Scandinavian Working Papers in Economics
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Bank of Finland Research Discussion Papers, Bank of Finland

No 13/2013:
The cost of sin: The effect of social norms on audit pricing

Stergios Leventis (), Iftekhar Hasan () and Emmanouil Dedoulis ()

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; (follow links to similar papers)

JEL-Codes: G21; G30; G34; G38; M41; (follow links to similar papers)

58 pages, August 15, 2013

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This paper is published as:
Leventis, Stergios, Iftekhar Hasan and Emmanouil Dedoulis, (2013), 'The cost of sin: The effect of social norms on audit pricing', International Review of Financial Analysis, Vol. 29, September, pages 152-165

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