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Audit Quality and Environment, Social, and Governance Risks

Author

Listed:
  • Meiying Hua

    (Department of Accounting, Beacom School of Business, University of South Dakota, Vermillion, S.D., 57069, United States of America)

  • Pervaiz Alam

    (Department of Accounting, College of Business Administration, Kent State University, Kent, Ohio, 44242, United States of America)

Abstract

This study examines the association between a firm’s environment, social and governance (ESG) risks and audit quality. We measure audit quality using two proxies: audit fees and discretionary accruals. ESG risk is measured using Representative Risk Index from the RepRisk AG database. Using a sample of public U.S. firms from the period between 2007 and 2016, we find that there is positive association between audit fess and ESG risk implying that firms pay higher audit fees when their ESG risk increase in order obtain higher quality audit services. We also find that there is a negative relationship between ESG risk measures and discretionary accruals suggesting firms assessed having high ESG risks do not manage their earnings as much. Overall, our results indicate that auditors take ESG risks of a firm into account when performing financial statements audit.

Suggested Citation

  • Meiying Hua & Pervaiz Alam, 2021. "Audit Quality and Environment, Social, and Governance Risks," International Journal of Business Research and Management (IJBRM), Computer Science Journals (CSC Journals), vol. 12(2), pages 50-75, April.
    • Handle: RePEc:aml:intbrm:v:12:y:2021:i:2:p:50-75
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    References listed on IDEAS

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    More about this item

    Keywords

    Environment; Social; and Governance Risks; Audit Quality; Firm Performance.;
    All these keywords.

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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