Joint Audit and the Timeliness and Quality of Financial Reporting in Saudi Arabia

Abstract

This study investigates the impact of joint audit on two important aspects of financial reporting, timeliness and quality, in an emerging market. The analysis is important given the continuing debates among scholars and regulators regarding the advantages and disadvantages of joint audit and the need for mechanisms that improve audit function and minimise audit failures. Using three joint audit combinations (i.e., two Big 4 auditors, one Big 4 and one non-Big 4 auditor, and two non-Big 4 auditors), this study provides a thorough understanding of the associations between joint audit and financial reporting timeliness and quality for Saudi Arabian listed financial firms for the period from 2009 to 2020. The final sample used for the analysis of the impact of joint audit on the timeliness of financial reporting was 525 firm-year observations, while the final sample used for the analysis of the impact of joint audit on financial reporting quality ranged from 474 to 525 firm-year observations. Results from this study suggest that the combination of two Big 4 auditors is statistically significantly associated with lower audit report lag and a lower possibility of client firms engaging in earnings management by reporting small positive earnings or small earnings increases over the years. In contrast, results indicate that the combination of one Big 4 and one non-Big 4 auditor is statistically significantly associated with higher audit report lag and a greater likelihood of client firms resorting to earnings management by reporting small positive earnings. The results derived from this research have significant implications for various stakeholders, including regulators, investors, scholars, corporate management, and auditors.