The Impact Of The Joint Provision Of Non-Audit Services On Audit Firm’s Tenure: A Kuwaiti Evidence

Abstract

Concerns about the potential harm of the increased economic bond between the audit firm and the audit client resulting from the joint provision of audit and NAS have been investigated extensively in the audit literature. However, much of this research was conducted in developed countries’ settings, with very little, if any, carried out in the context of a developing country. The current study aims at filling this gap in audit research by investigating two important issues related to the joint provision using data from the Kuwaiti audit market. First, this study examines whether there is an association between the provision of NAS to the audit client and audit firm’s tenure as a surrogate of audit independence. Second, the current study aims at examining factors expected to influence clients’ purchase of NAS in the Kuwaiti audit market. Contrary to expectations, the results reveal a negative relationship between the joint provision and external audit firm’s tenure, suggesting that such a joint provision does not lead to the impairment of auditor independence. Results obtained from the NAS purchase logistic regression also show that audit client’s purchase of NAS from their audit firms is positively related to the amount of audit fees and client’s financial leverage.

The Need for Audit Trinity Report to Reinforce Financial Reporting Integrity

“…On the other hand, practitioners, especially the Big Four, are still defending the provision of non-audit services and "are adamant that investor concerns over their non-audit earnings from [their] audit clients are completely unwarranted" (Nixon, 2004, p. 34). In line with practitioners' arguments, other studies found no negative relationship between non-audit services and audit performance especially when the company monitors the provision of NAS (Craswell et al, 2002;Al-Hajri 2018;Sharma & Sidhu 2001;McMillan 2004;Zhang et al, 2016;Wang & Hay 2013). Therefore, disclosing pre-approved non-audit services by the company audit committees implies two valuable messages to owners, the first one is the positive side of disseminating clear, detailed, and transparent information regarding both audit and non-audit services, the second message conveyed is that certifying members of the audit committee declare they have reviewed and scrutinised non-audit services before giving approval, and thus they provide reassuring message that there is no conflict of interest due to performing non-audit services.…”