The cost of sin: The effect of social norms on audit pricing

Stergios Leventis, Iftekhar Hasan and Emmanouil Dedoulis

No 13/2013, Bank of Finland Research Discussion Papers from Bank of Finland

Abstract: In this paper we provide evidence for the effects of social norms on audit pricing by studying companies belonging to the alcohol, firearms, gambling, military, nuclear power, and tobacco industries, which are often described as "sin" companies. We hypothesize that the disparities between "sin" firms operations and prevailing social norms create an adverse context which heightens the client's business risk assessment by auditors and is, thereby, reflected in the pricing decisions for audit and consulting services. Having controlled for the impact of variables relating to client attributes, auditor attributes and engagement attributes, we demonstrate that audit firms charge significantly higher audit and consulting fees to companies that deviate from prevailing social norms. Additionally, we show that audit pricing levels within the "sin" group depend both on prevailing political views and on the level of "vice" exhibited by "sin" companies.

Keywords: Social norms; audit pricing; controversial industries; sin companies (search for similar items in EconPapers)
JEL-codes: G21 G30 G34 G38 M41 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Journal Article: The cost of sin: The effect of social norms on audit pricing (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bofrdp:rdp2013_013

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