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    Understanding and Contributing to the Enigma of Corporate...
    research summary posted July 27, 2015 by Jennifer M Mueller-Phillips, tagged 15.0 International Matters, 15.05 Sustainability Services 
    Understanding and Contributing to the Enigma of Corporate Social Responsibility (CSR) Assurance in the United States.
    Practical Implications:

    The results indicate that many companies that currently issue unassured CSR reports could economically benefit from obtaining CSRA through a reduction in their cost-of-capital and also benefit from reductions in analyst forecast errors and dispersion. As such, CSRA providers, especially accounting firms, need to improve their communication to convey these benefits to prospective clients. The capital markets appear to discount and not value CSRA when it is likely being used for impression management/greenwashing. Thus, the more important public policy issue is how to curb instances of CSRA being used for impression management/greenwashing purposes. For example, public policy makers may want to consider the merits of regulating CSRA providers where there are severe consequences for not identifying inaccurate, incomplete, or misleading CSR reporting.


    Casey, R. J., & Grenier, J. H. 2015. Understanding and Contributing to the Enigma of Corporate Social Responsibility (CSR) Assurance in the United States. Auditing: A Journal of Practice & Theory 34 (1): 97-130.

    assurance, corporate social responsibility (CSR), environmental, nonfinancial performance indicators, sustainability
    Purpose of the Study:

    The United State public companies have historically trailed their international counterparts in the issuance and assurance of corporate social responsibility (CSR) reports. Many investors and other stakeholders are skeptical of CSR reports, viewing them as public-relation ploys. Recently, the U.S. has gained ground in the issuance of reports, but independent assurance remains uncommon. As an initial attempt to understand this enigma, this paper presents a comprehensive, empirical investigation of CSR assurance (hereafter, CSRA) in the idiosyncratic U.S. setting.

    From an economic perspective, the low demand is due to U.S. firms not perceiving that the benefits of CSRA justify the costs, consistent with previous criticisms of CSRA. Specifically, scholars argue that CSRA is overly influenced by management and, thus, often does not address the relevance or completeness of CSR reporting. There is also substantial variability in assurance scope, independence of the assurance provider, external criteria, and the level of assurance provided. Despite these criticisms, theory and empirical evidence suggests that CSRA is potentially valuable. By enhancing the credibility of how the firm is managing its social and environmental risks CSRA theoretically improves firm reputation and makes it easier to acquire resources.

    Design/Method/ Approach:

    The two-part exploratory analysis employs a sample of 2,649 U.S. CSR reports, of which 230 are assured. The sample data was gathered from the Corporate Register database and Compustat. The sample uses data from 1993 to 2010. The authors employ sequential logit models to emulate the three interrelated decisions to (1) issue a CSR report, (2) have it assured, and (3) choose a CSRA provider (i.e., accounting or nonaccounting).

    • Results indicate that the U.S. CSRA market fundamentally differs from international markets.
    • Large firms are more likely to obtain CSRA, as they are prone to public criticism due to their visibility.
    • Highly leveraged firms are less likely to obtain CSRA. Thus, strong U.S. bank monitoring could be suppressing CSRA demand, as highly leveraged firms may be indirectly discouraged from allocating resources to CSRA to avoid violating debt covenants. Nonetheless, the authors find that liquidity is not associated with CSRA demand indicating that short-term financial constraints are likely not a major reason for low U.S. CSRA levels.
    • Having CSR strengths increases CSRA demand, which is not surprising as weak CSR performance does not need assurance to be credible. However, having CSR concerns also increases CSRA demand.
    • Firms with CSR concerns are less likely to choose the higher-quality CSRA offered by accounting providers. Large firms are not more likely to use accounting providers.
    • Results of the user perspective tests indicate that CSRA is valued by equity markets. Specifically, CSRA is associated with reduced cost-of-capital, analyst forecast dispersion, and analyst forecast errors. The reductions in cost-of-capital and forecast dispersion are significantly greater when an accounting firm is the CSRA provider.
    International Matters
    Sustainability ServicesTraining & General Experience