Purpose This paper aims to investigate the moderating role of audit quality in the relationship between disclosure of environmental, social and governance performance (ESG disclosure) on cost of debt and test the aforementioned nexuses in developed and emerging markets. Design/methodology/approach The authors apply two-step system generalized method of moments estimator to analyze a sample of 6,011 observations from 1,443 Asian listed companies during 2015–2023. Further assessments are made on developed and emerging Asian subsamples, also across different firm characteristics. Data has been collected from Refinitiv Eikon. Findings Audit quality improves creditors’ responses toward ESG disclosure of firms in various institutional settings and firm attributes. Practical implications This study highlights the use of high audit-quality service as a reliable tool to promote the sustainability of listed companies in both developed and emerging markets. Originality/value This research underscores: the significant moderating role of audit quality in the link between ESG disclosure and cost of debt; the employment of auditor fees as an alternative proxy for high-quality audit; the infusing institutional difference hypothesis logic with legitimacy theory in explaining ESG disclosure attempts of countries in dissimilar markets; and the infusion of legitimacy theory with agency theory to emphasize the essential role of audit quality in legitimized efforts and reducing information asymmetries.

Purpose The purpose of this paper is to examine the behavior of industry expert auditors in relation to clients with high growth potential, focusing on audit fee discounts, audit quality and the future collection of non-audit fees. By investigating the strategic use of audit fee discounts as an investment in future engagements, the paper aims to understand how auditors with industry expertise leverage their market power and specialized knowledge. This study contributes to the literature on auditor–client relationships, exploring how auditors’ economic incentives and industry-specific knowledge influence their pricing and service provision strategies. Design/methodology/approach This study adopts a quantitative approach, using archival data to examine the pricing and audit quality decisions of industry expert auditors. Auditors are identified based on their industry expertise, defined using the standard industrial classification two-digit code. Client growth potential is measured through residuals from a cross-sectional regression of actual growth rates on growth determinants by industry and year. The analysis investigates the relationship between audit fee discounts, going concern opinions and non-audit fees. Robustness tests, including entropy balancing and change analysis, are employed to address potential endogeneity and ensure the reliability of the findings. Findings The findings indicate that industry expert auditors offer audit fee discounts to clients with high growth potential. This discounting behavior is linked to the auditors’ strategic goal of securing future non-audit engagements, with the expectation that growing clients will demand more non-audit services over time. In addition, industry expert auditors are less likely to issue a going concern opinion for high-growth clients. Further analysis reveals that these auditors collect more non-audit fees in subsequent years from these clients, reinforcing the compensatory dynamic between audit and non-audit services. Robustness tests confirm the consistency of the results. Originality/value This paper provides new insights into the behavior of industry expert auditors, particularly regarding the use of audit fee discounts as a strategic investment in future non-audit services. By linking audit fee discounting to client growth potential, the study enhances understanding of the financial dynamics between auditors and high-growth clients. The findings contribute to the literature on auditor independence, market power and audit quality, highlighting the implications of economic incentives and industry expertise for audit pricing and service provision. This study fills a gap in research by directly examining the long-term financial benefits of audit fee discounting in the audit industry.

Purpose The COVID-19 pandemic has driven the adoption of advanced technologies in auditing, including the use of drones for inventory observation. However, practitioners have expressed concerns about the additional litigation risks associated with these technologies. This study aims to investigate whether using drones for inventory observation may increase auditors’ legal liabilities. In addition, it explores how perceptions of conventionality and normalcy interact in auditor liability and their broader implications. Design/methodology/approach This research employs a 2×2 experimental design to examine the effects of inventory observation method (drones vs human staff) and consistency with audit industry norms (consistent vs inconsistent) on jurors’ negligence assessments. Participants assume the role of mock jurors in a hypothetical legal case involving allegations of insufficient inventory observation. The study manipulates the observation method and its alignment with industry practices with a view toward disentangling the constructs of conventionality and normalcy. Findings The findings show that jurors assign higher negligence to auditors using drones when their use is inconsistent with audit industry norms, compared to auditors relying on human staff. Conversely, when drone use aligns with audit industry norms, jurors attribute lower negligence compared to those not using drones. In addition, the results indicate that the perceived foreseeability of audit failure mediates this interaction effect. Originality/value This research contributes to the extant literature by addressing the distinction between the constructs of conventionality and normalcy. It also offers practical implications for auditors, emphasizing the importance of demonstrating due care when adopting new technologies to align with audit industry norms.

Purpose This study aims to analyze whether ESG performance is associated with audit fees. It also investigates the moderating effect of family firm status on that relationship. Design/methodology/approach The sample included companies from the STOXX 600 index. The authors collected data from 492 non-financial companies between 2012 and 2023, resulting in a total of 3,831 firm-year observations. Data were sourced from the Refinitiv Eikon database and analyzed using panel data models based on fixed-effects regression. The findings are robust to generalized method of moments estimation, thereby alleviating concerns about potential endogeneity. Findings The findings show that audit fees are significantly lower for firms with higher ESG scores, suggesting that sustainability performance tends to reduce auditors’ risk exposure, resulting in lower effort and/or risk premiums. Nonetheless, results show that the estimated coefficient on the moderating variable is positive, contrary to the predicted negative direction. That is, auditors could perceive ESG performance as attempts to conceal managerial opportunistic behavior in family firms. Research limitations/implications The authors’ evidence underscores that managers’ engagement in positive CSR practices can reduce firm risks and increase firm transparency, while family control moderates this nexus. Originality/value This study contributes to the literature on corporate social responsibility and audit quality by investigating the negative association between ESG performance and audit fees. It provides empirical evidence on the moderating effect of family–firm status on this association using an extensive sample of European-listed firms.

Purpose This paper aims to utilize the unique setting of Hong Kong to investigate whether the fee premium associated with abnormally high audit fees indicates compromised auditor independence or reflects additional, unobserved efforts that enhance audit quality. Design/methodology/approach Based on a sample of Hong Kong initial public offerings (IPOs) from 2009 to 2019, the study analyzes the association between abnormal audit fees and pre-IPO real activities manipulation (RAM). Findings The analysis reveals that auditors charging abnormally high fees are associated with reduced pre-IPO RAM, and that stronger investor protection regulations contribute to improved audit quality. Moreover, this study finds that a robust institutional environment can mitigate the effects of political influence on audit quality, which is particularly important for politically connected firms seeking cross-border listings. Originality/value Overall, auditors who charge higher fees within a strong institutional context provide superior IPO audit quality compared to their counterparts.

Purpose Public companies with required reporting deadlines subject auditors to a compressed timeframe in which to obtain sufficient evidence to form their opinion on the financial statements. Psychology theory posits that individuals adjust their actions to avoid the penalties associated with missing deadlines. The purpose of this study is to examine the association between deadline-imposed time pressure and audit quality. Design/methodology/approach The authors measure deadline-imposed time pressure as the proximity of the auditor’s report date to the required filing deadline. The authors use different measures of audit quality – restatements and receipt of a Generally Accepted Accounting Principles or disclosure-related Securities and Exchange Commission comment letter related to a company’s Form 10-K. Findings The authors find consistent evidence of lower audit quality when the audit report date is near, at or slightly beyond the original (or extended) required filing deadline relative to companies with an audit report date preceding the required filing deadline by more than a week. In addition, although Big N auditors are able to moderate the negative effects of deadline-imposed time pressure when the audit report date is near the filing deadline (or beyond the extended deadline), these negative effects persist when completing procedures on the required filing deadline or during the extension period. Research limitations/implications The findings suggest that auditors completing procedures at or near the required filing deadline (or extended deadline) may compromise audit quality in an effort to help the client meet the reporting requirement. Originality/value The findings also highlight an opportunity for standard setters to require audit report dating information that could aid financial statement users in identifying auditors under heightened deadline-imposed time pressure.

Purpose This study aims to illustrate how two important theoretical constructs, upper echelons theory and cognitive resource theory, can be applied to the presence of a prominent chief financial officer (CFO)/treasurer dual role (i.e. when a CFO also holds a treasurer title simultaneously) and relevant treasury, financial reporting and audit outcomes. Design/methodology/approach Using a sample of 4,899 firms from 2004 through 2019, the authors examine whether the presence of a CFO/treasurer dual role is associated with financial reporting quality, audit pricing, operating efficiency, the likelihood of receiving a going concern opinion, the frequency of management-issued earnings per share (EPS) guidance, cash flow management and investment efficiency. Findings The authors find that firms with a CFO/treasurer dual role, when compared to non-CFO/treasurer firms with (or without) a separate treasurer, have beneficial outcomes related to audit pricing and going concern opinions. CFO/Treasurer firms issue less frequent EPS guidance, have lower operating cash flow volatility and invest efficiently (i.e. do not under- or over-invest) when compared to non-CFO/treasurer firms with a separate treasurer. The authors document only limited evidence of higher financial reporting quality for CFO/treasurer firms compared to non-CFO/treasurer firms with (or without) a separate treasurer. Originality/value The results are consistent with the notion that firms with CFO/treasurers experience incremental benefits in relevant firm outcomes.

Purpose As one of China’s informal institutions, red culture serves a soft constraint function in economic and social development. However, the question of its impact on corporate governance remains unresolved. This study aims to examine the association between Chinese red culture and corporate governance level. Design/methodology/approach Hypotheses were tested using multiple linear regression models based on hand-collected data on red culture and a sample of Chinese listed companies from 2009 to 2020. Findings Red culture, as a carrier of specific cultural values, significantly promotes corporate governance level. In addition, red culture promotes the level of corporate governance through two channels by improving the quality of internal control and shaping a culture of corporate collaboration. Moreover, in companies with strong market power and for Chief Executive Officers (CEOs) with military experience, the positive impact of red culture on corporate governance is more significant. Originality/value This study examines the impact of red culture on the level of corporate governance in enterprises using a unique red culture dataset collected manually. It not only contributes to the existing body of research on informal institutions and corporate governance, but it also provides empirical evidence of the impact of red culture on corporate governance level. Furthermore, the findings are socially oriented, which facilitates the effective integration of corporate and social governance by underscoring the soft constraint function of red culture.

Purpose This study examines the corporate tax consequences of the European Union (EU) audit reform, which restricts the provision of non-audit services (NAS) by statutory auditors and grants Member States discretion to prohibit or allow auditor-provided tax services (APTS). This study aims to assess how the prohibition of APTS affects firms’ tax behaviour and reporting. Design/methodology/approach Using a difference-in-differences research design, the study analyses a panel of publicly listed European firms around the implementation of the Reform. It compares tax-related outcomes between firms located in Member States that prohibited APTS and those in Member States that derogated from the prohibition. Tax avoidance, tax-related Key Audit Matters (KAMs) and tax accrual quality serve as outcome variables. Additional analyses investigate the moderating role of auditor expertise, using multiple proxies for industry and tax specialisation. Findings The findings reveal that firms in countries prohibiting APTS exhibit significantly lower tax avoidance, fewer tax KAMs and lower tax accrual quality relative to firms in countries that derogate from this Regulation. The involvement of industry or tax-specialist auditors attenuates these negative effects on tax outcomes, thus partially offsetting the loss of knowledge spillover due to the Reform. Originality/value This study contributes to audit literature by documenting both intended and unintended tax consequences of NAS prohibitions. It offers practical insights for regulators and policymakers evaluating the post-implementation impact of the EU Audit Reform on financial reporting and corporate tax practices.

Purpose The purpose of this study is to develop an innovative analytical framework that examines the impact of environmental auditing on carbon information disclosure from a three-dimensional perspective encompassing resource flow, value flow and information flow. Using a data sample of Chinese listed chemical companies, the study investigates whether resource and environmental auditing contributes to improving the carbon disclosure quality of enterprises within this specific industry in China. Design/methodology/approach The study examines the carbon disclosure data of Chinese A-share chemical enterprises from 2013 to 2022 by using a series of empirical strategies, including parallel trend testing, multiperiod difference-in-differences, placebo testing and variable substitution methods. Building on these analyses, the research develops a three-dimensional analytical framework to assess the impact of resource and environmental auditing on enterprises’ carbon disclosure performance. The empirical evidence is then used to evaluate whether such auditing enhances the quality of carbon information disclosure in the chemical industry. Findings The study reveals that resource and environmental audits significantly enhance the quality of corporate carbon disclosure, with a more pronounced effect on enterprises that adopt such audits. Specifically: (1) Resource and environmental audits directly improve the quality of carbon information disclosure by fostering greater transparency and accountability. (2) These audits encourage local governments to strengthen the enforcement of environmental policies, thereby indirectly improving disclosure quality. On one hand, this is reflected in stricter environmental penalties and higher environmental tax burdens, which reinforce effective regulatory mechanisms. On the other hand, it is manifested in increased environmental subsidies, which ensure the efficient implementation of supportive policies. (3) Strengthening corporate carbon disclosure systems through resource and environmental audits not only improves firms’ environmental performance but also enhances their economic and social outcomes, underscoring the synergistic relationship between environmental sustainability and economic development. (4) Effective management of resource and environmental audit results can help management improve the green innovation capability of enterprise production processes, reduce waste emissions, lower production costs, enhance resource recycling efficiency, provide audit experience evidence for the green transformation of enterprises and promote the improvement of performance of enterprise environmental management. Originality/value This study offers a novel perspective on the influence of resource and environmental auditing on the quality of corporate carbon information disclosure. By constructing an analytical framework that integrates the three dimensions of resource flow, value flow and information flow, it advances understanding of how environmental auditing shapes disclosure practices. The findings provide theoretical support and a practical model for promoting high-quality green economic development and strengthening environmental governance in the chemical industry, while also contributing to the standardized and coordinated advancement of environmental, economic and social benefits in chemical enterprises.