Corporate ESG Rating Divergence and Auditor Risk Response: From the Perspective of Abnormal Audit Fees and Audit Team Changes

Abstract

Abstract: There are differences in the ratings of the environmental, social, and corporate governance (ESG) of enterprises by different ESG rating agencies. By making use of the data of ESG performance of A-share listed companies from 2018 to 2021, this study investigates the impact of the differences in ESG rating results on auditor risk response behaviors. The findings show that the greater the divergence in ESG rating results among companies, the higher the abnormal audit fees charged by auditors, and the better the audit team configured by accounting firms. The mechanism testing reveals that the differences in ESG rating results among companies can increase their operational risks, leading auditors to adopt risk response behaviors such as increasing audit investment and charging higher abnormal audit fees. Further research has found that compared to the differences in the environmental rating results and the social responsibility rating results of enterprises, auditors are more likely to take risk response actions in response to the differences in corporate governance rating results. The economic consequence analysis reveals that the risk response actions taken by auditors and accounting firms in response to the differences in ESG rating results can improve audit quality. To this end, auditors should strengthen the risk assessment of enterprises with differing ESG rating results, and the government departments should develop and promote a standardized and unified ESG rating system and ESG information disclosure standards..

Key words: corporate ESG rating divergence, auditor risk responses, business risks, audit input

CLC Number:

F239.4

YU Peng, FAN Yi-zhong, LI Xiao-yan, REN Yi-jia. Corporate ESG Rating Divergence and Auditor Risk Response: From the Perspective of Abnormal Audit Fees and Audit Team Changes[J]. Contemporary Finance & Economics, 2024, 0(6): 139-152.

References

[1] 蔡利, 张翼凌. 财务和非财务信息非对称性、舞弊风险与审计师应对行为[J]. 会计研究, 2022, (6): 178-192.
[2] 陈丽红, 易冰心, 张龙平. 异常审计费用与关键审计事项披露[J]. 审计研究, 2022, (2): 60-70.
[3] 范云朋, 孟雅婧, 胡滨. 企业ESG表现与债务融资成本——理论机制和经验证据[J]. 经济管理, 2023, (8): 123-144.
[4] 方先明, 胡丁. 企业ESG表现与创新——来自A股上市公司的证据[J]. 经济研究, 2023, 58(2): 91-106.
[5] 葛锐, 张健. 证监会立案调查与审计质量提升[J]. 会计研究, 2020, (11): 125-135.
[6] 胡国柳, 王禹, 胡珺. 减税政策会影响审计师风险应对行为吗——基于简并增值税税率政策的准自然实验[J]. 审计研究, 2022, (4): 88-98.
[7] 江艇. 因果推断经验研究中的中介效应与调节效应[J]. 中国工业经济, 2022, (5): 100-120.
[8] 李文颖, 陈宋生, 曹圆圆. 签字CPA团队异质性与审计质量研究[J]. 当代财经, 2019, (10): 120-129.
[9] 李晓艳, 梁日新, 李英. ESG影响股票流动性吗?——基于ESG评级和评级结果分歧的双重视角[J]. 国际金融研究, 2023, (11): 75-86.
[10] 郦金梁, 何诚颖, 廖旦, 等. 舆论影响力、有限关注与过度反应[J]. 经济研究, 2018, (3): 126-141.
[11] 廖义刚, 杨雨馨. 审计师能识别分析师预测传递的风险信号吗——基于关键审计事项语调的文本分析[J]. 当代财经, 2021, (1): 137-148.
[12] 粟立钟, 张润达, 鲁睿. 股权激励与外部审计师风险应对[J]. 审计研究, 2019, (3): 120-128.
[13] 王靖懿, 夏常源, 傅代国. 放松卖空管制、控股股东股权质押与审计费用[J]. 审计研究, 2019, (3): 84-92.
[14] 席龙胜, 赵辉. 企业ESG表现影响盈余持续性的作用机理和数据检验[J]. 管理评论, 2022, (9): 313-326.
[15] 张云齐, 杨淏宇, 张笑语. ESG评级结果分歧与债务资本成本[J]. 金融评论, 2023, (4): 22-43+124.
[16] 周泽将, 谷文菁, 伞子瑶. ESG评级结果分歧与分析师盈余预测准确性[J]. 中国软科学, 2023, (10): 164-176.
[17] Asante-Appiah B, Lambert T A.The role of the external auditor in managing environmental, social, and governance(ESG)reputation risk[J]. Review of Accounting Studies, 2023, 28(4): 2589-2641.
[18] Asante-Appiah B.Does the severity of a client’s negative environmental, social and governance reputation affect audit effort and audit quality?[J]. Journal of Accounting and Public Policy, 2020, 39(3): 106713.
[19] Avramov D, Cheng S, Lioui A, et al.Sustainable investing with ESG rating uncertainty[J]. Journal of Financial Economics, 2022, 145(2): 642-664.
[20] Berg F, Koelbel J F, Rigobon R.Aggregate confusion: The divergence of ESG ratings[J]. Review of Finance, 2022, 26(6): 1315-1344.
[21] Burke J J, Hoitash R, Hoitash U.Auditor response to negative media coverage of client environmental, social, and governance practices[J]. Accounting Horizons, 2019, 33(3): 1-23.
[22] Chatterji A K, Durand R, Levine D I, et al.Do ratings of firms converge?Implications for managers, investors and strategy researchers[J]. Strategic Management Journal, 2016, 37(8): 1597-1614.
[23] Christensen D M, Serafeim G, Sikochi A.Why is corporate virtue in the eye of the beholder?The case of ESG ratings[J]. The Accounting Review, 2022, 97(1): 147-175.
[24] Cohen D A, Dey A, Lys T Z.Real and accrual-based earnings management in the pre-and post-Sarbanes-Oxley periods[J]. The Accounting Review, 2008, 83(3): 757-787.
[25] Dhaliwal D S, Li O Z, Tsang A, et al.Voluntary nonfinancial disclosure and the cost of equity capital:The initiation of corporate social responsibility reporting[J]. The Accounting Review, 2011, 86(1): 59-100.
[26] Elder R, Zhang Y, Zhou J, et al.Internal control weaknesses and client risk management[J]. Journal of Accounting, Auditing & Finance, 2009, 24(4): 543-579.
[27] Gibson-Brandon R, Krueger P, Schmidt P S.ESG rating disagreement and stock returns[J]. Financial Analysts Journal, 2021, 77(4): 104-127.
[28] Kim Y, Park M S.Real activities manipulation and auditors’ client-retention decisions[J]. The Accounting Review, 2014, 89(1): 367-401.
[29] Kimbrough M D, Wang X, Wei S J, et al.Does voluntary ESG reporting resolve disagreement among ESG rating agencies?[J]. European Accounting Review, 2024, 33(1): 15-47.
[30] Krishnan G V, Sun L L, Wang Q, et al.Client risk management:A pecking order analysis of auditor response to upward earnings management risk[J]. Auditing:A Journal of Practice & Theory, 2013, 32(2): 147-169.
[31] Serafeim G, Yoon A.Stock price reactions to ESG news: The role of ESG ratings and disagreement[J]. Review of Accounting Studies, 2023, 28(3): 1500-1530.
[32] Simunic D A.The pricing of audit services:Theory and evidence[J]. Journal of Accounting Research, 1980, 18(1): 161-190.
[33] Wang Y, Chui A C.Product market competition and audit fees[J]. Auditing:A Journal of Practice & Theory, 2015, 34(4): 139-156.
[34] Welch K, Yoon A.Do high ability managers choose ESG projects that create shareholder value?Evidence from employee opinions[J]. Review of Accounting Studies, 2023, 28(4): 2448-2475.
[35] Yan H M, Xie S W.How does auditors’ work stress affect audit quality?Empirical evidence from the Chinese stock market[J]. China Journal of Accounting Research, 2016, 9(4): 305-319.