Does the Joint Provision of Sustainability Assurance and Financial Audit Improve Financial Audit Quality?

• In Event: Audit Quality

Abstract

We examine whether the joint provision of corporate social responsibility (CSR) assurance services and financial audit improves audit quality. We predict that the provision of CSR assurance and financial audit by the same audit firm could lead to knowledge spillovers from the CSR assurance team to the financial audit engagement team, which in turn could result in higher audit quality. Using more than 27,000 firm-year observations from 35 countries, we find that audit firms that perform both CSR assurance and financial audits for the same client deliver higher audit quality (i.e., firms have less frequent restatements and auditors issue more frequent going concern opinions). We also find that this effect is stronger in settings where economic bonding is less likely and knowledge spillovers more likely to occur. In additional analyses, we find that the higher audit quality for firms that use the same CSR assurance provider as their financial auditor is not associated with higher fees. Our results are important especially because of changes in CSR risks for firms and the growing number of countries that require assurance of CSR reports.

Authors

• Lorenzo Dal Maso, Essec Business School

• Gerald Lobo, University of Houston-Houston

• Francesco Mazzi, University of Florence

• Luc Paugam, HEC Paris