SYNOPSIS
We investigate whether a for-profit firm’s civic benefit (i.e., the direct societal benefit provided through the organization’s primary operations) affects how auditors prioritize nonfinancial stakeholders, and whether that prioritization influences auditors’ judgments. Our experiment shows auditors (1) prioritize nonfinancial stakeholders (the community) above financial stakeholders (a bank), and (2) are less likely to convey information about significant client risks when auditing clients with more civic benefit. Our results provide initial evidence that auditors’ consideration of relevant stakeholders not only extends to nonfinancial stakeholders, but also is malleable based on client-specific factors. Although potentially noble, the prioritization of nonfinancial stakeholders runs counter to extant professional guidance. Accordingly, our results could be important to regulators who may have to address how auditors should incorporate nonfinancial stakeholders into their judgment framework. Moreover, our results inform auditors who are auditing higher civic benefit organizations more frequently given the increasing corporate focus on prosocial activities.
Data availability: Data are available upon request.
