The Effects of Politically Connected Audit Committees on the Audit Process: Evidence in Malaysia

Abstract

This study aims to contribute to an understanding of politically connected audit committees on the audit process in an emerging market, namely Malaysia. The study seeks to examine whether politically connected audit committees have an impact on the audit process. An in-depth analysis of the interviews from the external auditor, audit partners and audit committees further reveal that political connections do affect the audit process. It appears that the existence of political connections leads to an increase in audit work such in a variety of ways, such as auditor-client negotiations, private meetings with audit committees, re-engineering the scope and planning of the actual audit work. One of the issues that emerges from these findings is that companies highly value political connections to obtain external resources given the uncertainties in the business environment. The findings highlight the need for stronger corporate governance to mitigate the higher audit risks in such companies.