Audit quality and abolition of mandated joint-audits: evidence from Kuwait

Abstract

PurposeStatistical analysis is based on annual data collected from 132 Boursa Kuwait listed firms from 2016 to 2019 (i.e. yielding 528 firm-year observations). During the observation window (i.e. 2016 to 2019) 116 firms switched from joint-to solo-audits. Level and change models test if audit quality (proxied by abnormal accruals) is impacted by joint-/solo-audit switching. Therefore this paper explores the audit quality following abolition of mandated joint-audits in Kuwait.Design/methodology/approachThis paper investigates the impact on audit quality following abolition of mandated joint-audit requirements in 2016 in Kuwait. The study is differentiated from prior analysis by focusing on an emerging economy setting, and by considering a more expansive set of joint-audit pairings, solo-audit types and switching options.FindingsAbolition of mandated joint-audit requirements prompted a majority of Boursa Kuwait listed firms to switch to solo-audits. Analysis indicates that switch does not significantly decrease audit quality. Also, audit quality changes are not dependent on the specific joint-audit pairing/solo-audit type switch.Research limitations/implicationsAnalysis is based on a single national setting comprising a small set of firms. Nonetheless, results imply the impact of joint-/solo-audit switching following abolition of mandated requirements is more universal with generalizability to different economic settings.Practical implicationsResults indicate that following elimination of mandated joint-audit requirements, firms have a propensity to favor solo-audits. Irrespective of the joint-audit pairing and solo-audit type, findings show a joint-/solo-audit switch does not compromise audit quality.Originality/valueAnalysis is the first to investigate the impact of joint/solo-audit switches on audit quality in an emerging economy with tests considering more joint-audit pairings than assessed previously.