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.
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.
| Original language | English |
|---|---|
| Pages (from-to) | 152-165 |
| Number of pages | 14 |
| Journal | International Review of Financial Analysis |
| Volume | 29 |
| DOIs | |
| Publication status | Published - Sept 2013 |
Bibliographical note
NOTICE: this is the author’s version of a work that was accepted for publication in International review of financial analysis. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Leventis, S, Hasan, I & Dedoulis, E, 'The cost of sin: the effect of social norms on audit pricing' International review of financial analysis, vol. 29 (2013) DOI http://dx.doi.org/10.1016/j.irfa.2013.03.006Keywords
- social norms
- audit pricing
- controversial industries
- sin companies