Industry Specialist Auditors & CSR Activities

Abstract

This study examines whether and how industry-specialist auditors take into account client firms' corporate social responsibility (CSR) involvement and activities when pricing their assurance services. Studies examining the auditor pricing of CSR activities have provided mixed empirical evidence. Since industry-specialist auditors have the knowledge and expertise to better examine firms’ CSR activities and see through any opportunistic behavior in a given industry, and to shed further light on the relationship between CSR activities and audit fees, we propose to investigate the audit pricing of CSR activities by industry-specialist auditors. In particular, we investigate whether industry-specialist auditors consider clients' CSR activities when determining their audit fees.The results of the present study indicate that, overall, client companies that engage more (less) in CSR activities pay lower (higher) audit fees when audited by industry-specialist auditors than when audited by non-industry-specialist auditors. This result corroborates the view that industry-specialist auditors incorporate CSR activities in their audit fees and that these fees are negatively associated with audit fees, suggesting that CSR activities are associated with lower audit and litigation risks.