Towards a More Accurate Audit Assessments: Can Social Performance Provides Clues?

Author's Department

Accounting Department

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https://www.inderscience.com/info/inarticle.php?artid=96274

All Authors

Angie M. Abdelzaher; Dina M. Abdel Zaher

Document Type

Research Article

Publication Title

International journal of Corporate Governance

Publication Date

11-30-2018

doi

10.1504/IJCG.2018.096274

Abstract

Regulators have been particularly concerned with the increased frequency of auditor's deficiencies related to material misstatement as reported in the 2017 Public Company Accounting Oversight Board (PCAOB) inspection brief. This research examines the relationship between auditor's risk of failing to capture material misstatement and the clients' social responsibility concerns. The findings indicate that clients with social performance concerns (human rights, environment, and governance) were associated with higher auditor's risk assessment, as indicated by higher audit fees. The results are consistent after controlling for various auditor and client variables. Implications of this study support the importance of incorporating social performance of clients in the auditor's evaluation since it can provide key insights into the client's underlying risk of future litigations which can arise due to socially irresponsive behaviours. In doing so, we seek to come closer to an accurate client assessment as well as respond to the call of PCAOB for minimising the deficiencies of the auditing process particular in the area of material misstatement.

First Page

401

Last Page

427

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