Is a client's corporate social responsibility performance a source of audit complexity?

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Authors

Garcia, Joy
De Villiers, Charl Johannes
Li, Lina (Zixuan)

Journal Title

Journal ISSN

Volume Title

Publisher

Wiley

Abstract

This study examines whether corporate social responsibility (CSR) performance impacts financial audit fees of U.S. listed firms from 2000 to 2016. We use the CSR performance ratings from the KLD database to measure firms' CSR performance. Using the sum of a firm's CSR strengths and concerns as a measure of a firm's overall involvement in CSR‐related matters, we find that a greater score is associated with higher audit fees. Further, we disaggregate this measure into CSR concerns and CSR strengths and find that both measures are positively related to audit fees. In additional analyses, we find that firms involved in certain CSR initiatives (strengths) as well as controversies (concerns) pay higher audit fees due to increased audit complexity. Our findings suggest that firms' CSR performance is a source of audit complexity, in addition to other sources that have been documented in prior literature.

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Keywords

Corporate social responsibility (CSR), Audit fees, Complexity, Sustainability

Sustainable Development Goals

Citation

Garcia J, C de Villiers, Li L(Z). Is a client's corporate social responsibility performance a source of audit complexity? International Journal of Auditing 2021;25:75–102. https://doi.org/10.1111/ijau.12207.