This study explores the impact of environmental risks on audit fees by exploiting the establishment of environmental courts in China as an exogenous shock. Using a sample of listed companies in China, we find that auditors charge significantly higher audit fees following the establishment of environmental courts in their clients’ domiciled prefectures. This effect is attenuated if their client firms have political connections or when the local government is under greater pressure in regards to economic development. We also identify litigation risks, financial risks, and reputation risks as three key channels underlying the impact of environmental risks on audit fees. Our key findings are amplified for firms audited by Big 10 audit firms or by auditors specializing in auditing firms in polluting industries. Finally, audit firms assign more environmental specialists to clients confronting elevated environmental risks. Overall, our results suggest that environmental risks are factored into audit fees.

This paper investigates whether and how negative sentiment expressed by investors, especially minority shareholders, on the EastMoney stock message boards affects corporate philanthropy. Moreover, it illustrates the governance mechanism of minority shareholders ‘voting with their mouths’. Using a sample of Chinese firms listed from 2008 to 2020, we find that negative sentiment from online postings inhibits corporate donations. We identify the underlying mechanism: through social media, minority shareholders voting with their mouths alleviates Type II agency problems by reducing excess donations rather than by affecting expected donations. In addition, we show that the effect is more pronounced among firms with high media attention, weak corporate governance, and less political capital. Overall, our findings broaden understanding of Type II agency problems in corporate philanthropy.

This special issue of Abacus brings together seven papers presented at the IASB Research Forum in November 2024, each addressing a key challenge in the current International Accounting Standards Board's (IASB) work program. The contributions examine the clarity of narrative disclosures, the impact of voluntary climate reporting, the recognition and disclosure of intangibles, transactional connectivity of carbon data, the treatment of goodwill, the informativeness of R&D disclosures, and the role of practical expedients in International Financial Reporting Standards. Collectively, the papers reveal both the achievements and limitations of current accounting standards, highlighting areas where clarity, comparability, and relevance remain at risk. Together, they provide evidence and proposals that can inform the IASB's work program and guide policy makers in shaping the future of global accounting.

The International Accounting Standards Board (IASB) has introduced simplified accounting choices, so‐called ‘practical expedients’, in International Financial Reporting Standards (IFRS). These practical expedients permit preparers to deviate from IFRS principles when accounting for economic events. We document the occurrence of such accounting simplifications in the IFRS accounting standards, as well as the extent of application and disclosure of practical expedients by large listed European firms between 2018 and 2022. Our findings indicate that firms applied and disclosed practical expedients in a relatively consistent manner over time, although substantial variation exists across and within countries and industries. We find limited systematic evidence of information loss resulting from the use of practical expedients. However, firms that explicitly disclose the non‐application of expedients tend to exhibit lower value relevance of reported net income. Our interview evidence indicates that practical expedients facilitate the IFRS standard‐setting process in that preparers can be offered simplifications that reduce their costs. However, there are also tensions concerning whether user benefits are reduced (impaired comparability, lower understandability, increased reliance on materiality considerations). There may also be concerns that, although practical expedients may so far have had favourable cost–benefit trade‐offs, a more widespread application of practical‐expedient rules might challenge the primacy of principles‐based standard‐setting.

We investigate the nexus between the early‐life disaster experiences of chief executive officers (CEOs) and their firms’ environmental performance metrics. We hypothesize that first‐hand experience of the adversities of natural disasters in the formative years of a CEO can catalyze a transformation in their environmental cognizance and perspective. This transformation is postulated to have a beneficial influence on their corporations’ strategic frameworks for environmental risk mitigation. Our results show that entities steered by CEOs exposed to disasters in their early life have fewer incidences of environmental issues. These findings remain consistent even when controlling for other factors or using alternative methods. We suggest that CEOs with early disaster experience have an enhanced perception of risk ramifications, which inculcates a prudential approach to decision making, potentially heightening the environmental risk profile of their enterprises.

This article investigates how boards of directors and auditors retrospectively reflect on and justify their role in the breakdown of governance systems. We focus on state capture in South Africa where major corruption scandals have crippled the public sector. These scandals have been investigated by a special commission of inquiry, the ‘Zondo Commission', which offers a rich set of data for uncovering how individuals attempt to justify their ‘deviant’ behaviour. Our focus is on the crisis at South African Airways (SAA), where the Zondo Commission concluded that the airline had repeatedly disregarded relevant laws and experienced a steep governance decline. Despite this malpractice, SAA's former auditors, PwC and joint audit partner Nkonki Incorporated, consistently gave SAA unqualified audit opinions. Only after intervention by the South African Auditor General were deficiencies exposed in SAA's financial and governance structures. Our analysis identifies various neutralization techniques used by implicated individuals to cast doubt on responsibility for wrongdoing and garner sympathy where deflection was not feasible. The method involves documentary analysis, focusing on witness transcripts and other evidence published by the Zondo Commission, SAA's integrated reports, and select media articles. In addition to dealing with a novel set of data, this paper adds to the limited body of work dealing with governance in state‐owned enterprises, particularly in developing economies. The research also provides an account of how deviance theory is operationalized in the context of governance and audit, something which has not yet been explored in detail.

The COVID‐19 crisis has troubled the world. In the Brazilian context, many people struggled financially to survive a period of social isolation. Therefore, in the surge of the pandemic, making a decision or forming an opinion about government decisions was very complex. Social media (SM) plays an important role in modern society as a source of information and a potentially democratic instrument for dialogic communication and public accountability. Thus, this research investigates SM as a forum for democratic accountability during Brazil's first wave of the COVID‐19 crisis. The methodological procedures comprise an analysis of three events concerning COVID‐19 in São Paulo, namely the social isolation mandates from March to July 2020. We gathered, coded, and analysed 970 comments from the São Paulo Government's official Facebook page. We found that the disclosure of information was limited, and users interacted with each other, but the Government did not dialogue with citizens. In the aftermath of the COVID‐19 crisis, we reflected on SM's potential and barriers to achieving democratic accountability in uncertain and risky times, particularly regarding information disclosure, SM and users’ interactions, and the spread of relevant information. We conclude that SM is a forum to achieve greater accountability and responsibility on the part of public managers and governors. However, it is limited by what kind of information is conveyed, whether users get the responses and information they need from the official channel, and SM's political and democratic aspects, which are multifaceted and complex.

This study investigates the impact of a firm's total carbon emissions on its implied cost of equity capital (COE) and explores whether this relationship is moderated by the choice of carbon assurance provider. Our findings show that firms aligning with the shared societal objective of minimizing total carbon emissions can lower their COE, consequently increasing their overall value. This association is enhanced when a firm's carbon emissions are assured by a professional accountant instead of a specialist consultant. This highlights the potential for green firms to maximize their value through the strategic involvement of a professional accountant. By doing so, these firms can proficiently convey and authenticate their corporate sustainability achievements to investors and other stakeholders. Our findings underscore the importance for a firm to carefully consider the reputation and independence of the assurance provider when seeking carbon assurance.

We investigate the influence of skilful utilization of social interaction dynamics on creating reputations for UK Higher Education Institutions (HEIs) during public funding cuts and scrutiny. The paper employs a content analysis method and follows an empirical design with a unique sample of 148 UK HEIs. To gauge reputation, we rely on participatory data from the Guardian newspaper's 2014–15 environmental and ethical performance ratings for the People & Planet University League. Multiple regression analysis is applied to address the research hypotheses. The results indicate that open, accountable, and transparent sensemaking in sustainable development (SD) practices over the years is the predominant dynamic for enhancing HEIs’ reputation. This paper underscores the need to consider the institutional logics perspective as a theoretical foundation for a comprehensive understanding of the link between sustainability disclosure and an institution's reputation, image, and public goodwill within the higher education (HE) context. HEIs’ leadership should invest in SD and its associated disclosure practices. Policy‐makers and accounting regulators should establish consistent and comparable reporting requirements for sustainable performance within the HE sector. This paper is the first to empirically examine the direct impacts of HEIs’ compliance with sustainability duties on organizational performance.

We examine whether and how news coverage affects innovation using an extensive collection of more than 188,000 firm‐specific press articles written by journalists from the most influential Chinese newspapers. We find that news coverage has a positive impact on firm innovation outputs. This positive effect is more pronounced for firms with weak internal governance and external monitoring, opaque corporate disclosure, high R&D intensity, and limited access to financing for innovation, for news articles that are related to innovation and corporate governance, and for news articles that are issued by news media that are subject to less political intervention and by socially unconnected news media. Our analysis of firm innovation strategies shows that the increased innovation outputs are a result of an increase in in‐house R&D investment and innovation efficiency, rather than acquisition of innovation from external channels that can quickly increase quantifiable innovation outputs. We also find that news coverage reduces analyst earnings forecast dispersion and insiders’ tunnelling of corporate resources and managerial perks, while increasing firms’ investor base. Overall, our research provides new insights into the role of the news media in firm innovation in an emerging market, especially when firms have a poor information environment and corporate governance mechanisms, and when news coverage has high informativeness and independence.