This paper examines four issues relating to the impact of regulatory sanctions to auditor independence: peer review; risk of disciplinary action by professional bodies, risk of action by the investigation committee of the Malaysian Institute of Accountants (MIA) and effective enforcement measures. The majority of the auditors, loan officers and senior managers of Malaysian public-listed companies that participated in this study agreed that auditor independence would be safeguarded on the existence of peer review program and there are effective enforcement activities by the regulators. The risk of being referred to professional bodies' disciplinary committees and the Investigation Committee of the MIA has been regarded to safeguard independence.
The
recent corporate and audit failures have been partly attributed
to the lack of incentives to monitor auditors' objectivity
(Shafer et al., 1999). Indeed, legal systems have
delegated powers to sanction upon different decision-making
bodies, regulatory agencies and courts to monitor auditing
practices (Garoupa and Gomez-Pomar, 2004). Regulations
are issued to help monitor the behavior of those serving
the public and to protect the public from incompetent or
dishonest practitioners (Schaefer and Zimmer, 2003). In
this context, Fearnley et al. (2002) noted that there
is a need to "encourage a culture of compliance with
the standards set and have enforcement and oversight mechanisms
in place which deter non-compliance and deal swiftly and
effectively with abuse" (p. 255). Sanctions, or punishment,
may possibly be put into effect when professionals do not
adhere to the mandates of the profession or relevant laws
(Jeffrey et al., 2004). Sanctioning seeks to compel
cooperation and to accomplish desired results by means of
the apparatus of prosecution and penalty to put into effect
the power of deterrence, where the social control of formal,
legal deterrence is imposed by detecting, prosecuting, convicting
and penalizing violators (Beyleveld, 1979). The aim of deterrence,
in the case of auditors, is to monitor unprofessional behavior
by holding out the threat of punishment.
In
the modern world, the role played by law is crucial, and
exists is everywhere (Friedman, 1977). In fact, the existence
of legal rules has become the major force that enhances
the coordination of society in various ways and exerts pressure
on people to act in accordance with the accepted norms (Schauer,
1991, pp. 1-15). According to Robertson and Hawkins (1999),
people, organizations and nations organize their daily activities
consistent with law provision and often to conform to the
rules and regulation that address an immense variety of
behaviors, although infringement of the law occurs from
time-to-time, either by complete non-compliance, or by avoiding
compliance with the apparent spirit or aim of the law. |
