“Restatement of CSR Reports: Frequency, Magnitude and Determinants” by Professor Naomi Soderstrom
SCHOOL OF BUSINESS
Professor Naomi Soderstrom
Professor of Accounting
The University of Melbourne
We provide the first direct analysis of the magnitude and determinants of the unreliability of Corporate Social Responsibility (CSR) reports. We examine the frequency, magnitude and determinants of CSR report restatements for the Global Fortune 250 (G250) across the period from 2006 to 2013. During this period, 39% of G250 CSR reports have been restated, with a monotonic increase across time from 29% in 2006 to 53% in 2013. The median magnitude of the restatement of each line item is 10%, with a bias towards overstatement. In our exploration of determinants and economic incentives associated CSR report restatements, we find restatement frequency is positively associated with firm environmental and social complexity and that restatements occur more frequently in firms that have reported a high level of social performance and have environmental targets. We also find that frequency of restatement is positively associated with firms that reside in strong law countries and have their CSR reported audited. Our reporting bias finds a negative association between adoption of GRI reporting guidelines and the likelihood of an overstatement. We also find a positive association between having the CSR reported audited and the likelihood of overstatements. Together, our results indicate that CSR information could be very unreliable and firms that face pressure to perform well have more restatements. However, use of measurement guidelines helps restrict managers’ disclosure choices and thus guards against opportunistic choice of measurement methods. Further auditors appear to invest more time and effort to reduce over- rather than understatement of performance.