Work

Corporate social responsibility and the assessment by auditors of the risk of material misstatement

Year: 2017

Type: article

Abstract: This paper investigates whether, and how, firms’ corporate social responsibility (CSR) performance influences the auditor's assessment of the risk of material misstatement, whether due to fraud or error, at the financial statement level by analysing their pricing decision (i.e., audit fees). Using a panel data set of 12,330 firms from 28 countries over the period 2003–2012 and different measures of CSR performance, we find a U‐shaped relationship between firms’ CSR performance and audit fees. This result suggests that there is an optimal level of CSR performance that minimizes the auditor's assessment of the risk of material misstatement, which in turn lowers the need for greater auditor effort; that is why auditors charge firms significantly less when their CSR performance is at the optimal level. Finally, we also show that the optimal level of CSR performance varies with the degree of environmental dynamism, ownership concentration and leverage.

Source: Journal of Business Finance &amp Accounting

DOI: 10.1111/jbfa.12268

Authors: Mónica LópezPuertas‐Lamy, Kurt Desender, Mircea Epure

Institution: Universitat Pompeu Fabra

Language: English

Topic: Auditing, Earnings Management, Governance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

Open Access status: green

Funder: Ministerio de Ciencia e Innovación

Awards: G1907614046, G5430569637, G7044801414, G98619011