The Cost of Sin: The Effect of Social Norms on Audit Pricing

61 Pages Posted: 26 Sep 2013

See all articles by Stergios Leventis

Stergios Leventis

International Hellenic University - School of Economics and Business Administration; International Hellenic University (IHU)

Iftekhar Hasan

Fordham University ; Bank of Finland; University of Sydney

Emmanouil Dedoulis

Athens University of Economics and Business - Department of Business Administration

Date Written: August 15, 2013

Abstract

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.

Keywords: social norms, audit pricing, controversial industries, sin companies

JEL Classification: G21, G30, G34, G38, M41

Suggested Citation

Leventis, Stergios and Hasan, Iftekhar and Dedoulis, Emmanouil, The Cost of Sin: The Effect of Social Norms on Audit Pricing (August 15, 2013). Bank of Finland Research Discussion Paper No. 13/2013, Available at SSRN: https://ssrn.com/abstract=2330744 or http://dx.doi.org/10.2139/ssrn.2330744

Stergios Leventis (Contact Author)

International Hellenic University - School of Economics and Business Administration ( email )

14th km Thessaloniki
Moudania
Thermi, Thessaloniki 57001
Greece

International Hellenic University (IHU) ( email )

14th km Thessaloniki
Moudania
Thermi, Thessaloniki 57001
Greece

Iftekhar Hasan

Fordham University ( email )

45 COLUMBUS AVENUE
GBA-5TH FLOOR
NEW YORK, NY 10023
United States

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

University of Sydney ( email )

P.O. Box H58
Sydney, NSW 2006
Australia

Emmanouil Dedoulis

Athens University of Economics and Business - Department of Business Administration ( email )

Athens
Greece
30 210 820-3453 (Phone)
30 210 823-0966 (Fax)

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
147
Abstract Views
1,632
Rank
358,856
PlumX Metrics