Caring for the Community -The effects of client civic benefit on auditors' stakeholder prioritizations and audit judgments

• In Event: Norms, Culture, and Values in the Audit Context

Abstract

Corporations exist to provide value to a constituency; however, not all corporations provide equivalent benefit to society (e.g., low-cost medical center vs. a spam call center). We investigate whether an organization’s civic benefit (i.e., the direct societal benefit provided through the organization’s primary operations) influences auditors’ judgments. We theorize a for-profit firm’s civic benefit will influence how auditors consider the community as a stakeholder, which ultimately will influence their judgments. Results suggest auditors have a desire to protect clients that provide more civic benefit and that auditors are less likely to report significant client risks as their perceptions of a client’s civic benefit increase. Importantly, we find this relationship operates indirectly through an auditor’s elevation of the client’s community as a relevant stakeholder. We also provide some evidence that going concern risk influences an auditor’s stakeholder prioritization. Our results provide interesting insights for both regulators and auditors in a time where more organizations primarily exist to provide prosocial benefits. Moreover, our results provide initial evidence that auditors’ consideration of relevant stakeholders is not limited to fiduciary stakeholders and is not as narrow as suggested by professional standards.

Authors

• Macy Knutson, University of South Carolina

• Chad Matthew Stefaniak, University of South Carolina

• Timothy Brown, University of South Carolina