Audit Quality and Environment, Social, and Governance Risks

Meiying Hua () and Pervaiz Alam
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Meiying Hua: Department of Accounting, Beacom School of Business, University of South Dakota, Vermillion, S.D., 57069, United States of America

International Journal of Business Research and Management (IJBRM), 2021, vol. 12, issue 2, 50-75

Abstract: This study examines the association between a firm’s environment, social and governance (ESG) risks and audit quality. We measure audit quality using two proxies: audit fees and discretionary accruals. ESG risk is measured using Representative Risk Index from the RepRisk AG database. Using a sample of public U.S. firms from the period between 2007 and 2016, we find that there is positive association between audit fess and ESG risk implying that firms pay higher audit fees when their ESG risk increase in order obtain higher quality audit services. We also find that there is a negative relationship between ESG risk measures and discretionary accruals suggesting firms assessed having high ESG risks do not manage their earnings as much. Overall, our results indicate that auditors take ESG risks of a firm into account when performing financial statements audit.

Keywords: Environment; Social; and Governance Risks; Audit Quality; Firm Performance. (search for similar items in EconPapers)
JEL-codes: L1 M14 M42 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:aml:intbrm:v:12:y:2021:i:2:p:50-75

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