Corporate Social Performance and Audit Pricing

• In Event: Continental Breakfast & Research and Education Forum
  In Paper Session: Table 3: Corporate Governance

Abstract

This paper examines the relationship between clients that engage in different corporate social performance (CSP) and how it influences the audit risk which is reflected in the audit fees charged. We posit that poorly performing CSP clients tend to pose a higher audit risk for auditing firms than clients who have no CSP concern. We develop a regression model of audit fees that controls for governance mechanism and CSP concerns. We are predicting audit fees while using CSP types as the predictor variable with other variables identified in earlier studies. This research hypothesizes that auditor’s assessment of risk for corporate social performing firm will vary depending on the type of CSP concern. Using a unique data set from Kinder, Lydenberg, and Domini Research and Analytics (KLD), where CSP clients are selected and evaluated accordingly. Results reveal that CSP clients that have corporate social concerns to be charged higher audit fees than CSP clients with no social performance concerns. Consequently, we come to understand that the auditor can differentiate between the types of CSP concerns and enhances his risk assessment accordingly. Our results add to literature and brings a comprehensive view on the different sustainability reporting performance and the impact on auditor’s risk assessment.

Authors

• Angie M AZaher, American University Cairo

• Dina M Abdel Zaher, University of Houston-Clear Lake