Corporate social responsibility disclosure and informational quality of audit reports

Abstract

This study seeks to understand the relationship between Corporate Social Responsibility (CSR) and the informational quality of independent auditor's report. Using stakeholder theory, this study seeks to determine if firms with high CSR disclosures sought to improve stakeholders’ informational interest in the independent auditors’ report, by ensuring the ease of reading of the key audit matters (KAMs) of the audit report. A total of 59 sample manufacturing firms were identified from the Main Market of Bursa Malaysia, and content analysis were performed on the annual reports of these samples to establish the level of CSR disclosure. The readability of KAMs of these firms were analyzed using the Flesch reading ease score. The findings suggest that there is no significant relationship between the level of CSR disclosure and the readability level of KAM. However, there is a significant positive relationship between CSR disclosure and the appointment of big four accounting firms, suggesting that the appointment of accounting firm from the big four play a role in improving CSR.