The Effect of Corporate Social Responsibility on Audit Fees According to Environmental Uncertainty: Evidence from Korean Listed Companies

This study empirically analyzed how corporate social responsibility and uncertainty in business environment affect audit fees. If corporate social responsibility (CSR) activities are recognized as non-financial performance values by the company’s stakeholders, or play a role in enhancing transparency, these companies will reduce their audit risk compared to other companies, resulting in lower audit costs. In addition, companies with low uncertainty in the management environment are expected to have relatively lower audit fees than those that do not, because the factors and risks of audit input are relatively lower than those of high companies. The important analysis results of this study are as follows. First, there was a positive (+) relationship between corporate social responsibility (CSR) and audit fees. This may be the result of not taking into account the non-financial activities of the audited company when determining the audit fee, and is similar to the previous previous studies that examined the relevance of dysfunctions rather than the net functions of social responsibility (CSR). Second, it was found that corporate social responsibility activities with low uncertainty in the management environment had a significant negative (-) effect on audit fees. Taking these results together, the audit firm judges the CSR activities of the audited company as discretionary activities of the company, but the CSR activities in companies with relatively low uncertainty are considered as a discriminatory result of lowering the audit risk factor. The results of this study are meaningful in analyzing the relationship between corporate financial performance and non-financial performance such as social responsibility (CSR) from the perspective of an accounting firm, not from investors and stakeholders, rather than financial performance, but from non-financial performance. From the standpoint of companies, social responsibility is also an important factor that can have a comparative advantage in a competitive landscape, and effective management and control can be promoted. However, these results may be the result of not reflecting the relative financial characteristics and changes by industry, or the result of not taking into account these non-financial activities in the audit fee contract, but the effectiveness of social responsibility depends on the financial performance of the company and environmental characteristics. This is judged to be the result of the analysis from the perspective of an accounting firm.