This paper examines the effect of auditor tenure and provision of non-audit services on earnings conservatism. Following Basu (1997), we measure earnings conservatism by using the asymmetric timeliness of earnings model and the time-series test of timeliness in loss recognition model. Using a sample of 2,235 company-year observations from the period 2005-2008, we present evidence that auditor tenure and non-audit services are positively associated with earnings conservatism. These results are robust even after controlling for company size, leverage and growth. We further examine the influence of government-linked companies on the relationship between (1) auditor tenure, (2) provision of non-audit services, and earnings conservatism. We find that our main results hold for non-government linked companies. For government linked companies, we find no association between auditor tenure and earnings conservatism, while the provision of non-audit services is negatively associated with earnings conservatism. This result implies that high provision of non-audit services to government-linked companies lead to impairment of auditor independence. Our additional analysis also shows that auditor tenure and provision of non-audit services are associated with higher earnings conservatism, regardless of whether the companies are audited by industry specialist or non-industry specialist.
|Title of host publication||2010 AFAANZ Conference|
|Place of Publication||Melbourne, Australia|
|Publisher||Accounting and Finance Association of Australia and New Zealand|
|Number of pages||34|
|Publication status||Published - 2010|
|Event||Accounting and Finance Association of Australia and New Zealand (AFAANZ) conference - Darwin, Darwin, Australia|
Duration: 3 Jul 2011 → 5 Jul 2011
|Conference||Accounting and Finance Association of Australia and New Zealand (AFAANZ) conference|
|Abbreviated title||AFAANZ 2011|
|Period||3/07/11 → 5/07/11|
Kamarudin, K. A., Dunstan, K., & van Zijl, T. (2010). Auditor tenure, non-audit services and earnings conservatism: Evidence from Malaysia. In 2010 AFAANZ Conference (pp. 1-34). Accounting and Finance Association of Australia and New Zealand.