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The cost of sin: The effect of social norms on audit pricing

  • Leventis, Stergios

    ()

    (School of Economics and Business Administration, International Hellenic University)

  • Hasan, Iftekhar

    ()

    (Schools of Business, Fordham University and Bank of Finland)

  • Dedoulis , Emmanouil

    ()

    (Department of Business Administration, Athens University of Economics and Business)

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 vlevel of “vice” exhibited by “sin” companies.

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File URL: http://www.suomenpankki.fi/en/julkaisut/tutkimukset/keskustelualoitteet/Documents/BoF_DP_1313.pdf
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Paper provided by Bank of Finland in its series Research Discussion Papers with number 13/2013.

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Length: 58 pages
Date of creation: 15 Aug 2013
Date of revision:
Publication status: Published as Leventis, Stergios, Iftekhar Hasan and Emmanouil Dedoulis, 'The cost of sin: The effect of social norms on audit pricing' in International Review of Financial Analysis , 2013, pages 152-165.
Handle: RePEc:hhs:bofrdp:2013_013
Contact details of provider: Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
Web page: http://www.suomenpankki.fi/en/

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