Climate risk and audit fees: An international study

Abstract

AbstractUsing 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.