The purpose of this paper is to examine the relationship between and corporate environmental responsibility (CER) and audit risk.
A survey participation request was mailed to 5,008 US auditors at random. The request provided a link to an electronic survey. The final sample consists of anonymous responses from 163 auditors.
The authors find that auditors, on average, do not perceive a significant relationship between corporate environmental strengths and audit risk; however, they do perceive an increase in audit risk among firms with corporate environmental concerns. Use of CER in the risk assessment process also varies across types of CER: 15 per cent of auditors use corporate environmental strengths to assess audit risk, while 43 per cent of auditors use corporate environmental concerns to assess audit risk. Perception of the CER/audit risk relationship is a significant determinant of CER use. Finally, both types of CER are found to have average usefulness in the risk assessment process.
The findings are limited to US auditors; results may not be transferable to other countries.
Studies involving the impact of CER on earnings generally involve archival data. By examining the impact of CER on audit risk, using a unique dataset, the authors present a different and timely setting to study the CER/earnings relationship. To the best of the authors' knowledge, this is the first paper to document the relationship between CER and audit risk.
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