Corporate Social Responsibility, Audit Fees, and Audit Opinions

We examine whether and how auditors in the United States respond to the Corporate Social Responsibility (CSR) of their client firms, using a sample for the period 2000-2008. We find that auditors charge lower fees and reduce the propensity to issue going concern qualifications to client firms with superior CSR performance, but increase them for clients with significant CSR concern. We interpret this finding as suggesting that auditors use CSR information during the audit planning process in assessing a client's audit risk. This interpretation is further strengthened by our finding that the effect of CSR performance on audit fees is stronger in industries with a high average CSR concern and in pollution prone industries. Our results are robust to the change specification of the audit fees model, alternative measures of firms' CSR performance, a categorical analysis of the main CSR dimensions, and additional control variables for earnings quality, CSR self-reporting, and the assurance of CSR reporting. Our additional tests show that both good CSR performance and low CSR concern are associated with a lower future litigation risk for a client, which lends strong support to our main finding that auditors value CSR performance in their decision making.