Auditor‐client relationship: the case of audit tenure and auditor switching in Malaysia

Purpose - The main purpose of this paper is to examine one aspect of auditor‐client relationship, namely audit tenure and switching behaviour, and factors affecting it. Lengthy audit tenure with the same client has been cited as one of the threats to auditor independence. Given the importance of this issue, this research attempts to shed some light on the effect of audit tenure and switching behaviour on auditor independence in Malaysia. Design/methodology/approach - This study evaluates the effects of various independent variables on switching behaviour and audit tenure using logistic regression analysis. Findings - An examination of 297 companies listed on the Kuala Lumpur Stock Exchange over a period of 11 years reveals audit firm switching to be significantly associated with distressed large clients and that the length and direction of switch depend upon the type of audit firm. Research limitations/implications - A number of important variables such as corporate governance characteristics, audit and non‐audit fees and types of audit opinion that could enhance our understanding of audit tenure and auditor switching in Malaysia, were not incorporated into our regression models. Hence, future studies may consider such variables. Originality/value - This study is the first conducted using Malaysian data where audit tenure and switching are used as dependent variables. The results have important implications on the auditing profession and regulators in Malaysia.