Do Auditors Respond to Clients’ Climate Change-related External Risks? Evidence from Audit Fees

Hartlieb, Sven; Eierle, Brigitte

doi:10.1080/09638180.2022.2141811

Cited by 10 publications

(8 citation statements)

References 98 publications

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“…Finally, since climate risk tends to be a local phenomenon that only affects firms in a specific geographic area, firms differ in their climate risk sensitivities (Hartlieb & Eierle, 2022). Therefore, we use more granular firm‐level measures of climate risk constructed by Sautner et al (2023) and re‐estimate Equation (1).…”

Section: Resultsmentioning

confidence: 99%

“…The potential damage of climate risk to properties and lives could increase firms' business risks and, consequently, audit risks (Hartlieb & Eierle, 2022). In countries that are more capable of leveraging investments and converting them to climate risk adaptation actions, the business risks are lower.…”

Section: Resultsmentioning

confidence: 99%

“…As the most direct impact of climate risk is property destruction, the implications of this for firms' financial and operational performance are well examined. For instance, prior studies find that firms exposed to higher climate risks are more constrained in their innovation capacity and engage more in earnings manipulation activities (Battiston et al, 2021; Ding et al, 2021; Hartlieb & Eierle, 2022; Rao et al, 2021; Secinaro et al, 2020; Sun et al, 2020). However, a 2022 review conducted by the independent non‐profit Carbon Tracker group identified auditors as failing in assessing material climate‐related matters.…”

Section: Introductionmentioning

confidence: 99%

“…However, it is difficult to measure the effect of climate risk on financial statements intuitively, thus making it unclear how it should be reflected on financial statements (Huang, Kerstein, et al, 2022). On the other hand, climate risk dampens financial performance, which leads to more earnings manipulations to conceal poor performance (Ding et al, 2021; Hartlieb & Eierle, 2022). In line with these implied risks, auditors may exert more effort in their work and increase their rates.…”

Section: Introductionmentioning

confidence: 99%

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Climate risk and audit fees: An international study

Tian

et al. 2023

Accounting & Finance

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Using a comprehensive global sample, we find that climate risk positively relates to audit fees. Specifically, auditors charge higher fee premiums when firms are located in countries with more stringent auditing regulations, higher information opacity and less adaptive capacity for climate risk. Audit fee premiums are also higher when firms are incentivised to manipulate earnings, less important to auditors, and audited by short‐tenured and industry‐specialised auditors. Our study provides worldwide evidence that climate risk induces more earnings management and increases the efforts of auditors in the auditing process, resulting in higher audit fees.

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Section: Resultsmentioning

confidence: 99%

Section: Resultsmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Climate risk and audit fees: An international study

Tian

et al. 2023

Accounting & Finance

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“…The Global Public Policy Committee (GPPC, the global forum of representatives from the six largest accounting networks: Binder Dijker Otte (BDO), Deloitte, EY, Grant Thornton, KPMG and PricewaterhouseCoopers (PwC)) published a letter to announce their commitment to 'playing their part' in assuring that climate risk is properly reflected in company financial statements. Recent studies find evidence that financial statement auditors price clients' climate change-related risks into audit fees (Hartlieb and Eierle 2021). This trend to integrate non-financial items into the financial statement audit report is expected to spur more research into this emerging area.…”

Section: Description Of Current Practicementioning

confidence: 99%

Reporting and Assurance of Climate‐Related and Other Sustainability Information: A Review of Research and Practice

Zhou

2022

Australian Accounting Review

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This literature review provides a summary of the key insights from recent studies that use an archival method. It covers two subject matters: climate-related information and other sustainability information. For each, the paper reviews and summarises findings on current practices and the determinants and consequences of the reporting and assurance of climate-related and other sustainability information in both voluntary and mandatory regimes. The review identifies areas that are close to saturation and those that are currently under researched. It also highlights key trends in this evolving area for future research to explore.

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Climate risk and opportunity exposure and firm value: An international investigation

Li,

Luo,

Tang

2024

Bus Strat Env

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While previous studies mainly focus on the valuation of greenhouse gas (GHG) emissions and climate risk exposure, climate opportunity exposure is less frequently visited in the current literature. We use an international sample from 23 countries that have participated in the CDP. By categorizing climate risks/opportunities into physical, regulatory and other, the study suggests that investors have an asymmetrical valuation for different categories of risks and opportunities. Specifically, investors value climate regulatory risk and other (market‐based) climate risks negatively, but not similarly for recognized climate opportunities. Finally, our findings confirm industry matters for investors' valuation decisions by altering their perceptions of the significance of climate risks and opportunities.

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Do Auditors Respond to Clients’ Climate Change-related External Risks? Evidence from Audit Fees

Cited by 10 publications

References 98 publications

Climate risk and audit fees: An international study

Climate risk and audit fees: An international study

Reporting and Assurance of Climate‐Related and Other Sustainability Information: A Review of Research and Practice

Climate risk and opportunity exposure and firm value: An international investigation

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