Does unethical behavior beyond financial reports impact audit scrutiny? This study examines how non-financial misconduct by corporations influences audit outcomes. Using a novel database of penalties for legal violations unrelated to financial reports, the research reveals that auditors increase fees following such violations. Firms violating these regulations pay approximately $162,000 or 6% more in audit fees than comparable firms without violations. The study also finds that auditors charge higher fees when penalty amounts are greater and infractions more egregious. Companies fined for non-financial misconduct are also more likely to receive going concern opinions. These results demonstrate that unethical conduct, even when not directly related to financial reporting, has significant consequences for firms, extending beyond the penalties imposed by enforcement agencies. The findings highlight that auditors pay more attention to companies' unethical conduct, even those that do not directly lead to financial reporting infractions.
Published in the International Journal of Auditing, this research aligns with the journal's focus on the audit process and its relationship to corporate behavior. By investigating how non-financial misconduct impacts audit outcomes, the study contributes to the journal's scope of exploring factors influencing audit fees and opinions.