Corporate Social Irresponsibility in the Media: Steering Through Audit Fee Challenges

Tracie Frost, Liwei Shan, Albert Tsang, and Miao Yu’s research, published in July 2022, examines the relationship between media coverage of corporate social irresponsibility (CSI) and audit fees on a global scale. Their study, using data from 35 countries, found a significant positive correlation between media exposure of CSI and increased audit fees. This relationship, however, varies based on several factors.

The study highlights that firms with a strong commitment to corporate social responsibility (CSR) experience a less pronounced increase in audit fees following negative media coverage. In contrast, firms in countries with more robust investor protections, higher regulatory quality, and stringent CSR disclosure requirements face a more significant rise in audit fees in response to CSI media coverage. This suggests that auditors perceive CSI as an audit risk, especially in more stringent legal environments, and adjust their fees accordingly.

Furthermore, the research indicates that a firm’s CSR reputation can mitigate the impact of negative media coverage on audit fees. Firms with a dedicated corporate sustainability officer (CSO), CSR-related incentive components in executive compensation, and better CSR reporting practices show a less significant increase in audit fees following CSI media exposure.

Overall, this study provides critical insights into how the global audit industry responds to corporate social irresponsibility as reported in the media, emphasizing the interplay between media coverage, audit fees, and CSR commitment in different institutional contexts.

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