Alfraih, 2016

Journal of Financial Regulation and Compliance
Corporate governance mechanisms and audit delay in a joint audit regulation

Mishari M. Alfraih,
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JFRC
24,3
Corporate governance
mechanisms and audit delay
in a joint audit regulation
292 Mishari M. Alfraih
Department of Accounting, College of Business Studies,
The Public Authority for Applied Education and Training, Kuwait, Kuwait
Abstract
Purpose – This paper aims to examine the influence of corporate governance mechanisms on audit
delay in companies listed on the Kuwait Stock Exchange (KSE) in 2013. Kuwait has the unusual audit
regulation that listed companies must be jointly audited by two independent auditors who both sign the
report.
Design/methodology/approach – Audit delay is measured as the number of days that elapse
between the end of the company’s financial year and the date of the audit report. A multivariate
regression model analyzes the association between audit delay and six corporate governance
mechanisms, namely, joint auditor combination, board size, board independence, role duality,
institutional ownership and government ownership.
Findings – There is a wide range in audit delay among KSE companies, ranging from 7 to 159 days.
After controlling for various company characteristics, there is a significant difference in the timeliness
of audit reports depending on the combination of auditors: audit delay is significantly reduced when the
audit is performed by Big-4 companies. Moreover, companies with larger boards, a greater number of
independent directors and separate CEO– chairman roles are more likely to produce timely financial
statements. Higher government ownership levels were associated with greater audit delay, while no
significant association was found for institutional ownership. These results are robust to a variety of
sensitivity checks.
Practical implications – The findings highlight the effectiveness of corporate governance
mechanisms in shaping the timeliness of audit reports; thus, these mechanisms should be taken into
account in any regulatory action to reduce audit delay. In addition, the findings of this study provide
empirical evidence that can be used by regulators and enforcement bodies in their continued campaigns
promoting the role and importance of corporate governance mechanisms in improving the quality and
timeliness of financial reporting.
Originality/value – The study extends the audit delay literature by investigating the issue in a joint
audit setting. The empirical evidence shows a wide range of audit delay in KSE-listed companies, which
raises questions about the costs and benefits of the joint audit regulation for the length of this period.
Keywords Auditing, Annual report, Accounting regulation, Capital markets
Paper type Research paper
1. Introduction
The International Accounting Standards Board’s Framework for the Preparation and
Journal of Financial Regulation
and Compliance Presentation of Financial Statements states that the objective of financial statements is
Vol. 24 No. 3, 2016
pp. 292-316
to “provide information about the financial position, performance and changes of
© Emerald Group Publishing Limited
1358-1988
financial positions of an entity that is useful to a wide range of users in making economic
DOI 10.1108/JFRC-09-2015-0054 decisions” (IASB, 2014). Kothari (2001) observed that market participants seek
high-quality accounting information to mitigate information asymmetry between Joint audit
company managers and outside investors. However, even high-quality financial regulation
statements are of little use to market participants seeking to make investment decisions
if they contain stale accounting information (Owusu-Ansah, 2000).
Francis et al. (2004) identify seven desirable attributes of accounting quality: accrual
quality, persistence, value relevance, timeliness, predictability, smoothness and
conservatism. They find that the timely dissemination of financial statements, among 293
other factors, is one of the most important characteristics of accounting quality. Their
findings are supported by Owusu-Ansah (2000), who claims that the timely
dissemination of financial statements is an essential ingredient for the proper
functioning of capital markets, as it helps to mitigate the effects of insider trading, leaks
and rumors. Marshall et al. (2015) argue that delays in the publication of audited
financial statements are associated with investors having less confidence in earnings
announcements.
The timeliness of financial statements has been the focus of increasing attention by
regulatory bodies worldwide (Leventis et al., 2005). For example, the US Securities and
Exchange Commission (SEC) has adopted rules that shorten reporting deadlines for US
companies and require them to file their annual reports no later than 60 days (previously
90 days) after the fiscal year end, and to file their quarterly reports no later than 35 days
(previously 45 days) after the end of each quarter (SEC, 2002). The issue of timely
reporting has received similar attention from the Commission of the European Union
(EU), reflected in the Transparency Directive, which states that, “timely information
about security issuers builds sustained investor confidence and allows an informed
assessment of their business performance and assets. This enhances both investor
protection and market efficiency” (EU, 2004, Para. 1).
Therefore, both theoretical and empirical evidence suggest that decisions based on
financial statement information may be affected by the timeliness of its release (Imam
et al., 2001). However, there is an inevitable time gap between the end of the financial
accounting period and the time when the audited financial statements are made public
(Bonsón-Ponte et al., 2008). Accounting information must be made available to decision
makers while it is still relevant and can have an influence on decisions; too late, and it is
no longer useful (IASB, 2014; Davies and Whittred, 1980; Givoly and Palmon, 1982). As
a result of the dramatic changes in both modern technology and business practices
worldwide, Owusu-Ansah and Leventis (2006) argue that the timeliness of accounting
information is more important than ever before.
The literature reports that the shorter the time that elapses between the end of the
company’s financial year and the release of its financial statements, the more useful the
information is (Khasharmeh and Aljifri, 2010). Similarly, Knechel and Payne (2001)
argue that the value of financial statements diminishes as the time between the end of
the company’s fiscal year and the release of its financial statements increases (because
competitors obtain information from substitute sources). However, much of this
literature is focused on developed markets, while little attention is given to emerging
markets. It has been argued that audit delay is a particularly critical issue in emerging
capital markets, where audited financial statements are the only reliable source of
information available to investors (Leventis et al., 2005). In particular, Bushee et al.
(2010) highlight that press coverage significantly affects the information environment of
businesses, and increases the amount of published information. In Kuwait (unlike the
JFRC USA or other Western countries), limited press coverage means that such information is
24,3 not readily available, and is therefore less influential.
Globally, various recent regulatory actions suggest that the timely reporting of
financial information has become a top priority for investors and regulators (Schmidt
and Wilkins, 2013). Bamber et al. (1993) suggest that research on the determinants of
audit delay is important because it affects the timeliness of both audit and earnings
294 information and therefore market efficiency. Understanding the factors underlying
audit delay is likely to provide insights into audit efficiency. Furthermore, investors in
emerging markets rely heavily on firm’s financial statements, and investors and
regulators need to understand the causes of audit delay.
Therefore, this study examines the effectiveness of internal and external corporate
governance mechanisms on audit delay for companies listed on the Kuwait Stock
Exchange (KSE). Kuwait has the unusual audit requirement that listed companies must
be jointly audited by two independent auditors, who both sign the audit report. To the
best of the author’s knowledge, there is no prior research into the timeliness of audit
reports in a joint audit environment.
The study is based on a sample of companies listed on the KSE in 2013. Consistent
with prior research, the audit delay was measured as the number of days that elapse
between the end of the company’s financial year and the date of the audit report.
Multivariate regression was used to analyze the association between audit delay and six
internal and external corporate governance mechanisms, namely:
(1) the combination of joint auditors;
(2) board size;
(3) board independence;
(4) role duality;
(5) institutional ownership; and
(6) government ownership.
The descriptive results show that there is a wide range in audit delay in KSE-listed
companies, ranging from 7 to 159 days. After controlling for various company
characteristics, the analysis reveals significant differences in the timeliness of KSE
audit reports across the three possible auditor combinations. The timeliest reports were
provided by companies audited by two Big-4 audit firms, followed by companies
audited by one Big-4 and one non-Big-4 firm, followed by companies audited by two
non-Big-4 audit firms.
These findings highlight the importance of the quality and rigor of external audits in
reducing audit delay. They imply that Big-4 auditing firms act significantly faster than
their non-Big-4 counterparts. They also suggest that companies with bigger boards,
with a greater number of independent directors and where the roles of CEO and
chairman are separate are more likely to disseminate their audited financial statements
on time. Government ownership appears to significantly increase audit delay, while no
significant association was found with institutional ownership. These findings should
be of interest to regulators, boards of directors and investors interested in the timeliness
of financial statements and corporate governance mechanisms. The study highlights
the influence of corporate governance mechanisms on the timeliness of audit reports.
Thus, any regulatory action to reduce audit delay should take such mechanisms into Joint audit
account. regulation
The paper is organized as follows. Section 2 discusses the regulatory framework
concerning accounting, auditing and corporate governance in Kuwait, and its impact on
companies listed on the KSE. Section 3 outlines the theoretical and empirical literature
on the determinants of audit delay and posits the six hypotheses to be tested. Section 4
presents the study’s research design. Section 5 contains the results of the data and 295
sensitivity analysis. Section 6 concludes with a summary and discussion of the results,
and an outline of the study’s major contributions and implications.
2. Corporate governance and the equity market in Kuwait

Formally opened in August 1983, the KSE is relatively young compared to other stock
markets; however, it has significantly expanded over the years and has caught the
attention of both domestic and international investors. Several factors have contributed
to the KSE’s growth, including the increased profits of listed companies, growth of
capital inflows from domestic and international sources, higher oil prices, political
stability, the Kuwaiti Government’s economic reforms and the privatization of some of
the country’s state-owned enterprises (KSE, 2014). Despite this progress, corporate
governance mechanisms are either poorly developed or do not exist (Al-Saidi and
Al-Shammari, 2014). Alanezi and Albuloushi (2011) highlight the lack of corporate
governance regulations or codes of best practice applicable to KSE-listed companies.
Nevertheless, the Commercial Companies Law No. 15 of 1960 and its amendments set
out the broad roles and responsibilities of the board of directors. These include the
minimum number of board meetings, and the number of directorships and
chairmanships that a director can hold. Shareholders must approve transactions in
which a director may have a direct or indirect interest and must authorize a ceiling for
remuneration.
With respect to financial information, the Commercial Companies Law requires
companies to provide annual, audited financial statements; however, it does not provide
guidelines for preparing these statements, other than stating that they be prepared in
accordance with “generally accepted accounting standards” to reflect a “true and fair
view” of the company’s position. Furthermore, there is no definition of “generally
accepted accounting standards”. To mitigate this ambiguity, on April 17, 1990, the
Ministry of Commerce and Industry (MCI) issued Resolution No. 18, which effectively
mandated adoption of International Financial Reporting Standards (IFRS) for all
companies operating in Kuwait, as well as those listed on the KSE, for the financial
period beginning January 1, 1991 (MCI, 2014).
Both the Law of Commercial Companies (LCC) and External Auditing Law No. 5/
1981 govern the preparation of the audited financial statements of KSE-listed
companies. Under Article 161 of the LCC, the board should appoint at least one external
auditor at the company’s general meeting. This article was amended in August 1994 to
require a company to have at least two external auditors from different auditing firms,
effective for financial statements beginning January 1, 1995. This requirement is
considered to be one of the unique features of financial reporting in Kuwait, as most
countries only require one external auditor. KSE-listed company auditors must be
independent and not, for example, be founders or board members. Moreover, auditors
cannot provide administrative, technical or consulting support to the company on a
JFRC permanent basis. Article 163 of the LCC allows auditors to inspect KSE-listed company
24,3 books at any time and request any documents they deem necessary. If managers refuse
to comply with this request, the auditor must report the matter to the board of directors
and the shareholders.
To qualify as an auditor of KSE-listed company accounts, firms must register with
the MCI. External auditors are appointed, and their remuneration is determined at a
296 general meeting of shareholders. If the company receives a qualified audit report, a
representative from the MCI’s Companies Department must attend the general meeting
of shareholders and call the matter to their attention. After receiving clarification from
the auditors, shareholders have the right to take action, including dismissing managers,
members of the board or the firm’s external auditors (Article 178). It should be noted that
auditors are fully responsible for ascertaining that their reports are correct. Under the
LCC, auditors are considered agents of the shareholders; therefore, each shareholder
has the right to question audits and receive a full explanation for any matters raised
(Article 165).
Article 93 of the LCC requires KSE-listed companies to submit their annual financial
statements to the MCI and distribute them to shareholders. Specifically, they must
submit their annual, audited financial statements to the MCI within 90 days of the close
of the financial year, and at least two weeks before their annual shareholder meeting.
KSE-listed firms are required to publish both their financial statements for the previous
financial year, and the names of directors and auditors in the official gazette. The timely
submission of financial statements is the only MCI requirement for the renewal of a
company’s license.
Under Article 178 of the LCC, the MCI’s Control Department is responsible for
ensuring that listed companies comply with prescribed requirements and regulations.
The Department must ensure that companies submit their annual, audited financial
statements to the registrar on time. Upon submission, the Department checks that
statements comply with the LCC and IFRS. If this check uncovers any irregularities, and
the auditors fail to address the issue, the Control Department investigates the matter
with the company’s directors and its auditors. Should this confirm that the company has
violated the law, the Control Department reports the matter to the MCI’s Companies
Department, which may arrange a shareholders’ meeting. The violation is presented to
shareholders, who decide what action to take. If they decide to pursue legal action, the
MCI refers the case to a commercial court for a hearing and appropriate action.
3. Hypotheses
Several studies have looked at the factors that affect the timeliness of financial
statements (Ashton et al., 1989), and the empirical evidence suggests that the duration of
the external audit is most influential (Owusu-Ansah, 2000). For example, Givoly and
Palmon (1982) suggest that the single most important determinant of the timeliness of
earnings announcements is the time taken for the audit, a finding that is confirmed by
Leventis et al. (2005). Chambers and Penman (1984) found that when returns were
reported later than expected, they tended to be negative; the failure to report on time was
therefore interpreted by investors as a forecast of bad news. Bamber et al. (1993) argue
that delays in releasing financial information encourage investors to acquire costly
private information, and exploit it at the expense of the “less informed” investors.
Soltani (2002) suggest that reduced audit delay has a positive impact on reporting. Joint audit
Bamber et al. (1993) define audit delay as the time that elapses between the end of a regulation
company’s fiscal year and the date of the audit report. They go on to argue that it is one
of the few, externally observable output variables that allows outsiders to gauge audit
efficiency. Audit delay can affect the timely release of accounting information, and it is
well-known that market is sensitive to timeliness (Ashton et al., 1987). Auditing is a
time-consuming activity; therefore, audit requirements can conflict with the 297
requirement to provide timely reporting, and adversely affect the promptness of
financial statements (Ashton et al., 1987). Consequently, a substantial body of empirical
research has explored the determinants of audit report timeliness. These studies
indicate that audit delay is affected by several factors, such as firm size, industry
classification, profitability, probability of bankruptcy, operational complexity, leverage,
type of auditor and audit fees (Davies and Whittred, 1980; Givoly and Palmon, 1982;
Ashton et al., 1989; Bamber et al., 1993; Ng and Tai, 1994; Jaggi and Tsui, 1999;
Owusu-Ansah, 2000; Knechel and Payne, 2001; Leventis et al., 2005; Bonsón-Ponte et al.,
2008; Afify, 2009; Habib and Bhuiyan, 2011; Habib, 2015).
Corporate governance is another influential factor that has been put forward in the
literature. Prior research has posited that it plays an important role in shaping and
enhancing financial reporting (Fama and Jensen, 1983). Cohen et al. (2004) argue that one
of its most important functions is to ensure the quality of the financial reporting process,
while other authors have proposed numerous internal and external governance
mechanisms including the board of directors, external audit and ownership structures
(Haniffa and Hudaib, 2006). Nelson and Shukeri (2011) argue that strong corporate
governance mechanisms can reduce client-related risks and limit the need for
substantive testing, thereby improving audit timeliness.
In the emerging markets context, Khasharmeh and Aljifri (2010) empirically examine
audit delay in Bahrain and the United Arab Emirates (UAE). Their findings show that
the mean audit delay in 2004 for companies listed on the Bahrain Stock Market was 52
days, ranging from 24 to 82 days. For companies listed on the UAE Stock Markets, they
document that the mean audit delay was 44 days, ranging from 10 to 100 days. In
examining the determinants of audit delay, Khasharmeh and Aljifri (2010) document
that debt ratio, dividend payout ratio, sector type and profitability had a strong
influence on the timeliness of annual reports in Bahrain. In the UAE, the study shows
that only audit type and debt ratio were significant determinants of audit delay.
Using a sample of companies listed on the Egyptian stock markets, Afify (2009)
empirically examines the impact of corporate governance characteristics on audit delay.
The study findings show that the mean audit delay for listed Egyptian companies for
the year 2007 was 67 days, ranging from 19 to 115 days. For corporate governance
variables, Afify (2009) shows that board independence, duality of CEO and existence of
an audit committee had a significant effect on audit delay. For company characteristics,
Afify (2009) reveals that company size, profitability and industry classification were
significant determinants of audit delay. Alkhatib and Marji (2012) investigate audit
delay determinants among Jordanian listed companies and show that profitability ratio,
type of audit firm and company size were negatively associated with audit delay. In their
examination of the determinants of audit report lag in the Nigerian emerging markets,
Ayemere and Elijah (2015) show that a firm’s financial performance, audit firm type and
number of subsidiaries had a significant impact on audit delay.
JFRC This section discusses the theoretical background for the relationship between
24,3 internal and external corporate governance mechanisms and the timeliness of audit
reports. The mechanisms include the external audit, the board of directors’
characteristics and ownership structures. Based on a review of the literature, six
research hypotheses are developed regarding the role of the composition of the external
auditor pair, board size, director’s independence, role duality, institutional ownership
298 and government ownership on the timeliness of audit reports.
3.1 Composition of external auditor pair

External audit plays a significant role in monitoring the quality of financial reporting,
and hence can be viewed as an important part of the governance process (Cohen et al.,
2004). DeFond and Zhang (2014) document that the auditing literature divides external
auditing firms into larger (Big-4) and smaller (non-Big-4) companies. Ashton et al. (1989)
argue that Big-4 auditors, due to their experience, may be more efficient than non-Big-4
companies; therefore, it may be reasonable to expect that they would complete their
work on a timelier basis. Similarly, Bonsón-Ponte et al. (2008) claim that Big-4 auditors
employ more staff than non-Big-4 firms, which helps to reduce the time needed for
auditing. Lawrence and Glover (1998) argue that Big-4 auditors have more incentive to
finish their work quickly to maintain their reputation. Abidin and Ahmad-Zaluki (2012)
suggest that Big-4 auditors perform significantly faster than their non-Big-4
counterparts because they have access to better audit technology. Similarly, Leventis
et al. (2005) posit that Big-4 auditors complete audits more quickly because of greater
resources, higher-quality staff and superior audit technology. In an empirical study,
Leventis et al. (2005) examine the timely publication of corporate financial information,
and find that audit delay is significantly reduced when a Big-4 auditor is appointed.
Several other studies have also found a significant association between auditor type and
audit delay (Ashton et al. 1989; Imam et al., 2001; Owusu-Ansah and Leventis 2006;
Schmidt and Wilkins, 2013); therefore, it is expected to play an important role in the
timeliness of audit reports.
Although the literature has documented the significant role of the quality of the
external auditor, little is known about what happens in a joint audit context. In Kuwait,
corporate law requires a listed company to appoint two external auditors from separate
auditing firms, who work together and produce a single audit report signed by both
firms. The combination of auditors varies from company to company and, consequently,
can cause variations in the timeliness of reports. Firms audited by international, Big-4
auditors are expected to produce more timely financial statements than those audited by
non-Big-4 companies. However, in Kuwait, the situation is more nuanced, as there are
three potential auditor combinations (two Big-4, two non-Big-4 or one of each), and a
more detailed analysis can be made of the influence of Big-4 auditors on audit delay.
Accordingly, this study hypothesizes that:
H1. Audit delay is negatively associated with the number of Big-4 auditing firms
that audit a firm’s financial statements.
3.2 Board size

The board of directors maintains overall responsibility for financial statements and the
information that is issued. It serves as a principal intermediary between the parties in
the financial reporting process (e.g. corporate management, internal and external
auditors) and has a key oversight function (Sultana et al., 2015). Fama and Jensen (1983) Joint audit
argue that the board acts as an effective executive decision control mechanism for regulation
dealing with agency problems caused by the separation of ownership and control.
However, there is no consensus on whether larger or smaller boards improve the
quality of financial reporting (Williams et al., 2005). Although the relationship is
complex, it has been argued that larger boards are less effective at monitoring, due to the
difficulty of coordinating their activities and the potential for directors to “free-ride” 299
(Clatworthy and Peel, 2010). From an efficiency perspective, research shows that smaller
boards may be more effective in terms of coordination and efficiency, communication
and decision-making, which would suggest better monitoring of management and
higher-quality financial reporting (Jensen, 1993). Similarly, Bliss (2011) argues that
larger boards are an inefficient corporate governance mechanism, as:
• they take longer to make decisions;

• they suffer from poor communication and coordination; and
• they are more easily manipulated by senior management or a dominant CEO.
In the same vein, Christensen et al. (2010) argue that smaller boards improve reporting
because the monitoring benefits associated with larger boards are outweighed by their
poor communication and slow decision-making. In an empirical study, Li et al. (2014)
document a significant positive relation between the size of the board of directors and
audit delay. Habib (2015) argues that as long as the board of directors is able to
efficiently and effectively monitor managerial behavior, audit delay is likely to be short,
as control risks are assessed as lower. As smaller boards are expected to be more
effective in terms of coordination, efficiency and communication, a positive relationship
between board size and audit delay is expected. Accordingly, this study hypothesizes
that:
H2. There is a positive association between the size of board of directors and audit
delay.
3.3 Independence of the board directors

Boards of directors generally include outside members (nonexecutive directors), who are
not internal, company managers. Outside board members often act as arbiters in
disagreements among internal managers, and handle agency problems.
Board independence has been regarded as one of the key determinants of its ability to
protect investor’s interests (Fama and Jensen, 1983). There is considerable literature
suggesting that boards should consist of a majority of nonexecutive directors, both to
alleviate moral hazard problems arising from the separation of ownership and control
and to enhance the audit process (Bradbury et al., 2006; Bliss, 2011). Carcello et al. (2002)
document that independent directors take their monitoring role more seriously and are
more supportive of external auditors. They are ready to pay for a higher-quality audit to
protect their reputation capital, avoid legal liability and promote the interests of
shareholders. Similarly, Peasnell et al. (2000) argue that director’s independence and
integrity play a key role in ensuring the quality and reliability of published financial
statements. Their study highlights the special contribution that nonexecutive directors
make in constraining earnings management, and hence improving the quality of
reporting. These findings support the notion that board effectiveness is a positive
JFRC function of the proportion of outside members. Carcello et al. (2002) hypothesize that a
24,3 more independent board takes greater responsibility for monitoring, which reduces the
auditor’s assessment of control risk; as this allows the auditor to limit the scope of their
work, it improves the timeliness of audits.
It has been argued that corporate governance factors significantly influence auditor
decisions relating to the audit process, including their opinion (Cohen et al., 2004). For
300 example, Cohen and Hanno (2000) found that both the managerial control philosophy
and corporate governance structures significantly affected control risk assessments and
substantive testing. They suggest that auditors take the overall corporate governance
structure into account in the audit. In terms of the quality of financial reporting, this
implies that auditors consider that companies with a strong board have less risk that
management will overstep its bounds when presenting its financial position. A strong
corporate governance structure may influence the assessed level of inherent and control
risks. In turn, this affects the nature, timing and extent of the audit, and leads to timelier
reporting. Accordingly, this study hypothesizes that:
H3. There is a negative association between the proportion of independent outside
directors and audit delay.
3.4 Role duality

Board duality is a corporate structure that merges the positions of board chairman and
CEO. Haniffa and Cooke (2002) argue that CEO– chairman duality could improve
managerial monitoring, as it required less contracting and reduced information
asymmetry. While it is not necessarily a problem, separating the two roles is more
likely to provide essential checks and balances on management performance
(Haniffa and Hudaib, 2006). Bradbury et al. (2006) argue that the role of the board
chair is to monitor the CEO; however, there is likely to be a lack of independence
between management and the board if the CEO holds both roles. Fama and Jensen
(1983) suggest that CEO duality can hinder the board’s ability to monitor
management and thereby increase agency costs. The Cadbury Committee Report
(1992) discourages CEO duality, due to the perceived conflict of interest when one
person occupies both positions (Bliss, 2011). Haniffa and Cooke (2002) argue that
splitting the two roles provides better control over managerial functions and
performance, whereas the combined CEO– chairman can control the rest of the
board, select agenda items and pick its members. Afify (2009) claims that the
structure makes it easier to withhold unfavorable information from outsiders. Peel
and Clatworthy (2001) argue that external auditors perceive the risk of audit failure
to be higher when the roles of chairman and CEO are combined, as there is more
scope to conceal or misrepresent relevant facts, or perpetrate fraud.
Board duality therefore suggests that a more extensive audit will be conducted,
leading to a longer delay. Empirically, Afify (2009) documented a significant positive
impact of role duality on audit delay. As separating the two roles increases the strength
of internal controls and reduces risk, leading to more timely audits, this study
hypothesizes that:
H4. There is a positive association between board role duality and audit delay.
3.5 Institutional ownership Joint audit
It has been widely argued that institutional investors are an important corporate regulation
governance mechanism that contributes to the reduction of agency costs, presumably
due to their ability and incentive to monitor and discipline corporate managers
(McConnell and Servaes, 1990; Velury et al., 2003; Aljifri and Moustafa, 2007). Barako
et al. (2006) argue that institutional investor’s large stake gives them stronger incentives
to monitor corporate disclosure practices. Managers are encouraged to voluntarily 301
release corporate information to meet the expectations of large shareholders. Rose (2007)
claims that institutional investors are effective corporate governance tools because they
can discipline management, and alleviate the free-rider problem associated with
dispersed ownership. Bradbury et al. (2006) found that greater institutional ownership
reduces the incidence of absolute discretionary accruals and income increasing accruals,
once again suggesting that institutional owners play an active role in monitoring
management. Similarly, McConnell and Servaes (1990) argue that institutional
investors’ expertise means that they can actively monitor management. As audited
financial statements are used for monitoring purposes and investment decisions, it is
likely that management would choose higher-quality auditors to improve the quality of
their financial reporting. Choi et al. (2013) highlight that institutional investors can be
active monitors of a firm’s operations, and that they exert an effective influence over
management decisions through their substantial voting rights.
Previous studies have provided empirical evidence that institutional investors
discourage managers from distorting or enhancing accounting information. Hsu and
Koh (2005) indicate that institutional investors play an active role in improving
information efficiency in the capital market. Bamber et al. (1993) posit that audit delay
increases as a function of the extent of audit work, and decreases with incentives to
provide a timely report. They document that audit delay is influenced by the business
risk that the auditor associates with the client. For example, the more widely held the
client’s shares, the greater the number of investors that rely on their financial
statements. This increases both the client’s and the auditor’s exposure to risk and
litigation, thus increasing the auditor’s business risk. Therefore, audit delay is expected
to be negatively associated with the concentration of ownership.
Given the effectiveness of institutional investors as a corporate governance tool to
monitor and discipline corporate managers, and their demand for the timely
dissemination of financial statements, the following hypothesis is tested:
H5. There is a negative association between the level of institutional ownership and
audit delay.
3.6 Government ownership

In many countries, the government is a principal owner of corporations. Niemi (2005)
states that government ownership differs from other forms of ownership, while Denis
and McConnell (2003) explain that it represents an interesting hybrid of dispersed and
concentrated ownership. Unlike private blockholders, the firm is funded by money that
ultimately belongs to the government as a whole, and not to the individuals within it.
Despite their majority ownership, Chen et al. (2011) argue that governments do not
exercise effective control. This rests primarily with insider-managers, who are often
themselves controlled in various ways by ministerial associates who do not always act
in the interests of shareholders.
JFRC Chen et al. (2011) document that governments have no incentive to select the best
24,3 managers or ensure that companies operate efficiently. Consequently, managers can
control every aspect of decision-making with no proper monitoring, resulting in poor
operating performance. Wei (2012) argues that government ownership leads to
inefficient management, as such firms are often used for political purposes (e.g. to
channel benefits to supporters). As an inefficient management team may be less willing
302 to disclose their financial statements on a timely basis, greater audit delays can be
expected.
Mak and Li (2001) argue that government tends to be less active in monitoring its
investments; weaker accountability and monitoring of state-owned firm’s financial
performance, as well as easier access to financing, reduce incentives to adopt strong
governance mechanisms. Najid and Abdul Rahman (2011) claim that state-owned firms
lack entrepreneurial drive and tend to be politically, rather than commercially,
motivated, resulting in poor monitoring. Wang et al. (2008) argue that their preferential
access to capital leads such firms to hire small, rather than Big-4, auditors. In addition,
there is less pressure to comply with financial reporting regulations, which could
motivate management to choose accountants that present the firm’s performance in the
best light (Aljifri and Moustafa, 2007). Liu et al. (2014) show that earnings are lower than
in non-government-owned firms; in particular, they have more earnings smoothing,
more frequent managed earnings toward target, less frequent timely recognition of
losses and less value relevance. The study also found that government-owned firms had
significantly higher discretionary current accruals than their privately owned
counterparts. Habib (2015) argues that ownership concentration in the hands of the
government has a negative impact on the timeliness of financial statements, as the
government can communicate and monitor managers through internal channels.
As described above, Bamber et al. (1993) argue that audit delay is influenced by the
business risk the auditor associates with the client. The failure of the government to
exercise effective control over the firms it owns and its inefficiency in managing its
financial affairs could affect the assessed level of inherent and control risks. In turn, this
may affect the nature, timing and extent of the audit, leading to longer audit delay.
Accordingly, this study hypothesizes that:
H6. There is a positive association between the level of government ownership and
audit delay.
3.7 Control variables

Earlier work has documented that the timeliness of audit reports can be influenced by
several factors. These include:
• type of audit opinion (Ashton et al., 1987, 1989; Ng and Tai, 1994; Bonsón-Ponte
et al., 2008);
• firm size (Davies and Whittred, 1980; Givoly and Palmon, 1982; Owusu-Ansah,
2000; Leventis et al., 2005; Bonsón-Ponte et al., 2008; Afify, 2009; Habib, 2015);
• profitability (Habib and Bhuiyan, 2011; Habib, 2015);
• complexity (Ng and Tai, 1994; Jaggi and Tsui, 1999; Habib and Bhuiyan, 2011);
• leverage (Leventis et al., 2005; Habib, 2015); and
• industry type (Ashton et al., 1989; Bamber et al., 1993; Knechel and Payne, 2001; Joint audit
Afify, 2009). regulation
Consequently, this study controls and isolates the potential effects of these variables on
the timeliness of audit reports.
4. Design 303
4.1 Sample and data collection
According to the Investor Guide and Annual Report, a total of 195 companies were listed
on the KSE in 2013. Thirteen companies were excluded, as their year-end was not
December 31; this has been shown to have an influence on audit reporting (Leventis
et al., 2005). A further eight companies were excluded due to lack of data. The final
sample contained 174 companies with complete and usable data, which are classified
into five industry types: financial institutions (10 per cent), investment (23 per cent), real
estate (18 per cent), manufacturing (19 per cent) and services (30 per cent). The data used
in the study were obtained from two sources:
(1) 2013 annual reports of KSE-listed companies; and
(2) the official website of the KSE (www.kse.com.kw).
4.2 Regression model

The dependent variable is audit delay, measured as the number of days that elapse from
the close of the financial accounting period to the day the audit report is signed.
Independent variables are the following corporate governance mechanisms: external
auditors, board size, director’s independence, role duality, institutional ownership and
government ownership. The audit delay model controls for type of audit opinion, firm
size, profitability, complexity, leverage and industry type. Consistent with Leventis et al.
(2005); Bonsón-Ponte et al. (2008); Habib and Bhuiyan (2011) and Habib (2015), the
strength of the association between audit delay and corporate governance mechanisms
is measured using a linear regression model. Here, the following multiple regression
model is used:
DELAY ⫽ ␤0 ⫹ ␤1AUDIT ⫹ ␤2BSIZE ⫹ ␤3INDEP ⫹ ␤4DUAL ⫹ ␤5INST

⫹ ␤6GOV ⫹ ␤7OPIN ⫹ ␤8SIZE ⫹ ␤9PROFIT ⫹ ␤10COMPLX
(1)
⫹ ␤11LEVi ⫹ ␤12FI ⫹ ␤13INVST ⫹ ␤14MANUFi ⫹ ␤15SERVi ⫹ ␧i
It is expected that board size (BSIZE), role duality (DUAL) and government ownership
(GOV) are positively correlated with audit delay. In contrast, it is expected that auditor
combination (AUDIT), director’s independence (INDEP) and institutional ownership
(INST) are negatively correlated with audit delay. Table I defines the variables used in
this study and their measurement.
5. Results and discussion

5.1 Descriptive statistics
Table II, Panel A, indicates that the mean audit delay for all KSE-listed companies in
2013 is 65.26 days (standard deviation 25.68 days) with a median of 70 days. The
minimum is 7 days and the maximum is 159 days.
JFRC Variable Acronym Measurement
24,3
Dependent variable
Audit delay DELAY The number of days that elapse from the closure of
the financial accounting period until the day the
auditor’s report is signed
304 Independent variables
Audit combination AUDIT Dummy variable that represent the combination of
external audit. It is equal to two (2) if two Big-4
audit firms audit the company’s financial
statements, one (1) if one Big-4 audit firm audits
the company’s financial statement and zero (0)
otherwise
Board size BSIZE The total number of directors on the board
Director’s independence INDEP The proportion of non-executive directors to the
total number of directors on the board
Role duality DUAL Dummy variable that equals 1 if the CEO is also
the chairman of the board, and 0 otherwise
Institutional ownership INST The percentage of shares owned by institutional
investors
Government ownership GOV The percentage of shares owned by the
government
Control variable
Audit opinion OPIN Dummy variable that equals 1 if the audit opinion
is qualified, and 0 otherwise
Firm size SIZE The natural logarithm of total assets at the end of
the financial year
Profitability PROFIT The ratio of the net income divided by the total
assets of the firm
Complexity COMPLX The square root of the number of consolidated
subsidiaries, associates and joint ventures
Leverage LEV The ratio of total liabilities to total assets
Financial institutions FI Dummy variable that equals 1 for firms in the
financial institutions category, and 0 otherwise
Investment INVST Dummy variable that equals 1 for firms in the
investment category, and 0 otherwise
Manufacturing MANUF Dummy variable that equals 1 for firms in the
manufacturing category, and 0 otherwise
Table I. Services SERV Dummy variable that equals 1 for firms in the
Definition and services category, and 0 otherwise (the omitted
measurement of industry category when all categories are 0 is the
variables real estate category)
Panel B of Table II presents the frequency distribution of audit delay. It shows that 22
per cent of the companies release their audited financial statements within 45 days of the
close of the financial accounting period. Furthermore, it shows that 53 per cent of the
KSE companies release their audited financial statements between 26 and 86 days after
the end of the accounting period. Only 5 per cent of the companies release their audit
report more than 90 days after the end of the accounting period.
Dependent variable N Mean Median SD Minimum Maximum Skewness Kurtosis
Joint audit
regulation
Panel A: Descriptive statistics for audit delay by days
Audit delay 174 65.26 70 25.68 7 159 ⫺0.14 0.37
Audit delay range (in days) No. of firms (%) Cumulative (%)
305
Panel B: Frequency distribution of audit delay by days
7-25 13 8 8
26-45 25 14 22
46-65 37 21 43
66-85 55 32 75
86-90 35 20 95 Table II.

91-159 9 5 100 Descriptive statistics
Total 174 100 for audit delay
These results show that most KSE companies comply with MCI and KSE regulations
that require listed firms to submit their audited financial statements within 90 days of
the close of the financial year. Only nine companies fail to meet the regulatory deadline.
However, the frequency distribution of audit delay reveals a noticeable variation. This
variation provides an ideal opportunity to explore the influence of corporate governance
mechanisms on the timeliness of audit reports.
Panel A of Table III presents the distribution of audits by two Big-4 audit firms, one
Big-4 audit firm or a non-Big-4 auditor. Panel B of Table III presents the distribution of
the Big-4 and non-Big-4 auditors that audited KSE-listed companies in 2013. Panel A
reveals that 55 per cent of the KSE-listed companies have one Big-4 audit firm in their
audit team combination, 37 per cent of the companies are audited by non-Big-4 audit
firms and 7 per cent are audited by two Big-4 audit firms.
Combination Frequency (%)
Panel A: Auditor combination

Non-Big-4 66 37
One Big-4 95 55
Two Big-4 13 7
Total 174 100
Accounting firm Frequency (no. of firms audited) (%)
Panel B: Distribution of business among Big-4 and non-Big-4 audit firms

Deloitte 42 12
Ernst & Young 61 17
KPMG 10 3 Table III.
PricewaterhouseCoopers 9 3 Type of auditor used
Non-Big-4 226 65 by KSE-listed
Total 348 100 companies in 2013
JFRC Panel B shows that Ernst & Young has the largest market share among the Big-4
24,3 auditors (about 17 per cent), while KPMG and PricewaterhouseCoopers have the
smallest, each auditing only 3 per cent of the KSE-listed companies.
Panel A of Table IV presents descriptive statistics for all independent continuous
variables. The descriptive results show that the total number of directors on the board of
KSE-listed companies in 2013 ranges from three to ten members, with a mean of 6.09.
306 The percentage of independent (nonexecutive) directors ranges from two to ten, with a
mean of 5.41. The percentage of institutional ownership ranges from 0 to 99 per cent,
averaging 53 per cent. In contrast to institutional ownership, the mean percentage of
government ownership is only 4 per cent, ranging from 0 per cent to 76 per cent.
Furthermore, firm size varies significantly, ranging from Kuwaiti Dinar (KD) 1.68
million to KD 18,600.14 million, with a mean of KD 556.91 million. In terms of
profitability, the statistics show that the mean return on assets is 0.03, ranging from
⫺0.25 to 0.23. In addition, the mean number of consolidated subsidiaries, associates and
joint ventures (measured by the complexity variable) is 7.03, ranging from 0 to 34.
Leverage has a mean of 0.35, ranging from 0.00 to 1.00.
The descriptive statistics indicate that the distributions of firm size and complexity
variables are non-normally distributed. The non-normality of firm size was largely
corrected with the natural logarithm transformation, and the non-normality of
complexity was corrected with the square root transformation.
Variable Mean SD Minimum Maximum
Panel A: Continuous variables

Board size (BSIZE) 6.11 1.59 3.00 10.00
Independent directors (INDEP) 5.41 1.74 2.00 10.00
Institutional ownership (INST) 0.53 0.24 0.00 0.99
Government ownership (GOV) 0.04 0.11 0.00 0.76
Firm size (SIZE) 556.91 213.87 1.68 18,600.14
Firm size–Transformed 18.28 1.58 14.34 23.65
Profitability (PROFIT) 0.03 0.07 –0.25 0.23
Complexity (COMPLX) 7.03 5.92 0.00 34.00
Complexity–Transformed 1.38 0.59 0.00 2.41
Leverage (LEV) 0.35 0.24 0.02 0.89
Variable Yes (%)
Panel B: Dummy variables

Qualified audit opinion (OPIN) 10 5.75
Role duality (DUAL) 65 37.36
Financial institutions category (FI) 17 9.77
Investment category (INVST) 40 22.98
Manufacturing category 33 18.97
(MANUF)
Service category (SERV) 52 29.89
Real-estate category (REAL) 49 18.39
Table IV.
Descriptive statistics Note: N ⫽ 174
Panel B of Table IV presents descriptive statistics for dummy variables. A dummy Joint audit
variable was used to represent the type of audit opinion as qualified and unqualified. regulation
The results show that only ten (6 per cent) KSE companies received a qualified opinion
in 2013. In addition, the results show that 65 (37 per cent) KSE companies had CEO
duality, while 74 (63 per cent) did not. Furthermore, the 174 companies are classified into
five industry categories: 17 (10 per cent) are in the financial institutions category; 40 (23
per cent) are in the investment category; 33 (19 per cent) are in the manufacturing 307
category; 52 (30 per cent) are in the services category; and 49 (18 per cent) are in the
real-estate category.
5.2 Bivariate relationships

Pearson and Spearman correlations between independent variables are presented in

Table V. These correlations tend to be relatively consistent in magnitude and
significance. Table V reveals that although there are correlations between all the
independent variables, no pairwise correlation coefficient exceeds 0.8. This suggests
that multicollinearity is unlikely to be a serious problem in interpreting multiple
regression results (Pallant, 2013).
5.3 Multivariate regression analysis

To investigate the effect of the selected internal and external corporate governance
attributes on the timeliness of audit reports, a multivariate regression model that
incorporates external auditor combination, board size, independent directors, role
duality, institutional ownership, government ownership and control variables was
developed. Variance inflation factors (VIFs) were used to detect multi-collinearity
between independent variables.
Table VI shows that VIFs ranged from 1.053 to 2.441 with an overall mean of 1.565.
Pallant (2013) documents that a VIF value larger than 10 indicates multi-collinearity.
The results obtained here verify the absence of multi-collinearity. Table VI shows the
results of estimating the audit delay model. It is evident that variables representing
corporate governance attributes in combination are highly significant in explaining
audit delay (F ⫽ 10.162, p ⬍ 0.01), as the adjusted R2 indicates that these corporate
governance mechanisms explain about 37 per cent of the variation.
The results presented in Table VI show that the auditor combination (AUDIT) is a
significant (p ⬍ 0.01) factor, thus confirming H1 predication that the higher the number
of Big-4 auditors in a company’s audit team, the shorter the audit delay. The results
indicate that there is a significant difference in the timeliness of audit reports across the
three possible auditor combinations. The timeliest reports are provided by companies
that are audited by two Big-4 audit firms, followed by those audited by one Big-4 and
one non-Big-4 firm, then companies audited by two non-Big-4 auditors. These findings
highlight the importance of the quality and rigor of external audits in limiting audit
delay. They imply that Big-4 auditors carry out audits significantly faster than their
non-Big-4 counterparts. Although this is a unique finding in the audit delay literature, it
is nevertheless consistent with the argument that Big-4 audit firms have greater
incentives to finish their work more quickly to maintain their reputation. It can be also
explained by their access to higher-quality staff and better audit technology (Leventis
et al., 2005; Abidin and Ahmad-Zaluki, 2012).
24,3
308
JFRC
variables
Table V.
between independent
Bivariate correlations
Variable AUDIT BSIZE INDP DUAL INST GOV OPIN SIZE PROFT CMPLX LEV
AUDIT 1.00 0.32** ⫺0.14 ⫺0.16* 0.10** ⫺0.30** ⫺0.06 0.36** 0.10 0.13 0.07
BSIZE 0.35** 1.00 0.01 ⫺0.03 ⫺0.34** 0.34** 0.09 ⫺0.39** ⫺0.13 0.13 010
INDP ⫺0.09 ⫺0.12 1.00 0.61** 0.06 ⫺0.17* 0.06 ⫺0.05 ⫺0.02 ⫺0.12 0.04
DUAL ⫺0.16* ⫺0.07 0.57** 1.00 0.04 ⫺0.12 0.12 0.05 ⫺0.05 ⫺0.06 0.11
INST 0.10** ⫺0.41** 025** ⫺0.08 1.00 ⫺0.37** ⫺0.10 ⫺0.29** 0.20** ⫺0.13 ⫺0.01
GOV ⫺0.25** ⫺0.25** ⫺0.04 ⫺0.09 ⫺0.28** 1.00 0.08 0.28** 0.13 ⫺0.04 ⫺0.05
OPIN ⫺0.07 0.06 0.07 0.12 ⫺0.11 0.10 ⫺0.10 ⫺0.09 ⫺0.13 0.07
SIZE 0.37** 0.34** ⫺0.16* ⫺0.12 ⫺0.25** 0.22** ⫺0.04 1.00 ⫺0.07 0.37** 0.36**
PROFIT 0.10 ⫺0.16* 0.01 ⫺0.01 0.14 0.11 ⫺0.07 ⫺0.04 1.00 ⫺0.11 ⫺0.16*
CMPLX 0.07 0.14 ⫺0.09 0.01 ⫺0.18* ⫺0.04 ⫺0.10 0.24** ⫺0.11 1.00 0.24**
LEV ⫺0.05 ⫺0.04 0.04 ⫺0.01 0.02 ⫺0.06 0.03 ⫺0.05 ⫺0.08 0.12 1.00
Notes: * , ** Correlation is significant at ⱕ0.05 and 0.01 levels, respectively (two-tailed)

Corporate governance mechanisms explaining audit delay
Joint audit
Dependent variable: audit delay regulation
Unstandardized Standardized
Variable coefficient ␤ coefficient Beta t-stat Sig. VIF
Corporate governance mechanisms

Intercept 89.362 7.348 0.000***
Audit combination ⫺9.494 ⫺0.225 2.971 0.003*** 1.492
309
Board size ⫺2.998 ⫺0.185 ⫺2.230 0.027** 1.789
Independent directors ⫺6.127 ⫺0.157 ⫺1.940 0.054* 1.709
Role duality 9.088 0.172 ⫺2.182 0.031** 1.616
Institutional ownership ⫺3.699 ⫺0.038 ⫺0.509 0.612 1.416
Government ownership 42.805 0.193 2.750 0.007*** 1.277

Control variables
Audit opinion 4.334 0.038 0.584 0.560 1.095
Firm size ⫺1.705 ⫺0.254 ⫺3.256 0.001*** 1.579
Profitability ⫺3.618 ⫺0.169 ⫺1.993 0.049** 1.382
Complexity 0.302 0.078 0.947 0.345 1.320
Leverage 3.268 0.077 1.208 0.229 1.053
Financial category ⫺1.332 ⫺0.024 ⫺0.020 0.968 2.441
Investment category 2.764 0.062 0.760 0.448 1.725
Manufacturing category 1.103 0.035 0.428 0.669 1.713
Services category 5.502 0.117 1.375 0.171 1.871
Observations Adj.R2 F-statistic F-stat. Sig. VIF mean

Table VI.
174 0.372 10.162 0.000*** 1.565 Multivariate
regression analysis
Notes: * , ** , *** Significant at the 0.10, 0.05 and 0.01 levels, respectively (two-tailed) results
Interestingly, Table VI shows that board size (BSIZE), although significant (p ⬍ 0.05), is
negatively associated with audit delay, implying that the larger the board, the shorter
the audit delay. This finding is clearly inconsistent with H2 that predicts smaller boards
to be more effective in terms of coordination, efficiency and communication, and that
there is a positive relationship between board size and audit delay. This finding may
suggests that a larger board brings together more specialized directors from a wider
diversity of fields, which may promote better corporate monitoring and improve the
quality of financial reporting (Loderer and Peyer, 2002). Larger boards may also be able
to devote more time and effort to ensuring its quality and timeliness.
With respect to the influence of the proportion of independent outside (nonexecutive)
directors on the timeliness of audit reports, Table VI reveals that the proportion of
independent directors (INDEP) is negatively and significantly associated with audit
delay (p ⬍ 0.10). This finding supports H3 and confirms the notion that the more
independent directors there are on the board, the more effectively it is able to monitor
managers. This reduces the auditors’ assessment of control and inherent risks and
consequently their effort; they can therefore limit the scope of their work and report
more quickly.
JFRC Haniffa and Cooke (2002) argue that separating the chairman–CEO roles increases
24,3 the strength of the internal controls and reduces business risk, leading to shorter audit
report delays. Consistent with this argument, the results shown in Table VI reveal that
role duality (DUAL) is positively and significantly (p ⬍ 0.05) associated with audit
delay. This finding confirms H4 and supports the argument that auditors perceive the
risk of audit failure to be higher where the roles of chairman and CEO are combined, as
310 it is easier to conceal or misrepresent relevant facts. Board duality results in a more
extensive audit being conducted, and hence a longer audit delay.
Given the effective role that institutional investors play in monitoring and
demanding the timely dissemination of financial statements, H5 predicts that there is a
negative association between the level of institutional ownership and audit delay.
However, the results shown in Table VI state that while the institutional ownership
(INST) coefficient is negative, it is not significant. In contrast to institutional ownership,
Table VI reveals that government ownership (GOV) is positively and significantly (p ⬍
0.01) associated with audit delay, suggesting that the higher the level of government
ownership, the longer the audit delay. This result confirms H6 and supports the
argument that the government fails to exercise effective control over its investments.
Finally, with respect to control variables, the results presented in Table VI show that
firm size and profitability are significantly and negatively associated with audit delay,
suggesting that the larger and more profitable the firm is, the shorter the audit delay. No
significant association was found between audit opinion, firm complexity, leverage and
industry classification and audit delay.
5.4 Sensitivity analysis

Several robustness tests were conducted to ensure that the regression results were not
sensitive to alternative measures of dependent and independent variables. The first
robustness test was the frequency distribution of audit delay by days presented (Panel
B of Table II). The frequency distribution illustrates that nine KSE-listed firms (5 per
cent of the sample) had an audit delay over the 90-day filing requirement. To ensure that
the regression results were not sensitive to the outliers, the primary regression model
was re-estimated after excluding the outliers. The results of the re-estimated regression
remained unchanged. No noticeable differences were observed in the magnitude or
significance of the coefficients of the dependent variable.
The second robustness test involved re-defining the audit quality. Audit quality is
typically classified in the literature as two alternatives: Big-4 versus non-Big-4 auditors.
However, as regulations in Kuwait require that each listed company be audited by two
external auditors from different auditing firms, the audit quality in this study was
classified into three alternatives: two non-Big-4; one Big-4 and one non-Big-4; and two
Big-4.
To further observe the effect of audit quality on audit delay, the audit quality was
collapsed from the three primary alternatives to two alternatives: two Big-4 versus one
Big-4, and Big-4 versus non-Big-4. The results illustrate that collapsing the audit quality
into two subgroups did not make any noticeable difference to the magnitude and
significance of the audit quality coefficients. Furthermore, all robustness tests
performed confirmed the results obtained in the primary model.
6. Conclusion Joint audit
This study explores the influence of internal and external corporate governance regulation
mechanisms on the timeliness of audit reports in companies listed on the KSE in 2013.
This context is unusual, as listed companies must appoint two external auditors from
separate auditing firms. Consistent with prior research, audit delay was measured as the
number of days that elapse from the end of the company’s financial year to the date of
the audit report. Six internal and external corporate governance mechanisms are 311
considered, namely, the combination of auditors, board size, board independence, role
duality, institutional ownership and government ownership. The study controls and
isolates for the potential effects of type of audit opinion, firm size, profitability,
complexity, leverage and industry type. The sample consists of all companies listed on
the KSE in 2013. Consistent with prior research, the strength of association between the
audit delay and corporate governance mechanisms is measured using a multivariate

regression model.
The results show that there is large variation in the delay between the end of the
financial year and the date of the audit report. The shortest time is 7 days, ranging to 159
days, with an average of around 65 days. Descriptive statistics show that most KSE
firms comply with the regulatory requirement that listed companies should submit their
audited financial statements within 90 days of the close of the financial year. Only nine
firms failed to meet the deadline.
The multivariate regression analysis reveals a significant difference in the timeliness
of audit reports across the three possible auditor combinations. Firms audited by two
Big-4 audit firms produced the timeliest reports, followed by those audited by one Big-4
and one non-Big-4 firm, then those audited by two non-Big-4 companies. These findings
highlight the importance of the quality and rigor of external audits in reducing audit
delay. They imply that the Big-4 auditors carry out audits significantly faster than their
non-Big-4 counterparts. Furthermore, the results suggest that companies with a larger
board, a greater number of independent directors and where the roles of CEO and
chairman are separated are more likely to produce timely financial statements. On the
other hand, audit delay is significantly longer in state-owned firms. No significant
association was found between institutional ownership and audit delay.
These findings make a significant contribution to the literature, and have a number
of implications. First, they offer empirical support for the theoretical prediction of an
association between corporate governance mechanisms and the timeliness of audit
reports. Second, as investors and regulators in emerging markets rely heavily on firm’s
financial statements, it offers them a way to assess the timeliness of audit reports and an
insight into the factors that influence audit delay. Third, we know that the value of
financial information declines as audit delay increases (as users turn to more timely
alternatives); therefore, the wide variation in delay reported here raises questions about
the costs and benefits of the joint audit requirement. A direct implication of the study’s
findings for regulators is that shortening the audit delay mitigates information
asymmetry and enhances both investor confidence and market efficiency. As corporate
governance mechanisms are shown to influence the timeliness of audit reports, any
regulatory action to reduce audit delay should take these mechanisms into account.
In 2010, the Capital Market Authority (CMA) was established to regulate securities
activities based on principles of transparency and fairness, and to enhance disclosure
operations. The CMA has issued a resolution that set 11 corporate governance rules to
JFRC be applied by KSE -isted companies on or before December 2014. However, after
24,3 realizing the concerns of companies about applying the rules by 2014, the CMA has
postponed the implementation of the corporate governance code to June 2016. This
study highlights for the CMA, companies and investors, the importance and the impact
of enforcing corporate governance rules from an information timeliness perspective.
The findings of this study provide empirical evidence that can be used by the CMA in
312 their continued campaigns promoting the role and importance of corporate governance
mechanisms in improving the quality and timeliness of financial reporting.
As with any research, some limitations should be noted when interpreting the results.
For example, the study does not include other important corporate governance
mechanisms such as the audit committee. This is because audit committees are
voluntary for KSE-listed companies; however, future research into their contribution
might shed more light on the issue of audit delay and clarify the role of the committee in
enhancing the timeliness of audit reports. Another limitation is that the study focused on
KSE-listed companies. It would be interesting to expand the scope, and investigate audit
delay for Kuwaiti firms not listed on the KSE. Furthermore, data availability meant that
the study only covers a one-year period; future research could investigate trends over
time. Finally, it would be interesting to investigate the effect of auditor industry
specialization on audit delay.
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About the author

Mishari M. Alfraih, PhD, CPA, CIA, CFE, is an Associate Professor of Accounting at the College
of Business Studies, The Public Authority for Applied Education and Training, Kuwait. He holds
a PhD in Accounting from Queensland University of Technology, Australia. He is a Certified

Public Accountant (CPA), Certified Internal Auditor (CIA) and a Certified Fraud Examiner (CFE).
Dr Alfraih’s research interest focuses on the role of information in capital markets and IFRS
reporting practices. His research areas in IFRS include financial information flows, information
quality, decision usefulness of financial reporting and audit quality in emerging capital markets.
Tel: ⫹965-99755666. PO Box 3438 Mishref, 40185, Kuwait. Mishari M. Alfraih can be contacted at:
m@dralfraih.com
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This article has been cited by:
1. Mishari M. Alfraih. 2016. Have financial statements lost their relevance? Empirical evidence
from the frontier market of Kuwait. Journal of Advances in Management Research 13:2, 225-239.
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Journal of Financial Regulation and Compliance

Corporate governance mechanisms and audit delay in a joint audit regulation

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2. Corporate governance and the equity market in Kuwait

3.1 Composition of external auditor pair

3.2 Board size

• they take longer to make decisions;

3.3 Independence of the board directors

3.4 Role duality

3.6 Government ownership

3.7 Control variables

4.2 Regression model

DELAY ⫽ ␤0 ⫹ ␤1AUDIT ⫹ ␤2BSIZE ⫹ ␤3INDEP ⫹ ␤4DUAL ⫹ ␤5INST

5. Results and discussion

86-90 35 20 95 Table II.

Combination Frequency (%)

Panel A: Auditor combination

Accounting firm Frequency (no. of firms audited) (%)

Panel B: Distribution of business among Big-4 and non-Big-4 audit firms

Variable Mean SD Minimum Maximum

Panel A: Continuous variables

Variable Yes (%)

Panel B: Dummy variables

5.2 Bivariate relationships

Pearson and Spearman correlations between independent variables are presented in

5.3 Multivariate regression analysis

Notes: * , ** Correlation is significant at ⱕ0.05 and 0.01 levels, respectively (two-tailed)

Corporate governance mechanisms

Government ownership 42.805 0.193 2.750 0.007*** 1.277

Observations Adj.R2 F-statistic F-stat. Sig. VIF mean

5.4 Sensitivity analysis

audit delay and corporate governance mechanisms is measured using a multivariate

from Malaysia”, Accounting in Asia, Vol. 11, pp. 109-127.

About the author

a PhD in Accounting from Queensland University of Technology, Australia. He is a Certified

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