Carbon emissions and audit fees: Evidence from emerging markets

Abstract

This study investigates whether auditors integrate climate risk into audit pricing. Using a sample of firms from 11 emerging countries, we find that auditors charge higher audit fees for firms with higher carbon emissions. This positive association is stronger for firms audited by Big 4 auditors and that operate in high litigation-risk industries. The effect of climate risk is, however, weaker for firms with board oversight of climate-related issues, verification of carbon emissions, and higher climate governance scores. In additional analyses, we find that the documented impact of climate risk is weaker in emerging countries in comparison to developed ones.