This study examines the association between audit and non-audit services and auditor independence in family-owned business in Malaysia. Since businesses in Malaysia and other Asian countries are known to be associated with family-owned firms, this study attempted to explore auditor independence in issuing audit reports in family-owned companies and its‟ sustainability in Malaysian capital market. To achieve these objectives, this study examines whether or not the reduction in audit fee as a result of performing non-audit services determines independency of audit reports. The study also determines whether auditor report independency is affected when auditors perform dual functions (audit and non-audit services). And lastly the study examine whether auditor reports in family-owned companies are less qualified relative to nonfamily-owned companies. In measuring auditor independence, the researcher employed audit opinion as the proxy since this is a more relevant and direct way of measuring auditor independence. Furthermore, audit opinion is the most significant and express way of assessing auditor independence. Thus, this study applied panel data analysis of 2009 and 2010 which provided a context in which all these relationships could be examined after regulations were introduced (Bursa Malaysia Listing Requirement, effective date 1 June 2001). Results show that in family- owned companies, there is a knowledge spillover flow to the auditors as a result of providing non-audit services. Meanwhile, in family-owned companies in Malaysia, there is no association between non-audit services and the issuance of qualified report. This is an indication that in family-owned companies, auditor independence is not jeopardized. The sustainability of family-owned companies operating in Malaysia is not questionable. These findings contribute to the policy implication to differentiate the rules for family-owned companies and nonfamily- owned companies. These findings also contribute to theoretical knowledge by including the issue of non-audit services in family-owned companies.