The Effectiveness of Joint Auditor Requirements in Promoting Corporate Disclosure Quality

Abstract

The purpose of this study is to explore the effectiveness of requiring firms listed on the Kuwait Stock Exchange (KSE), to be audited by two external auditors on the quality of corporate disclosures. Consistent with prior disclosure research, the level of disclosure is examined using a self-constructed, item-based disclosure index. The study results show the average level of mandatory disclosures for all KSE-listed firms in 2006 was 72.6%; thus, indicating KSE-listed firms generally did not fully comply with all mandatory disclosure requirements. As KSE- listed firms are obligated to be audited by two different external auditing firms since 1995, a constant sample approach was used to assess the quality of corporate disclosures pre and post this requirement. The results show that average level of mandatory disclosure was 75% in 1994, and 78% in 2006, an increase of 4% over a 12 years period. The findings of the present study have a direct implication for the effectiveness of this requirement in promoting corporate disclosure quality. Given empirical evidence of widespread non-compliance with mandatory disclosure requirements, the results of this study are likely to raise questions about the quality and reliability of requiring two external auditors and the associated cost-benefit of this requirement for KSE-listed firms.