 2014).
2.5 Agency Theory:
Auditing plays an important role in plummeting both: asymmetry of information through
empirical confirming of the validity of the financial statements along with the agency issues. The
conflict of principal-agent relationship is being illustrated in the agency theory, where the owner

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depicted as principal lack any reasons in believing their managers depicted as agents because of
the contradictory motives and information asymmetries. Information irregularity generally deals
with the study of decisions within the transactions where one of the parties contains more
information than that of the other (Epinosa-Pike and Barrainkua 2016). The motives of
contradictory nature like the financial rewards, opportunities within the labor markets along with
associations with the other parties not unswervingly related to the principal can, for instance,
outcome for agents in being more optimistic about the performance economically of an entity
instead of the performance of overall company. Motivations that are differed along with
information asymmetry diminish the information reliability of information causing breach of
trust that the principles would be having on their agents. Therefore, the auditors as the third party
used to endeavor in aligning the interests of the agents with the principals and letting them to
estimate and administer the agents’ behavior and strengthening their trust on the agents. This,
however, brings in the fresh concept of auditors being the agents that generally leads to breach of
trust, threats towards independence and impartiality. While performing an audit they are
generally acting as agents for the principals and this association gives rise to similar sort of
issues of faith and assurance as the relationship of director-shareholder, rapid questions about the
one doing the auditing (Koren, Kosi and Valentincic 2014).
Agents might be reliable without added incentives in aligning the interest or evaluating
the strategies like augmented regulation. However, the model of simple agency would advocate
that agents are stated to be generally untrustworthy as managers; auditors would be having their
own interests along with certain motives. Independent auditor from the Board of Directors is of
immense significance to the shareholders and important factor in delivering of high quality audit
(Ege 2014).

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2.6 Auditing Pillars: Competence and Independence
The audit value is generally been observed if the two eminence mechanisms are present,
independence and competence. An audit that is been proficiently undertaken but not independent
of the amounts of management to an audited financial report that is nothing more than the
meager management representations. Under such circumstances the audit does not lower the risk
of information and is not being valued by the market for accessing information, be it equity, debt
or certain other markets relying on financial information (Schroeder 2015).
Where the audit is stated to be independent of management but not enough competent,
then the verification of the financial report is being blemished due to lack of competence. For
that same it still does not lower the amount of risk pertaining with information and hence the
affirmation of the management remains the extensive information to the market. The audit does
not limit the risk of information in either of the case where it is autonomous of the management
but not capable or where it is proficient but not sovereign of the management. The existence of
both the ability and independence are obligatory conditions for the audit to be something of
value adding good where one cannot be the substitute for the other (Azizkhani, Monroe and
Shailer 2013).
2.7 Testing Auditor’s Competence and Independence:
It is often been said that the audits are frequently successful and in general, the auditors
execute their functions in the most diligent and professional mode. Auditors are stated to be
intelligent along with being highly professional in seeking to generate a competent audit of
independent nature. In most of the cases, it becomes difficult in verifying the competency of the
independent audits produced as it is rare for the independence of the audit to be tested in rigorous
manner (Carcello and Li 2013). The only situation where a complete assessment of the audit’s

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quality takes place in a public field is when an auditee experience major financial anguish. Under
the circumstances of the failure of corporate there are incentives for the persons outside the
association in rigorously testing the independence and competency of audit. The existence of
hundreds of business failures every year, it is significant in noting the fact that only in small
alternative of these failures that an auditor is suspected of not having completed a competent
audit in independent fashion (Eilifsen and Knivsfla 2013).
In respect to the allegations of the failure of audit there are two areas where allegations
are being made, these two areas have been following the two standard auditing pillars:
competence and independence. With due regards to the defense mechanisms related to
competence, it is generally common for the auditors in obtaining services of a different auditor
for reviewing of the working papers along with other documentation related to audit. Through
this a judgment would be reached whether the process of audit has been rational and executed
proficiently (Titus, Muturl and Kabiru 2014). With reference to the concerns of independence, it
is not that uncommon for the review of the audit in attempting to cover any issues related to
independence. The judgments that are being made in respect to independence are mainly in-
house. The most disturbing fact is that the identification of the threats to independence,
determining of the unusual action courses along with the final judgment related to the decisions
concerning independence are being made regularly by persons within the audit firm having much
commercial curiosity in the decision outcome (Ali and Nesrine 2015).
Putting in simple form, auditors do have mechanisms and procedures in defending the
accusations of lack in competence. However, they emerge in having few, if at all any, efficient
defenses in lieu of lack of independence accusations. Competition has been recognized as the
most significant environmental change or the external factor impacting the auditor independence.

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Firms that have been operating in an environment that is intensely competitive might be having
difficulty in lingering independent since the client can easily get hold of the services of a new
auditor. A number of the empirical studies have been able to prove that the high echelon of
competition within the audit firm has resulted in less auditor independence (Albeksh 2016).
2.8 Empirical Studies on factors affecting Auditor’s Independence:
Researchers like Thornton and Shaub (2014) have been able to conduct primary research
for investigating the auditor’s independence. The variables that have been used by the authors
within this research is the audit fees size, audit firms working in highly competitive work
environment, audit firms who have been providing service to a given client for longer period of
time along with the audit committee’s non-existence. This study endeavors in investigating the
determinants of the independence of the auditor as being perceived by the accountants of
Malaysia making use of the survey related to self-administered mail. According to the
researcher, the findings of the research depicts the fact that the audit size is being viewed as the
most essential ingredient from the four variables having an impact on the independence of
auditors which is quite similar to the study conducted in Malaysia on the credit officers, where
that ingredient has been viewed as the least important factor. This study shows that only from the
perspective of the Malaysian accountant and not taking into consideration from the global
perspective. However, it has been seen that the other researches on the same subject matter has
come with the same findings same as this study. So it can be concluded that the audit fee
generally affects more on the independence of the auditor among all the factors as stated above.
A study by Gerakos and Syverson (2015) has been conducted for the purpose of studying
in investigating the factors having an impact among the independence of the auditor along with
the accountability factor. The sampling population for this research study was being conducted in

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Kenya on the KTDA associated Tea Factories. The data for this research was being gathered by
the use of the Statistical Package for Social Science in dissecting the polls that would be made
use of in gathering relevant information. The variables that have been taken into consideration
within this research study is determining the factors of encouraging the independence of the
auditors and focusing on their accountability factor. Descriptive survey design was selected in
going along with the primary data analysis which was done through the process of
questionnaires, interviews and observations. The outcome of the result states the fact that bulk of
the respondents agreeing to the fact that the size of the audit firm has much bigger impact on the
independence of the auditors. Even though these studies have major impact on the independence
of the auditors taking in size of the audit firm as per the outcome that has considered only the
Kenyan factories and not the tea factories existing globally. On the other hand, it has been argued
on the fact that audit fees have been the most important ingredient that persuades the
independence of the auditors.
A study was been prepared for investigating the knowledge spillover through
examination of the existing relationship between the services of non-audit nature and audit fees.
The sample takes in the observations of 600 firms from the financial announcement of the listed
public organizations that have been obtained from the period from 2007 to 2009 (Kend,
Houghton and Jubb 2014). The affiliation between the non-audit and audit fees has been tested
through the calculating of the other variables making use of the regression analysis. The study
took into account the non-audit services that report an affirmative relationship with the fees of
audit. In this research study the non-audit services have been confined to three segments,
recognizing with the related audit, consulting and taxation, along with varied services. The result
demonstrated that the existing relationship between the audit level and non-audit fees do not

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oscillate as being indicated by the non-audit services. Such services have some sort of positive
connection with the fees of the audit. The monitoring of the three classes of replicating the
services of non-audit established only the recurring of the audit related services of non-audit.
This study takes into account the fact that the non-audit services do not have much impact on the
fees of the audit (Geoff and Salihovic 2016).
On a totally different study, Tesfamichael (2016) have investigated the impacts of the
five selected variables on the PAI of the open and non-open bookkeepers in Malaysia. They are
in the habit of using the exploratory outline. Results have been demonstrating a generous review
received from a single customer that is the most indispensable variable without delaying the
PAI’s hindrance. The non-pivot of the firms under review is not an overwhelming constituent.
The development of the panels of review is being found based on the concrete positive
consequence on developing the freedom of the examiner, while the constructive effect of
revealing of the non-review charges is much lesser. This current study would be supplementing
the study conducted by Gerakoz and Syverson (2015) related to its commitment for information
on the bookkeepers freedom that was attained 20 years back.
Factors affecting independence of external auditors
Objective factors
Size of audit firm
The audit firms that are of bigger nature belongs mostly to the group auditors so that they
are less susceptible to the independent loss of offices that are dependent on the particular clients.
It may increase the audit practices that pose a danger in the loss of independence so that it can
help in increasing a proper relationship between the clients as well. The audit offices try to

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AUDITOR’S INDEPENDENCE
provide their services to the clients by managing the services so that it can help in building
common interests between the client and the auditor (Ali and Nesrine 2015).
Provision of non-audit services
The factor of independence among the auditors is also affected due to the services that
they provide, which are not related to auditing. According to recent studies, it can be seen that
the association between the independence and the fees of the auditor for the non-audit services
have increased to a great extent, which helps in understanding the effects on the independent
factors of the auditors (Thronton and Shaub 2014). Apart from the auditing services, the auditors
provide services like bookkeeping and act as management consultants so that it can help in the
development of the common interests between the clients and the auditors. The auditors also do
the accounting works for some of their clients, which help them in building the relationship with
the clients in a better way. The non-audit services also help in increasing the quality of the audit
so that it can help in getting a better understanding of the characteristics of the clients so that the
risks that are present in auditing can be identified (Titus, Muturl and Kabiru 2014).
Tenure with the client
According to Schroeder (2015), the duration of the connection between the independence
of the auditors and and the clients depend on two opinions. Firstly, it leads to the betterment of
the services between the auditor and the client, as the knowledge between the two can be passed
through an effective network. The other opinion is that the duration of the relationship may have
negative impacts as well, which may lead to the consolidation of the relationship on a personal
manner.

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AUDITOR’S INDEPENDENCE
Competition level in the audit service market
The authors Carcello and Li (2013) stated that the factor of competition plays an
important role in affecting the independent factor of the auditors, as they are of the fear that they
might lose the customers if the financial statements are done in a faulty manner. To maintain
equilibrium, the fees taken for the audit acts as a challenge, as the intense competition may lead
to the losing out on the clients due to a high amount that is taken as well-known auditors.

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AUDITOR’S INDEPENDENCE
Chapter 3: Research Methodology
3.0: Introduction
This chapter will deal with the method that has been selected so that the particular study
of research can be done in a proper manner. The researcher will explain all the methodological
tools that are present and will provide the justification for each method, which has been taken up
in the research (Bauman, Cross and Walker 2013). This chapter has helped the researcher in
laying the foundation for the different tools that are present in methodology in a proper manner
and has defined them as well. It will also mention the methodological tools that have helped the
researcher in carrying out research based on the aims and objectives taken in the research
process. This chapter will provide an insight on the different philosophies, designs, approaches
along with the method of data collection and analysis of it so it can be conducted in an efficient
manner (Mackey and Gass 2015).
3.1: Research Outline
Methodological toolSelected methodological tool
Research DesignDescriptive
Research PhilosophyPositivism
Research ApproachDeductive
Sampling TechniqueRandom probability sampling technique
Sample Size100
Data Collection processSurvey

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AUDITOR’S INDEPENDENCE
Data Analysis processSPSS
Research Outline
(Source: Created by Author)
The researcher has mentioned clearly the choice of the tools that are present in
methodology, which will be taken up for the process of the research. The researcher has taken up
the positivism philosophy, descriptive design, strategy that is based on survey research and the
approach that is deductive in nature. Moreover, the researcher has taken primary method of
collecting the data by collecting the responses by survey from different firms, which will be
analyzed through the SPSS tool. The researcher has later on went on to state the justification as
well for the different methodological tools that has been taken up in the process of research
(Taylor, Bogdan and DeVault 2015).
3.2: Research Philosophy
Positivism, interpretivism and pragmatism are some of the commonly used philosophies
that are taken up by the researcher in conducting the process of the research. The philosophy of
interpretivism is where the researcher searches for opportunities so that the different point of
views along with the opinions of the individuals can be taken up regarding the topic. This
philosophy allows the researcher in contrasting and comparing the different views along with the
mindsets and provides recommendations of the different perceptions that have been taken up
(Mackey and Gass 2015). This particular philosophy allows in proceeding with the observations
that are significant, as the focus is entirely on the human nature. This allows the researcher in
developing a wider concept and idea regarding the research topic by analyzing and evaluating the

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AUDITOR’S INDEPENDENCE
past as well as the future data. On the contrary, the viewpoint that is based on positivism helps
the researcher in carrying out the observations that are quantifiable in nature, which makes the
process of the research more scientific in nature (Glesne 2015). Due to this, the scientific testing
can help in verifying and validating this particular philosophy. Nevertheless, the researcher has
limited himself to collection of data and interpreting it based on the philosophy that is positivism
in nature. The philosophy known as pragmatism is based on the combined nature of both the
above discussed philosophies. Therefore, the research can be conducted in meaningful manner,
as the observations can be quantified in this philosophy (Taylor, Bogdan and DeVault 2015).
3.2.1: Justification of positivism philosophy
The researcher has used the positivism philosophy for the current process of research, as
it helped the examiner to prove the objectives and the aims, which are present for the research. It
will help the researcher in implying the approaches that are based on science by using the factual
data. Moreover, the use of this philosophy will provide the researcher an opportunity so that the
data can be analyzed in a scientific and statistical manner. Therefore, the researcher will be able
to analyze the viewpoints and the opinions in a statistical manner regarding the factors that result
in the independent working conditions of the auditors.
3.3: Research Approach
The inductive and the deductive approaches are the two common forms of approaches
that are used in conducting the research process. The approach, which is inductive can be cleared
as the apparatus that is used for methodological purposes, which helps the examiner in seeing
new patterns and observations that is conducted by the researcher. Therefore, the emphasis of the
researcher is on developing the theories and concepts, which is made on the remarks for
conducting the process of research (Silverman 2016). This result in shifting the focus of the

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AUDITOR’S INDEPENDENCE
researcher towards the observations that is meaningful, which will help in conducting the
analysis through a better manner. These results in the quality of the study to be hampered, as the
researcher has to focus on proving the questions that have been taken up in the research by
properly describing the features and phenomenon that are associated with the aims that is present
in the process of research. On the contrary, the deductive approach is the process that enables the
researcher in proving the aims and the objectives that has been taken up in the research by
referring to the concepts and the theories that are relevant in nature (Brinkmann 2014). Thus,
deductive approach helps the researcher in referring to the various literature and the theories and
concepts that are present in it. The meaningful observations are based on the literature that is
already present along with the different concepts so that it can help in providing opportunities to
achieve the aims and objectives that have been taken up in the research process in a successful
manner. Additionally, this approach goes better with the positivism philosophy because the
researcher can interpret the analysis that has been conducted by collecting the data and
comparing it with the existing concepts and literature (Vaioleti 2016).
3.3.1: Justification for deductive approach
The researcher will be using the deductive approach, as it goes with the positivism
philosophy. The selection of this approach helps the researcher in supporting the findings of the
analysis through statistical manner in considering the factors that may lead to the independence
of the auditors within the organizations. Moreover, the researcher will be helpful, as the
information can be transformed in a proper way and align the data with the aims and objectives
taken in the research study.

30
AUDITOR’S INDEPENDENCE
3.4: Research Design
Descriptive, explanatory and exploratory are the widely used designs that are taken up for
the purpose of research while completing the research process. The exploratory design for the
research is the tool used in the methodological process, which helps the researcher in testing the
hypothesis that has been taken up along with that of the objectives and aims of the research
process. Due to this factor, the researcher will be able to use the relevant concepts, theories and
literature, which will help him in proving the hypothesis along with the aims and the objectives
so that the questions taken up for the research can be answered efficiently (Flick 2015).
Therefore, the exploratory design helps the researcher in referring to the information and the data
that are relevant so that the research can be conducted in a successful manner. On the contrary,
the explanatory type of research design is the tool that helps the researcher in explaining the
incidence through a specific phenomenon (Dumay and Cai 2015). This research design helps the
researcher in providing justification of the event along with the incidence present in the process
of research. The descriptive type of research design combines the features that are present in
explanatory and the exploratory type of research design. In this design approach, the researcher
proves the hypothesis taken up in the research process with respect to the aims and objectives
while explaining the incident that happens in the process of research (Smith 2015).
3.4.1: Justification for descriptive design
The current process of the research will be based on the design that is descriptive in
nature. This will help the researcher in explaining the different concepts and theories that are
present in the factor of independence among the auditors. Moreover, the research design that is
descriptive in nature will also help the researcher in explaining the various incidence that has
been present in the present along with the likelihood of these occurrences happening in the future

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AUDITOR’S INDEPENDENCE
as well. Additionally, it will also help the researcher in understanding the effects and the causes
of the rationale that is present in the research and clarifying it as well.
3.5: Research strategy
Analysis of case study, interviews and surveys and the action research are some of the
most commonly used strategies for the process of the research to be conducted. The research that
is based on the case study analysis is a tool taken up in the methodology by the researcher, which
provides opportunities to the researcher in referring to the information that is already present
regarding the topic of the research (Panneerselvam 2014). Due to this, the researcher can base
their entire process of the researcher by referring to the information and the case studies that are
relevant in nature. On the contrary, action research is the tool of methodology that helps in
finding the issues, which are there in the research topic (Matthews and Ross 2014). This helps
the researcher in identifying the the issues that are present within the research and justifying it
with the help of proper solutions. With respect to the strategy of survey research, the respondents
are not allowed to share their personal opinions and in the interview strategy the researcher has
the liberty to choose the individuals for getting the answers, which helps in understanding the
objectives present in the research (Gast and Ledford 2014).
3.5.1: Justification for the survey strategy
The research is done with the help of survey strategy, as it will enable the researcher in
gathering the data from the auditors regarding the independent factors that influences them. It
will provide an opportunity to the researcher in comparing and contrasting their perspectives so
that the research can be developed in a better manner. Additionally, the collection of the data
from the auditors will allow the examiner in getting the relevant information so that the
objectives in the study can be dealt with efficiently.

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AUDITOR’S INDEPENDENCE
3.6: Sampling technique and sampling size
The strategy of the research is based on the samples and the technique that will be used
for sampling by the researcher. The sampling techniques can be classified as probability and
non-probability technique, as these are the tow widely used techniques taken up by the
researcher for the research process to be conducted. The probability technique of sampling is
defined as the type that provides equal chances for the participants in being selected as the
sample within the process of collecting the data (Neuman and Robson 2014). Therefore, within
the entire population, the sampling that is based on probability will ensure that the participants
have an equal chance of being selected in the process of data collection. Most of the participants
under this technique is selected in a random manner. On the contrary, the non-probability
technique of sampling is the sampling that does not provide an equal chance to the participants
that have been selected from the entire population to be a part of the process of data collection
(Lushey and Munro 2015). Therefore, the researcher has the liberty to select the respondents by
judging their suitability with respect to the topic of the research. In the non-probability technique
of sampling, the researcher can develop a better understanding from the perspective of the
respondents and the interpretation of the data can be done accordingly so that the aims and
objectives of the research can be fulfilled (Tarone, Cogen and Gass 2013).
3.6.1: Justifying the selection of probability sampling technique
This research will be based on the probability technique of sampling, as it will help the
researcher in gathering the data from the auditors regarding the independent factors that
influences them. Moreover, this technique will help in providing equal chances to the
respondents in being selected within the process of data collection. Thus the researcher has
selected 50 auditors of the various firms that are present within the country.

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AUDITOR’S INDEPENDENCE
3.7: Data collection technique
The use of the primary and secondary methods is the two common forms of collection of
data techniques that is used by the researcher in conducting the process of the research. The use
of articles, internet and books are considered to be secondary sources, which helps the researcher
in developing a better understanding regarding the theories, concepts and the various patterns
that are associated with the topic of the research for its conduction in a successful manner. the
collection of the primary data on the other hand is the process through which the data is collected
from an exact population (Bauer 2014). The quantitative and the qualitative method are the two
ways through which the researcher can collect the data in a primary manner. The qualitative way
of collecting the data helps the researcher in maintaining the quality for the data that has been
collected. In this method, the researcher will be able to judge the suitability of the topic in the
research and communicate it in an individual manner. Therefore the qualitative way of collecting
the data will help the researcher in developing better understanding regarding the various point
of views and share the opinions of the respondents without any obstacles. The quantitative
method of collecting the data helps the researcher in emphasizing on the quantity that is present
among the data that has been collected (Tuohy et al. 2013). This leads to the fact that the
researcher has to collect the data in a specific population. After the data has been collected, the
researcher will use the perspective of the respondents in an exact agenda so that the analysis can
be conducted statistically. Moreover, the respondents are forbidden from distributing their own
opinions and the response has to be recorded according to the options that have been provided by
the researcher (Choy 2014).

34
AUDITOR’S INDEPENDENCE
3.7.1: Justifying the primary data collection technique
The current process of research will be based on the primary quantitative process of
collecting the data by the researcher, as it will help in the collection of the responses from the
auditors regarding the factors of independence in the Malaysian context. Moreover, the
researcher will be using the secondary sources as well such as journals, internet and books for
conducting the review of literature in a proper manner.
3.8: Data analysis technique
The collection of data through a quantitative manner will help the researcher in achieving
the aims and objectives that has been taken up in the process of the research. The analysis can be
done using various methods such as graphs, statistical analysis, charts and bars. The statistical
analysis is mainly preferred in the quantitative data, as it helps the findings to be more specific
and accurate in nature (Reynolds et al. 2014).
3.8.1: Justification for SPSS
The researcher will be using SPSS, which is a software that is used for statistical analysis.
The researcher will be able to analyze the data that has been gathered so that it can help in
conducting the cross-tabulation in a non-batched and batched manner. This will help the
researcher in gathering the data in an accurate manner, which can be summarized and presented
through percentages and frequencies.
3.9: Ethical Considerations
The researcher has to abide and follow the ethical considerations while the process of
research is being conducted, which helps in the overall success of the research. The researcher
will keep the data and the information confidential provided by the respondents confidential so

35
AUDITOR’S INDEPENDENCE
that it does not get leaked. This will prohibit the researcher in disclosing the identity of the
respondents through the study of the research. Moreover, the identity of the respondents can only
be shared by the researcher with their permission and the respondents will not be forced by the
researcher in taking part in the process of research. The information that will be collected by the
researcher will be used for academic purpose only and not for commercial use. The researcher
has to ensure that the responses are only collected based on the aim and objectives that has been
taken up in the research from original sources. In addition to this, the researcher is not allowed to
manipulate the data that has been collected for completing the process of research in a successful
manner.
3.10: Summary
This chapter deals with the various methodological tools that is available to the
researcher so that the process of research can be conducted by providing the justification of the
tools that has been taken up for this research process. The use of the justified tools of
methodology will help the researcher in collecting the data from the auditors so that their
opinions and viewpoints can be recorded regarding the factor of independence in the Malaysian
context.

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AUDITOR’S INDEPENDENCE
Chapter 4: Analysis and Findings
What is your gender?
Frequency Percent Valid Percent
Cumulative
Percent
Valid Male 37 74.0 74.0 74.0
Female 13 26.0 26.0 100.0
Total 50 100.0 100.0
How many years of experience do you possess?
Frequency Percent Valid Percent
Cumulative
Percent
Valid Less that 1 year 9 18.0 18.0 18.0
1.1-3 years 30 60.0 60.0 78.0
More than 3 years 11 22.0 22.0 100.0
Total 50 100.0 100.0

37
AUDITOR’S INDEPENDENCE

38
AUDITOR’S INDEPENDENCE
The frequency chart that has been shown above shows the relationship between the
gender of the respondents and the number of experience that they have with respect to years
within the industry. It can be seen that most of the male employees have an experience between
1-3 years, which shows that they have a good knowledge regarding the auditing sector within the
country.
What is your gender? * How many years of experience do you possess? Cross tabulation
How many years of experience do you
possess?
Total
Less that 1
year 1.1-3 years
More than 3
years
What is your
gender?
Male Count 7 24 6 37
% within What is your
gender?
18.9% 64.9% 16.2% 100.0%

39
AUDITOR’S INDEPENDENCE
% within How many
years of experience do
you possess?
77.8% 80.0% 54.5% 74.0%
% of Total 14.0% 48.0% 12.0% 74.0%
Female Count 2 6 5 13
% within What is your
gender? 15.4% 46.2% 38.5% 100.0%
% within How many
years of experience do
you possess?
22.2% 20.0% 45.5% 26.0%
% of Total 4.0% 12.0% 10.0% 26.0%
Total Count 9 30 11 50
% within What is your
gender? 18.0% 60.0% 22.0% 100.0%
% within How many
years of experience do
you possess?
100.0% 100.0% 100.0% 100.0%
% of Total 18.0% 60.0% 22.0% 100.0%
Chi-Square Tests
Value df
Asymp. Sig. (2-
sided)
Pearson Chi-Square 2.792a 2 .248
Likelihood Ratio 2.589 2 .274
Linear-by-Linear Association 1.573 1 .210
N of Valid Cases 50
a. 2 cells (33.3%) have expected count less than 5. The minimum
expected count is 2.34.
The Chi Square test by Pearson helps in finding out the statistical association between the
dependent and the independent variables. It can be seen that the result from the test came to
be .248 where as the minimum value that was expected from the test was 2.34. This shows that
there is no statistical association between the gender and the years of experience. It can be stated

40
AUDITOR’S INDEPENDENCE
that both the genders have an equal chance of having the same number of experience within the
industry.
What is your level in the audit firm?
Frequency Percent Valid Percent
Cumulative
Percent
Valid Partner 13 26.0 26.0 26.0
Senior Auditor 18 36.0 36.0 62.0
Assistant 19 38.0 38.0 100.0
Total 50 100.0 100.0
What other services do you provide to the clients?
Frequency Percent Valid Percent
Cumulative
Percent
Valid Management services 17 34.0 34.0 34.0
Secretarial services 20 40.0 40.0 74.0
Tax consulting services 13 26.0 26.0 100.0
Total 50 100.0 100.0

41
AUDITOR’S INDEPENDENCE

42
AUDITOR’S INDEPENDENCE
The above frequency table shows the relationship between the level of the employees that
they maintain in the audit firms and the other services that they provide to the clients so that they
can be retained within the organization. It can be seen that most of the assistants in the auditing
firms provide secretarial services to their clients so that the level of trust can be built between
them.
What is your level in the audit firm? * What other services do you provide to the clients? Cross tabulation
What other services do you provide to the
clients?
Total
Management
services
Secretarial
services
Tax
consulting
services
Partner Count 2 8 3 13

43
AUDITOR’S INDEPENDENCE
What is your level in
the audit firm?
% within What is your
level in the audit firm? 15.4% 61.5% 23.1% 100.0%
% within What other
services do you
provide to the clients?
11.8% 40.0% 23.1% 26.0%
% of Total 4.0% 16.0% 6.0% 26.0%
Senior
Auditor
Count 7 6 5 18
% within What is your
level in the audit firm? 38.9% 33.3% 27.8% 100.0%
% within What other
services do you
provide to the clients?
41.2% 30.0% 38.5% 36.0%
% of Total 14.0% 12.0% 10.0% 36.0%
Assistant Count 8 6 5 19
% within What is your
level in the audit firm? 42.1% 31.6% 26.3% 100.0%
% within What other
services do you
provide to the clients?
47.1% 30.0% 38.5% 38.0%
% of Total 16.0% 12.0% 10.0% 38.0%
Total Count 17 20 13 50
% within What is your
level in the audit firm? 34.0% 40.0% 26.0% 100.0%
% within What other
services do you
provide to the clients?
100.0% 100.0% 100.0% 100.0%
% of Total 34.0% 40.0% 26.0% 100.0%
Chi-Square Tests
Value df
Asymp. Sig. (2-
sided)
Pearson Chi-Square 3.928a 4 .416
Likelihood Ratio 4.064 4 .397
Linear-by-Linear Association .654 1 .419
N of Valid Cases 50
a. 4 cells (44.4%) have expected count less than 5. The minimum
expected count is 3.38.

44
AUDITOR’S INDEPENDENCE
It can be seen that the Pearson test of Chi Square helps in finding the statistical
association between the variables that have been taken up for the analysis. It can be seen that the
result of the test has come to be .416 where as the value that was being expected at a minimum
level had to be 3.38. This shows that there is no statistical association between the variables. It
can be stated that the employees of other level as well can provide various services such as
management and tax consulting services.
What is your level of education?
Frequency Percent Valid Percent
Cumulative
Percent
Valid Bachelors 23 46.0 46.0 46.0
Masters 21 42.0 42.0 88.0
PhD 6 12.0 12.0 100.0
Total 50 100.0 100.0
To what extent does competition affect your business?
Frequency Percent Valid Percent
Cumulative
Percent
Valid High 22 44.0 44.0 44.0
Moderate 22 44.0 44.0 88.0
Low 6 12.0 12.0 100.0
Total 50 100.0 100.0

45
AUDITOR’S INDEPENDENCE

46
AUDITOR’S INDEPENDENCE
The above frequency table shows the relationship between the level of education that is
present among the employees along with the factor of competition that can affect the business of
the audit firms. It can be seen most of the auditors holding a bachelor degree have agreed that the
competition varies from high to moderate.
What is your level of education? * To what extent does competition affect your business? Cross tabulation
To what extent does competition affect
your business?
TotalHigh Moderate Low
What is your level of
education?
Bachelors Count 13 8 2 23
% within What is your
level of education?
56.5% 34.8% 8.7% 100.0%

47
AUDITOR’S INDEPENDENCE
% within To what
extent does
competition affect your
business?
59.1% 36.4% 33.3% 46.0%
% of Total 26.0% 16.0% 4.0% 46.0%
Masters Count 7 11 3 21
% within What is your
level of education? 33.3% 52.4% 14.3% 100.0%
% within To what
extent does
competition affect your
business?
31.8% 50.0% 50.0% 42.0%
% of Total 14.0% 22.0% 6.0% 42.0%
PhD Count 2 3 1 6
% within What is your
level of education? 33.3% 50.0% 16.7% 100.0%
% within To what
extent does
competition affect your
business?
9.1% 13.6% 16.7% 12.0%
% of Total 4.0% 6.0% 2.0% 12.0%
Total Count 22 22 6 50
% within What is your
level of education? 44.0% 44.0% 12.0% 100.0%
% within To what
extent does
competition affect your
business?
100.0% 100.0% 100.0% 100.0%
% of Total 44.0% 44.0% 12.0% 100.0%
Chi-Square Tests
Value df
Asymp. Sig. (2-
sided)
Pearson Chi-Square 2.756a 4 .599
Likelihood Ratio 2.770 4 .597
Linear-by-Linear Association 1.918 1 .166
N of Valid Cases 50

48
AUDITOR’S INDEPENDENCE
a. 5 cells (55.6%) have expected count less than 5. The minimum
expected count is .72.
The result of the Chi Square test has come to be .599 where as the minimum value that
was expected from the test had to be .72. This shows that there is no statistical association
between the level of education and the factor of competition that can have an impact on the
auditing business. It can be stated that the other level of education that is masters and PhD are
also of the mentality that the competition in the audit market can be high to moderate as well.
What is your age?
Frequency Percent Valid Percent
Cumulative
Percent
Valid Less than 25 23 46.0 46.0 46.0
26-40 20 40.0 40.0 86.0
41 and above 7 14.0 14.0 100.0
Total 50 100.0 100.0
What other services do you provide to the clients?
Frequency Percent Valid Percent
Cumulative
Percent
Valid Management services 17 34.0 34.0 34.0
Secretarial services 20 40.0 40.0 74.0
Tax consulting services 13 26.0 26.0 100.0
Total 50 100.0 100.0

49
AUDITOR’S INDEPENDENCE

50
AUDITOR’S INDEPENDENCE
The above frequency table shows the relationship between the age of the auditors and the
other services that needs to be provided to the clients so that it can help them in lessening the
competition in the market. It can be seen that the auditors who are less than the age of 25 years
have agreed to the fact that they provide secretarial services to the clients so that it can help in
decreasing the competition in the market.
What is your age? * What other services do you provide to the clients? Cross tabulation
What other services do you provide to the
clients?
Total
Management
services
Secretarial
services
Tax
consulting
services
Less than 25 Count 11 6 6 23

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AUDITOR’S INDEPENDENCE
What is your
age?
% within What is your
age? 47.8% 26.1% 26.1% 100.0%
% within What other
services do you provide
to the clients?
64.7% 30.0% 46.2% 46.0%
% of Total 22.0% 12.0% 12.0% 46.0%
26-40 Count 5 10 5 20
% within What is your
age? 25.0% 50.0% 25.0% 100.0%
% within What other
services do you provide
to the clients?
29.4% 50.0% 38.5% 40.0%
% of Total 10.0% 20.0% 10.0% 40.0%
41 and
above
Count 1 4 2 7
% within What is your
age? 14.3% 57.1% 28.6% 100.0%
% within What other
services do you provide
to the clients?
5.9% 20.0% 15.4% 14.0%
% of Total 2.0% 8.0% 4.0% 14.0%
Total Count 17 20 13 50
% within What is your
age? 34.0% 40.0% 26.0% 100.0%
% within What other
services do you provide
to the clients?
100.0% 100.0% 100.0% 100.0%
% of Total 34.0% 40.0% 26.0% 100.0%
Chi-Square Tests
Value df
Asymp. Sig. (2-
sided)
Pearson Chi-Square 4.723a 4 .317
Likelihood Ratio 4.910 4 .297
Linear-by-Linear Association 1.478 1 .224
N of Valid Cases 50
a. 3 cells (33.3%) have expected count less than 5. The minimum
expected count is 1.82.

52
AUDITOR’S INDEPENDENCE
The result of the Chi Square analysis has come to be .317 where as the minimum count
that was expected from the test was 1.82. This shows that there is no statistical association
between the variables. Thus it can be stated that the auditors belonging to other age groups have
stated that they provide other services as well such as management and tax consulting services.
What is your level in the audit firm?
Frequency Percent Valid Percent
Cumulative
Percent
Valid Partner 13 26.0 26.0 26.0
Senior Auditor 18 36.0 36.0 62.0
Assistant 19 38.0 38.0 100.0
Total 50 100.0 100.0
Do you think that the auditors need to be rotated after a period of time?
Frequency Percent Valid Percent
Cumulative
Percent
Valid Yes 27 54.0 54.0 54.0
No 16 32.0 32.0 86.0
Maybe 7 14.0 14.0 100.0
Total 50 100.0 100.0

53
AUDITOR’S INDEPENDENCE

54
AUDITOR’S INDEPENDENCE
The above frequency table shows the relationship between the levels of the auditors that
they occupy within the firms and the degree of acceptability that they have regarding the rotation
of the auditors after a certain time period. It can be seen that most of the assistants have agreed to
the fact that the auditors need to be rotated within the audit firms so that they can help in serving
the clients in a better manner.
What is your level in the audit firm? * Do you think that the auditors need to be rotated after a period of
time? Cross tabulation
Do you think that the auditors need to be
rotated after a period of time?
TotalYes No Maybe
What is your level in
the audit firm?
Partner Count 4 6 3 13
% within What is your
level in the audit firm?
30.8% 46.2% 23.1% 100.0%

55
AUDITOR’S INDEPENDENCE
% within Do you think
that the auditors need
to be rotated after a
period of time?
14.8% 37.5% 42.9% 26.0%
% of Total 8.0% 12.0% 6.0% 26.0%
Senior
Auditor
Count 8 7 3 18
% within What is your
level in the audit firm? 44.4% 38.9% 16.7% 100.0%
% within Do you think
that the auditors need
to be rotated after a
period of time?
29.6% 43.8% 42.9% 36.0%
% of Total 16.0% 14.0% 6.0% 36.0%
Assistant Count 15 3 1 19
% within What is your
level in the audit firm? 78.9% 15.8% 5.3% 100.0%
% within Do you think
that the auditors need
to be rotated after a
period of time?
55.6% 18.8% 14.3% 38.0%
% of Total 30.0% 6.0% 2.0% 38.0%
Total Count 27 16 7 50
% within What is your
level in the audit firm? 54.0% 32.0% 14.0% 100.0%
% within Do you think
that the auditors need
to be rotated after a
period of time?
100.0% 100.0% 100.0% 100.0%
% of Total 54.0% 32.0% 14.0% 100.0%
Chi-Square Tests
Value df
Asymp. Sig. (2-
sided)
Pearson Chi-Square 8.327a 4 .080
Likelihood Ratio 8.753 4 .068
Linear-by-Linear Association 6.770 1 .009
N of Valid Cases 50

56
AUDITOR’S INDEPENDENCE
a. 4 cells (44.4%) have expected count less than 5. The minimum
expected count is 1.82.
The result of the Chi Square test has come to be .080 where as the minimum value that
was expected from the test had to ne 1.82. This shows that there is no statistical association
between the variables. Thus it can be stated that apart from the assistants, the other level of
auditors present within the firms may also agree to the fact that the rotation of the auditors needs
to be done within the audit firms.
What is your level in the audit firm?
Frequency Percent Valid Percent
Cumulative
Percent
Valid Partner 13 26.0 26.0 26.0
Senior Auditor 18 36.0 36.0 62.0
Assistant 19 38.0 38.0 100.0
Total 50 100.0 100.0
Do you think that the maintaining better relationships with the client will
help in bringing new clients?
Frequency Percent Valid Percent
Cumulative
Percent
Valid Yes 23 46.0 46.0 46.0
No 15 30.0 30.0 76.0
Maybe 12 24.0 24.0 100.0
Total 50 100.0 100.0

57
AUDITOR’S INDEPENDENCE

58
AUDITOR’S INDEPENDENCE
The above frequency table shows the relationship between the position of the auditors
that they are working in within the firms and the degree of acceptability regarding maintaining
better relationships with the existing clients so that it can help in attracting new clients towards
the firms. It can be seen that the assistants in the auditing firm have agreed to the fact that the
relationship with the present clients need to be better so that it can help in attracting the new
clients towards the audit firms.
What is your level in the audit firm? * Do you think that the maintaining better relationships with the client
will help in bringing new clients? Cross tabulation
Do you think that the maintaining better
relationships with the client will help in
bringing new clients?
Total

59
AUDITOR’S INDEPENDENCE
Yes No Maybe
What is your level in
the audit firm?
Partner Count 7 3 3 13
% within What is your
level in the audit firm? 53.8% 23.1% 23.1% 100.0%
% within Do you think
that the maintaining
better relationships
with the client will help
in bringing new
clients?
30.4% 20.0% 25.0% 26.0%
% of Total 14.0% 6.0% 6.0% 26.0%
Senior
Auditor
Count 9 6 3 18
% within What is your
level in the audit firm? 50.0% 33.3% 16.7% 100.0%
% within Do you think
that the maintaining
better relationships
with the client will help
in bringing new
clients?
39.1% 40.0% 25.0% 36.0%
% of Total 18.0% 12.0% 6.0% 36.0%
Assistant Count 7 6 6 19
% within What is your
level in the audit firm? 36.8% 31.6% 31.6% 100.0%
% within Do you think
that the maintaining
better relationships
with the client will help
in bringing new
clients?
30.4% 40.0% 50.0% 38.0%
% of Total 14.0% 12.0% 12.0% 38.0%
Total Count 23 15 12 50
% within What is your
level in the audit firm?
46.0% 30.0% 24.0% 100.0%

60
AUDITOR’S INDEPENDENCE
% within Do you think
that the maintaining
better relationships
with the client will help
in bringing new
clients?
100.0% 100.0% 100.0% 100.0%
% of Total 46.0% 30.0% 24.0% 100.0%
Chi-Square Tests
Value df
Asymp. Sig. (2-
sided)
Pearson Chi-Square 1.736a 4 .784
Likelihood Ratio 1.773 4 .777
Linear-by-Linear Association .897 1 .344
N of Valid Cases 50
a. 4 cells (44.4%) have expected count less than 5. The minimum
expected count is 3.12.
The result of the Chi Square test has come to be .784 where as the minimum value for the
test that was expected has to be 3.12. This shows that there is no statistical association between
the variables. Therefore, it can be stated that the other level of auditors such as senior auditors
and partners also agree to the fact that maintaining better relationships with the old clients will
help in attracting new clients for the firm as well.
What is your age?
Frequency Percent Valid Percent
Cumulative
Percent
Valid Less than 25 23 46.0 46.0 46.0
26-40 20 40.0 40.0 86.0
41 and above 7 14.0 14.0 100.0
Total 50 100.0 100.0

61
AUDITOR’S INDEPENDENCE
Do you think that the maintaining better relationships with the client will
help in bringing new clients?
Frequency Percent Valid Percent
Cumulative
Percent
Valid Yes 23 46.0 46.0 46.0
No 15 30.0 30.0 76.0
Maybe 12 24.0 24.0 100.0
Total 50 100.0 100.0

62
AUDITOR’S INDEPENDENCE

63
AUDITOR’S INDEPENDENCE
The above frequency table shows the relationship between the age of the auditors and the
degree of acceptability regarding maintain better relation with the present clients so that it can
help in getting new clients in the firm. It can be seen that most of the auditors who are less than
the age of 25 years and have agreed to the fact that maintaining better relationship with the
existing clients will help in attracting new clients towards the firm.
What is your age? * Do you think that the maintaining better relationships with the client will help in
bringing new clients? Cross tabulation
Do you think that the maintaining better
relationships with the client will help in
bringing new clients?
TotalYes No Maybe
What is your
age?
Less than 25 Count 9 10 4 23
% within What is your
age? 39.1% 43.5% 17.4% 100.0%
% within Do you think
that the maintaining
better relationships with
the client will help in
bringing new clients?
39.1% 66.7% 33.3% 46.0%
% of Total 18.0% 20.0% 8.0% 46.0%
26-40 Count 12 2 6 20
% within What is your
age? 60.0% 10.0% 30.0% 100.0%
% within Do you think
that the maintaining
better relationships with
the client will help in
bringing new clients?
52.2% 13.3% 50.0% 40.0%
% of Total 24.0% 4.0% 12.0% 40.0%
41 and
above
Count 2 3 2 7
% within What is your
age?
28.6% 42.9% 28.6% 100.0%

64
AUDITOR’S INDEPENDENCE
% within Do you think
that the maintaining
better relationships with
the client will help in
bringing new clients?
8.7% 20.0% 16.7% 14.0%
% of Total 4.0% 6.0% 4.0% 14.0%
Total Count 23 15 12 50
% within What is your
age? 46.0% 30.0% 24.0% 100.0%
% within Do you think
that the maintaining
better relationships with
the client will help in
bringing new clients?
100.0% 100.0% 100.0% 100.0%
% of Total 46.0% 30.0% 24.0% 100.0%
Chi-Square Tests
Value df
Asymp. Sig. (2-
sided)
Pearson Chi-Square 6.775a 4 .148
Likelihood Ratio 7.526 4 .111
Linear-by-Linear Association .132 1 .716
N of Valid Cases 50
a. 4 cells (44.4%) have expected count less than 5. The minimum
expected count is 1.68.
The result from the test has come to be .148 where as the minimum value that was
expected from the test has to be 1.68. This shows that there is no statistical association between
the variables. Thus it can be stated that auditors of other ages also agree to the fact that
maintaining better relationship with the existing customers can help in attracting new clients to
the firm as well.

65
AUDITOR’S INDEPENDENCE
What is your level of income (RM)?
Frequency Percent Valid Percent
Cumulative
Percent
Valid 1000-2000 12 24.0 24.0 24.0
2001-3000 15 30.0 30.0 54.0
3001-4000 14 28.0 28.0 82.0
Above 4000 9 18.0 18.0 100.0
Total 50 100.0 100.0
What other services do you provide to the clients?
Frequency Percent Valid Percent
Cumulative
Percent
Valid Management services 17 34.0 34.0 34.0
Secretarial services 20 40.0 40.0 74.0
Tax consulting services 13 26.0 26.0 100.0
Total 50 100.0 100.0

66
AUDITOR’S INDEPENDENCE

67
AUDITOR’S INDEPENDENCE
The above frequency table shows the relationship between level of income of the auditors
and the other services that the audit firms need to provide to the clients. It can be seen that the
auditors who have an income of RM 2001-3000 have agreed to the fact that they provide services
like secretarial services so that it can help in retaining its clients.
What is your level of income (RM)? * What other services do you provide to the clients? Cross tabulation
What other services do you provide to the
clients?
Total
Management
services
Secretarial
services
Tax
consulting
services
What is your level of
income (RM)?
1000-2000 Count 6 5 1 12
% within What is your
level of income (RM)? 50.0% 41.7% 8.3% 100.0%
% within What other
services do you
provide to the clients?
35.3% 25.0% 7.7% 24.0%
% of Total 12.0% 10.0% 2.0% 24.0%
2001-3000 Count 3 8 4 15
% within What is your
level of income (RM)? 20.0% 53.3% 26.7% 100.0%
% within What other
services do you
provide to the clients?
17.6% 40.0% 30.8% 30.0%
% of Total 6.0% 16.0% 8.0% 30.0%
3001-4000 Count 7 5 2 14
% within What is your
level of income (RM)? 50.0% 35.7% 14.3% 100.0%
% within What other
services do you
provide to the clients?
41.2% 25.0% 15.4% 28.0%
% of Total 14.0% 10.0% 4.0% 28.0%
Above
4000
Count 1 2 6 9
% within What is your
level of income (RM)? 11.1% 22.2% 66.7% 100.0%

68
AUDITOR’S INDEPENDENCE
% within What other
services do you
provide to the clients?
5.9% 10.0% 46.2% 18.0%
% of Total 2.0% 4.0% 12.0% 18.0%
Total Count 17 20 13 50
% within What is your
level of income (RM)? 34.0% 40.0% 26.0% 100.0%
% within What other
services do you
provide to the clients?
100.0% 100.0% 100.0% 100.0%
% of Total 34.0% 40.0% 26.0% 100.0%
Chi-Square Tests
Value df
Asymp. Sig. (2-
sided)
Pearson Chi-Square 13.566a 6 .035
Likelihood Ratio 12.964 6 .044
Linear-by-Linear Association 4.114 1 .043
N of Valid Cases 50
a. 9 cells (75.0%) have expected count less than 5. The minimum
expected count is 2.34.
The result from the test has come to be .035 where as the minimum value that was
expected from the test has to be 2.34. This shows that there is no statistical association between
the variables. Therefore, the auditors belonging to other income levels also feel that services
need to be provided to the clients so that it can help in maintaining better relationship.

69
AUDITOR’S INDEPENDENCE
Chapter 5: Conclusion and Recommendations
5.1: Conclusion
This part of the chapter allows the researcher in linking the research objectives, which
has been taken up for this particular study. It will help the researcher in taking in to consideration
the analysis along with the review of literature that has been done so that the recommendations
can be provided in a proper manner.
5.2: Linking with objectives
To identify the competitive level among the auditors regarding the independent factors
In the data analysis part it was seen that the researcher had cross tabulated between the
variables with respect to the age and other factors that has shown that the level of competition
within the audit firms in the Malaysian market is intense. Most of the auditors have to charge
fewer amounts as fees so that it can help in retaining the clients for the firm and attract the new
clients as well. The other factors such as the size ability and the education level of the auditors
also play an important part in determining the level of competition among the firm. According to
the analysis of the data, it was seen that the auditors need to provide other services to the clients
as well so that it can help the firms in retaining the old clients and form a base of new clients as
well.
To identify the factors that lead to independence of the auditors
The literature review has helped in identifying that the factors such as the the personality
of the auditors, which helps in attracting the clients towards the firm. The rules and regulations

70
AUDITOR’S INDEPENDENCE
that the auditors follow also help them in attracting the clients, as the proper methods of
verifying the financial statements of the companies need to be done so that it will not lead to any
frauds. This will help in maintaining the goodwill of the audit firm within the market place. The
size of the firm and the number of clients that the firm has helps in attracting new clients in their
organization as well so that it can increase its profit margin. The tenure with the clients will help
the organization in achieving a better goodwill in the market, as the clients will be able to
communicate the level of efficiency of the firm to their friends and relatives and help in bringing
more clients for the firms as well.
5.3: Recommendations
It can be recommended that the auditors need to provide better attention to the
rehabilitation of the of the clients so that the professional and the scientific manner, which will
help in making the impact effective in nature will help in raising the competence on a
professional level. The process of audit has to be implemented in a proper manner by the
auditors in an external manner so that it can help in reviewing the financial statements of the
company through an efficient way.
The tenure of the audit firms need to be provided to the client by the auditors so that it
can help in associating the firm and the company in a better way, which will help in the identity
of the firm in a close manner. The long associations and the audit actions that are less rigorous
may help in boosting the level of confidence among the clients. The non-audit fees have to be
charged in a competitive manner so that it can help attracting most of the clients towards a
particular institution.

71
AUDITOR’S INDEPENDENCE
The audit firms need to give importance to the clients so that the decisions can be taken
in a better manner. The decisions for engaging the audit performances need to be taken by the
partners, which may result in the independent behavior of the auditors. The main threat to the
independent nature of the auditors is associated with the high level of fees that are charged from
the clients, which are considered as barriers in the business of auditing. The fees of the clients
have to be kept at a normal rate so that it can help in maintaining a strong power of bargaining
amongst the clients.
The auditors need to be rotated on a constant basis so that it can help in improving the
factor of independence among the auditors. The rotation of the auditors within the firm will help
in reducing the efficiency of the investment when the opinions are absent within them. This will
also help in raising the clarity among the clients and the audit firms. The affiliation of the clients
with the auditors will help in creating an impact on the quality of audit.
5.4: Scope of the research
This process of research has been completed successfully and the study can be used as a
secondary source of data by other researchers as well. The researches that will be conducted in
the future can be done regarding the factors that help in influencing the independence of the
auditors, which will be of great help to the researchers in understanding the topic in a better
manner. Apart from the literature that has been reviewed, the use of the data within the research
can be utilized within the other sectors as well and not meant for the same organization only.

72
AUDITOR’S INDEPENDENCE
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Appendix
Survey Questionnaire
1) What is your age?
Less than 25
26-40
41 and above
2) What is your gender?
Male
Female
3) What is your level of education?
Bachelor
Master
PhD
4) What is your level in the audit firm?
Partner
Senior Auditor
Assistant

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5) Do you think that non-audit services need to be provided to the clients for better relationship?
Yes
No
Maybe
6) What other services do you provide to the clients?
Management services
Secretarial services
Tax consulting services
7) Do you think that the auditors need to be rotated after a period of time?
Yes
No
Maybe
8) To what extent does competition affect your business?
High
Moderate
Low
9) What is your level of income (RM)?

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1000-2000
2001-3000
3001-4000
4001 and above
10) How many years of experience do you possess?
Less than 1 year
1.1-3 years
More than 3 years
11) Do you think that the maintaining better relationships with the client will help in bringing
new clients?
Yes
No
Maybe