Printed in U.S.A. Auditors ’ Response to Political

• Other Authors: The Pennsylvania State University CiteSeerX Archives
• Format: Text
• Language: English
• Published: 2005
• Subjects: ments of an anonymous reviewer; Jere Francis; Bin Srinidhi; Chung-ki Min; Dan Simunic; Sami; sami
• Online Access: http://citeseerx.ist.psu.edu/viewdoc/summary?doi=10.1.1.528.8189; http://www.af.polyu.edu.hk/profile/gul/2006 Gul JAR.pdf

This paper extends the literature on the role of political economy in fi-nancial reporting and auditing by testing two hypotheses. The first hypothesis predicts that there will be a greater increase in audit effort and audit fees for Malaysian firms with political connections, as a result of the Asian finan-cial crisis, than for non-politically connected firms because these firms have a higher risk of financial misstatements. The second hypothesis predicts that the audit fees of politically connected firms will decline when capital controls are introduced by the government as a ploy to financially assist politically con-nected firms to rebound from the crisis, and thus reduces the risk of financial misstatements. The results show that there is a greater increase in audit fees for firms with political connections than for non-politically connected firms as a result of the Asian financial crisis. However, there is a decline in audit fees for politically connected firms after the capital controls are implemented. 1.