Mandatory CSR and its impact on audit fees

Mehul Raithatha and Tara Shankar Shaw

Managerial Auditing Journal, 2026, vol. 41, issue 4, 739-769

Abstract: PurposeThis paper aims to examine the effect of compliance to mandatory corporate social responsibility (CSR) on audit fees in the Indian setting.Design/methodology/approachThe 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.FindingsThe 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 implicationsThe findings are potentially informative to regulators and policymakers in India and in other jurisdictions that may be considering mandating CSR.Originality/valueTo 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.

Keywords: India; CSR; Audit fees; Audit risk (search for similar items in EconPapers)
Date: 2026
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.emerald.com/maj/article/41/4/739/13463 ... impact-on-audit-fees (text/html)
https://www.emerald.com/maj/article-pdf/41/4/739/11306517/maj-10-2024-4544en.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:majpps:maj-10-2024-4544

DOI: 10.1108/MAJ-10-2024-4544

Access Statistics for this article

Managerial Auditing Journal is currently edited by Professor Jie Zhou

More articles in Managerial Auditing Journal from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().