The effect of ESG identification on professional skepticism in ESG audits

While prior research extensively examined the determinants of professional skepticism in financial audits, little is known about the factors shaping professional skepticism in Environmental, Social, and Governance (ESG) audits. This study examines whether auditors’ identification with ESG topics influences their professional skepticism in ESG audits. We predict that stronger ESG identification is associated with higher professional skepticism. Using an experiment featuring an ESG audit task, we find that participants revealing strong ESG identification exhibit a higher level of professional skepticism than participants revealing weak ESG identification. This finding is particularly relevant as ESG auditing continues to develop, and understanding sources of variation in ESG audit quality is essential for the maturation of the field. Motivated by a proposal of policymakers, we also examine whether making auditors aware of the aforementioned effect and making auditors aware of more general differences in professional skepticism mitigates the effect. We find modest evidence of mitigation: awareness of the ESG identification effect reduces the influence of ESG identification, but primarily because participants with strong ESG identification lower their level of professional skepticism.