Purpose This paper aims to examine the effect of compliance to mandatory corporate social responsibility (CSR) on audit fees in the Indian setting. Design/methodology/approach The sample consists of 1,291 Indian-listed firms that were mandated by Clause 135 of the Companies Act 2013 to spend 2% of their average three-year profits before tax as CSR expenditure. The period of the study is from 2015 to 2019. The authors use a fixed-effect regression model. In addition, the authors also use the Heckman Selection Model, controlling for potential self-selection, a difference-in-differences and the regression discontinuity design analysis. Findings The authors find that firms complying with mandatory CSR regulation had to incur high audit fees, and the effect is more pronounced for firms that did not have CSR activities before the mandatory CSR regulation. In addition, the authors also find that audit fees are higher for firms with higher levels of operating, business and financial reporting risks. Thus, the result supports the notion that auditors associate higher inherent risk with audit risk for firms that are forced to engage in CSR activities. Practical implications The findings are potentially informative to regulators and policymakers in India and in other jurisdictions that may be considering mandating CSR. Originality/value To the best of the authors’ knowledge, this is the first work that looks at how auditors react to the firm’s compliance with mandatory CSR policies. The authors show that for an auditor, CSR compliance is an aspect of audit risk and it has not been explored in the extant literature, as a regulatory intervention in the form of mandatory CSR spending is unique (first of its kind) in the Indian setting. Prior work focuses on CSR disclosure; however, the setup allows us to examine CSR spending mandated by regulation. Moreover, the authors also add to the literature on audit fee determinants.

Purpose The purpose of this study is to examine whether the average continuing professional education (CPE) hours per Certified Public Accountant (CPA) in accounting firms’ audit departments affects audit quality. This paper aims to identify which segments of the audit market benefit most from enhanced professional education. Design/methodology/approach This study analyzes publicly disclosed information on the average CPE hours per CPA in accounting firms’ audit departments to examine the role of CPE in audit quality, especially in non-Big 4 auditors. The data on CPE hours is manually collected from auditors’ annual transparency reports. The sample consists of 12,884 firm-year observations from both Korean public and private firms between 2017 and 2020. Findings This study finds that increasing CPE hours improves audit quality, with the positive effect being more pronounced in firms audited by non-Big 4 auditors. This suggests that non-Big 4 auditors provide higher-quality audits when they acquire more training hours, compared to Big 4 auditors. In addition, the effect of CPE is stronger when non-Big 4 auditors serve private firms and when they are industry non-specialists. The results remain robust across alternative measures of audit quality and CPE, as well as alternative model specifications (e.g. propensity score matching, change analysis and models with auditor or firm fixed effects) to address potential endogeneity concerns. Practical implications The findings that increasing CPE hours enhance the quality of audits conducted by non-Big 4 auditors and industry non-specialists have important implications to regulators, practitioners, and academics. This paper provides evidence on which segments of the audit market benefit most from the competence gained through CPE that is crucial for enhancing audit quality. Originality/value This study provides large-sample empirical evidence that directly examines the differing effect of CPE hours on audit quality between Big 4 and non-Big 4 auditors. It also contributes to the literature on the role of CPE by enhancing our understanding of which segments of the audit market benefit most from highly educated auditors.

Purpose This study aims to investigate the relationship between the prior audit experience of Chief Financial Officers (CFOs) and corporate internal control quality, specifically how the professional background enhances their expertise in internal control. This expertise may enhance their effectiveness in overseeing and maintaining robust internal control systems. Design/methodology/approach Using a sample of Chinese A-share listed firms from 2012 to 2020, this study examines the association between former-auditor CFOs and internal control quality. To ensure the robustness of this study’s conclusion, the authors use a Difference-in-Differences design, propensity score matching, entropy balancing, instrumental variable estimation and alternative fixed-effects specifications. Findings This study found that CFOs with prior audit experience are associated with improved internal control quality. This association is more pronounced when the CFO has senior-level audit experience, more recent tenure at an accounting firm, prior experience at an international Big 4 or a domestic Top 10 accounting firm or when the firm operates in a highly digitalized environment. Aligned with the COSO Framework (2013), path analysis reveals two key channels: improved risk assessment and strengthened internal supervision. Furthermore, former-auditor CFOs contribute to more reliable financial reporting, greater accounting conservatism and reduced corporate default risk. Originality/value These findings expand the literature on the benefits of accounting firm experience and clarify the underlying mechanisms. Additionally, this study provides a plausible explanation for the increasing preference for appointing CFOs with audit experience.

Purpose This study aims to investigate how a firm’s engagement in foreign direct investments (FDIs) affects the firm’s audit outcomes. Design/methodology/approach Using project-level FDI information from Orbis provided by the Bureau van Dijk, the authors use OLS and probit regressions in their empirical analyses. They also undertake instrumental variable regressions using natural disaster shocks in destination countries, identified using the EM-DAT database administered by the Center for Research on the Epidemiology of Disasters, to address potential endogeneity issues and establish causal inferences. Findings The authors find that firms that announce FDI, engage in a larger number of FDI projects, or undertake more intensive FDI engagements incur higher audit fees. The authors also find that FDI-active firms exhibit a higher likelihood of receiving going-concern audit opinions when they engage in FDI activities or their FDI engagements are more intensive. These findings suggest that auditors recognize elevated audit risks arising from the complexity and uncertainty associated with FDI activities. Further analysis indicates that country-level corruption influences how FDI engagement affects auditors’ risk assessments, highlighting the role of both project attributes and host country attributes. Originality/value The findings of this study suggest that not only does a firm’s FDI facilitate the firm’s strategic business objectives but FDI also has significant implications for its financial reporting environment and audit outcomes.

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.