Does environmental disclosure have an auditing effect?

Abstract

Purpose The purpose of this paper is to investigate whether firms with high environmental disclosure have a low possibility of non-standard audit opinions and audit fees and whether this trend is more obvious after than prior to the Measures for the Disclosure of Environmental Information (Measure) implemented in 2008. Design/methodology/approach Based on the Measures implemented in 2008, the authors select data for the listed manufacturing firms from 2004 to 2006 (Pre-Measure) and from 2009 to 2011 (Post-Measure) as research samples to investigate the relationships between environmental disclosures, audit opinions and audit fees with difference in difference models. In addition, we also consider the influence of media attention, the polluting industry and internal control on the audit effect of environmental disclosure. Findings The results show that the level of environmental disclosure is significantly negatively correlated with the possibility of issuing non-standard audit opinions and audit fees after measure is implemented, especially hard environmental information. Further evidence indicates that the auditing effect of environmental disclosures is stronger on firms that receive less media attention, in firms with better internal controls, and in firms belonging to industries with heavy pollution. Originality/value In the Chinese setting, a high level of environmental information disclosures can effectively reduce the audit risk and lead to a high possibility of standard audit opinions and low audit fees. This effect is pronounced after issuing Measure. The conclusions suggest that measure and increasing environmental disclosure have an obvious positive audit effect and that firms should be forced or encouraged to disclose more environmental information from the perspective of auditors in China.

Relevance of supplementary fair value disclosures under market uncertainty: effects on audit fees and investors’ pricing

“…Column (1) shows the baseline model and documents that the audit fee is higher for firms that are larger have more business segments and engage Big4 audit firms. Although our audit pricing determinants explain a substantial portion of the variation in audit fees, approximately 53.80%, it is not as high as (from 70% to 80%) captured by the extant literature (Ettredge et al, 2014;Goncharov et al, 2014;Yao et al, 2019). One possible reason for this could be limiting the sample of our study to real estate firms only and focussing on an unstable pandemic period.…”

“…Prior studies (Ettredge et al , 2014; Goncharov et al , 2014; Sangchan et al , 2020) provide evidence that audit fees are an increasing function of Level 3 FV assets but do not consider the role of supplementary FV disclosures in audit fees. Consideration of supplementary FV disclosures is important because, on the one hand, they facilitate audit risk assessment; on the other hand, they expose auditors to additional effort and reputational risk (audit risk effect) (Hong and Hwang, 2018; Yao et al , 2019). Chen et al (2019) show that when the information risk is high, supplementary FV disclosures serve as a signal of truthful reporting (signalling effect), mitigating the audit risk effect on audit fees.…”

Examining Community Trust to the Audit Board of the Republic of Indonesia

“…In calculating the results and prospects of the company, investors need an assessment from the services of an accountant to ensure that the company's financial statements contain relevant information and have high audit quality [36][37] [38]. High audit quality is indicated by the auditor's ability to detect material misstatements and manipulation practices that may be contained in the company's financial statements.Companies that have started presenting financial reports with high audit quality are expected to help the market anticipate changes in earnings for the better for companies whose financial statements have been audited [39][40] [41]. The goal is for investors to anticipate future returns for up to two years for companies whose financial statements are being audited.…”

Do auditors price litigious tone?

“…Their study suggests that a high level of risk disclosure indicates a riskier business environment, increasing the risk to external auditors and resulting in higher audit fees. Yao et al (2020) find a negative association between the level of environmental disclosures and audit fees, suggesting that environmental disclosures reduce audit risk and audit effort by reducing information asymmetry between the auditor and the client. Some studies provide evidence on textual disclosure readability and audit fees.…”

“…Yao et al . (2020) find a negative association between the level of environmental disclosures and audit fees, suggesting that environmental disclosures reduce audit risk and audit effort by reducing information asymmetry between the auditor and the client. Some studies provide evidence on textual disclosure readability and audit fees.…”