Auditors’ Carbon Risk Consideration under the EU Emission Trading System

References

• Allini, A., Giner, B., & Caldarelli, A. (2018). Opening the black box of accounting for greenhouse gas emissions: The different views of institutional bodies and firms. Journal of Cleaner Production, 172(4), 2195–2205. https://doi.org/10.1016/j.jclepro.2017.11.194
   Google Scholar
• Asante-Appiah, B. (2020). Does the severity of a client’s negative environmental, social and governance reputation affect audit effort and audit quality? Journal of Accounting and Public Policy, 39(3), 106713. https://doi.org/10.1016/j.jaccpubpol.2019.106713
   Web of Science ®Google Scholar
• Bartram, S. M., Hou, K., & Kim, S. (2021). Real effects of climate policy: Financial constraints and spillovers. Journal of Financial Economics, 143(2), 668–696. https://doi.org/10.1016/j.jfineco.2021.06.015
   Web of Science ®Google Scholar
• Barua, A., Hossain, M. S., & Rama, D. V. (2019). Financial versus operating liability leverage and audit fees. International Journal of Auditing, 23(2), 231–244. https://doi.org/10.1111/ijau.12157
   Web of Science ®Google Scholar
• Beattie, V., Goodacre, A., Pratt, K., & Stevenson, J. (2001). The determinants of audit fees—evidence from the voluntary sector. Accounting and Business Research, 31(4), 243–274. https://doi.org/10.1080/00014788.2001.9729619
   Google Scholar
• Bebbington, J., & Larrinaga-González, C. (2008). Carbon trading: Accounting and reporting issues. European Accounting Review, 17(4), 697–717. https://doi.org/10.1080/09638180802489162
   Web of Science ®Google Scholar
• Bell, T. B., Doogar, R., & Solomon, I. R. (2008). Audit labor usage and fees under business risk auditing. Journal of Accounting Research, 46(4), 729–760. https://doi.org/10.1111/j.1475-679X.2008.00291.x
   Web of Science ®Google Scholar
• Bell, T. B., Landsman, W. R., & Shackelford, D. A. (2001). Auditors’ perceived business risk and audit fees: Analysis and evidence. Journal of Accounting Research, 39(1), 35–43. https://doi.org/10.1111/1475-679X.00002
   Web of Science ®Google Scholar
• Black, C. M. (2013). Accounting for carbon emission allowances in the European union: In search of consistency. Accounting in Europe, 10(2), 223–239. https://doi.org/10.1080/17449480.2013.834730
   Google Scholar
• Bonner, S. E. (1994). A model of the effects of audit task complexity. Accounting, Organizations and Society, 19(3), 213–234. https://doi.org/10.1016/0361-3682(94)90033-7
   Web of Science ®Google Scholar
• Brouwers, R., Schoubben, F., & van Hulle, C. (2018). The influence of carbon cost pass through on the link between carbon emission and corporate financial performance in the context of the European Union Emission Trading Scheme. Business Strategy and the Environment, 27(8), 1422–1436. https://doi.org/10.1002/bse.2193
   Web of Science ®Google Scholar
• Burke, J. J., Hoitash, R., & Hoitash, U. (2019). Auditor response to negative media coverage of client environmental, social, and governance practices. Accounting Horizons, 33(3), 1–23. https://doi.org/10.2308/acch-52450
   Web of Science ®Google Scholar
• Busch, T., Bassen, A., Lewandowski, S., & Sump, F. (2020). Corporate carbon and financial performance revisited. Organization & Environment, 35(1), 154–171. https://doi.org/10.1177/1086026620935638
   Web of Science ®Google Scholar
• Cadez, S., Czerny, A., & Letmathe, P. (2019). Stakeholder pressures and corporate climate change mitigation strategies. Business Strategy and the Environment, 28(1), 1–14. https://doi.org/10.1002/bse.2070
   Web of Science ®Google Scholar
• Chapple, L., Clarkson, P. M., & Gold, D. L. (2013). The cost of carbon: Capital market effects of the proposed emission trading scheme (ETS). Abacus, 49(1), 1–33. https://doi.org/10.1111/abac.12006
   Web of Science ®Google Scholar
• Clarkson, P. M., Li, Y., Pinnuck, M., & Richardson, G. D. (2015). The valuation relevance of greenhouse gas emissions under the European Union Carbon Emissions Trading Scheme. European Accounting Review, 24(3), 551–580. https://doi.org/10.1080/09638180.2014.927782
   Web of Science ®Google Scholar
• Council Decision. (2002/358/EC). Council Decision of 25 April 2002 concerning the approval, on behalf of the European Community, of the Kyoto Protocol to the United Nations Framework Convention on Climate Change and the joint fulfilment of commitments thereunder.
   Google Scholar
• Czerny, A., & Letmathe, P. (2017). Eco-efficiency: GHG reduction related environmental and economic performance. The case of the companies participating in the EU Emissions Trading Scheme. Business Strategy and the Environment, 26(6), 791–806. https://doi.org/10.1002/bse.1951
   Web of Science ®Google Scholar
• DeFond, M., & Zhang, J. (2014). A review of archival auditing research. Journal of Accounting and Economics, 58(2-3), 275–326. https://doi.org/10.1016/j.jacceco.2014.09.002
   Web of Science ®Google Scholar
• Delmas, M. A., Nairn-Birch, N., & Lim, J. (2015). Dynamics of environmental and financial performance. Organization & Environment, 28(4), 374–393. https://doi.org/10.1177/1086026615620238
   Web of Science ®Google Scholar
• De Martinis, M., & Houghton, K. (2019). The business risk audit approach and audit production efficiency. Abacus, 55(4), 734–782. https://doi.org/10.1111/abac.12178
   Web of Science ®Google Scholar
• Dinh, T., Husmann, A., & Melloni, G. (2021). The role of non-financial performance indicators and integrated reporting in achieving sustainable value creation. Retrieved from https://www.europarl.europa.eu/RegData/etudes/ATAG/2021/662943/IPOL_ATA(2021)662943_EN.pdf.
   Google Scholar
• Directive 2003/87/EC. (2003). Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003 establishing a scheme for greenhouse gas emission allowance trading within the Community and amending Council Directive 96/61/EC.
   Google Scholar
• Downar, B., Ernstberger, J., Reichelstein, S., Schwenen, S., & Zaklan, A. (2021). The impact of carbon disclosure mandates on emissions and financial operating performance. Review of Accounting Studies, 26(3), 1137–1175. https://doi.org/10.1007/s11142-021-09611-x
   Web of Science ®Google Scholar
• Du, Z., Xu, C., & Lin, B. (2022). Does the Emission Trading Scheme achieve the dual dividend of reducing pollution and improving energy efficiency? Micro evidence from China. Journal of Environmental Management, 323, 116202. https://doi.org/10.1016/j.jenvman.2022.116202
   PubMed Web of Science ®Google Scholar
• Eierle, B., Hartlieb, S., Hay, D. C., Niemi, L., & Ojala, H. (2021). Importance of country factors for global differences in audit pricing: New empirical evidence. International Journal of Auditing, 25(2), 303–331. https://doi.org/10.1111/ijau.12222
   Web of Science ®Google Scholar
• Eierle, B., Hartlieb, S., Hay, D. C., Niemi, L., & Ojala, H. (2022). External factors and the pricing of audit services: A systematic review of the archival literature using a PESTLE analysis. AUDITING: A Journal of Practice & Theory, 41(3), 95–119. https://doi.org/10.2308/AJPT-2019-510
   Web of Science ®Google Scholar
• Ellerman, A. D., Convery, F. J., de Perthuis, C., Alberola, E., Buchner, B. K., Delbosc, A., … Matthes, F. C. (2011). Pricing Carbon (Vol. 556). Cambridge University Press.
   Google Scholar
• European Commission. (2016). The EU Emissions Trading System (EU ETS). Retrieved from https://climate.ec.europa.eu/system/files/2016-12/factsheet_ets_en.pdf.
   Google Scholar
• European Commission. (2020a). COM(2019) 557 final/2: Report from the Commission to the European Parliament and the Council: Report on the functioning of the European carbon market. Retrieved from https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52019DC0557R(01)&from=EN.
   Google Scholar
• European Commission. (2020b). COM(2020) 562 final: Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions. Stepping up Europe's 2030 climate ambitions, Investing in a climate-neutral future for the benefit of our people. Retrieved from https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52020DC0562&from=EN.
   Google Scholar
• European Commission. (2020c). COM(2020) 740 final: Report from the Commission to the European Parliament and the Council: Report on the functioning of the European carbon market. Retrieved from https://ec.europa.eu/clima/document/download/2fdbed5e-a6a2-472c-b53f-380610430ba1_en.
   Google Scholar
• European Commission. (2021). European Green Deal: Commission proposes transformation of EU economy and society to meet climate ambitions. Retrieved from https://ec.europa.eu/commission/presscorner/detail/en/ip_21_3541.
   Google Scholar
• European Commission. (n.d.a). Development of EU ETS (2005-2020). Retrieved from https://ec.europa.eu/clima/eu-action/eu-emissions-trading-system-eu-ets/development-eu-ets-2005-2020_en.
   Google Scholar
• European Commission. (n.d.b). EU Emissions Trading System (EU ETS). Retrieved from https://ec.europa.eu/clima/policies/ets_en.
   Google Scholar
• European Environment Agency. (2010). Tracking progress towards Kyoto and 2020 targets in Europe. EEA report: Vol. 2010,7. Luxembourg: Office for Official Publ. of the Europ. Union. Retrieved from http://publications.europa.eu/en/publication-detail/-/publication/13692d0f-08d8-43ef-934a-f7f9005946cf.
   Google Scholar
• FRC. (2020). FRC Climate Thematic: Audit – How are auditors taking account of climate-related challenges? Retrieved from https://www.frc.org.uk/getattachment/0ef2c94a-9028-4efa-ac80-3b8c2e0d9a11/Audit-FINAL.pdf.
   Google Scholar
• FSB. (2017). Recommendations of the Task Force on Climate-related Financial Disclosures.
   Google Scholar
• Greenhouse Gas Protocol. (n.d.). Calculation Tools: Frequently Asked Questions. Retrieved from https://ghgprotocol.org/calculationg-tools-faq.
   Google Scholar
• Griffin, P. A., Lont, D. H., & Sun, E. Y. (2017). The relevance to investors of greenhouse Gas emission disclosures. Contemporary Accounting Research, 34(2), 1265–1297. https://doi.org/10.1111/1911-3846.12298
   Web of Science ®Google Scholar
• Hartlieb, S., & Eierle, B. (2022). Do auditors respond to clients’ climate change-related external risks? Evidence from audit fees. European Accounting Review. https://doi.org/10.1080/09638180.2022.2141811 .
   Web of Science ®Google Scholar
• Hay, D. C., Knechel, W. R., & Wong, N. (2006). Audtit fees: A meta-analysis of the effect of supply and demand attributes. Contemporary Accounting Research, 23(1), 141–191. doi:10.1506/4XR4-KT5V-E8CN-91GX
   Web of Science ®Google Scholar
• Henriques, I., & Sadorsky, P. (2007). Environmental technical and administrative innovations in the Canadian manufacturing industry. Business Strategy and the Environment, 16(2), 119–132. https://doi.org/10.1002/bse.475
   Google Scholar
• Herbohn, K., Gao, R., & Clarkson, P. (2019). Evidence on whether banks consider carbon risk in their lending decisions. Journal of Business Ethics, 158(1), 155–175. https://doi.org/10.1007/s10551-017-3711-3
   Web of Science ®Google Scholar
• Hoffmann, V. H., & Busch, T. (2008). Corporate carbon performance indicators. Journal of Industrial Ecology, 12(4), 505–520. https://doi.org/10.1111/j.1530-9290.2008.00066.x
   Web of Science ®Google Scholar
• Hummel, K., & Szekely, M. (2022). Disclosure on the sustainable development goals – evidence from Europe. Accounting in Europe, 19(1), 152–189. https://doi.org/10.1080/17449480.2021.1894347
   Web of Science ®Google Scholar
• IAASB. (2020). IAASB Issues Staff Audit Practice Alert on climate-related Risks. Retrieved from https://www.iaasb.org/news-events/2020-10/iaasb-issues-staff-audit-practice-alert-climate-related-risks.
   Google Scholar
• Johnstone, K. M. (2000). Client-Acceptance decisions: Simultaneous effects of client business risk, audit risk, auditor business risk, and risk adaptation. AUDITING: A Journal of Practice & Theory, 19(1), 1–25. https://doi.org/10.2308/aud.2000.19.1.1
   Web of Science ®Google Scholar
• Jung, J., Herbohn, K., & Clarkson, P. (2018). Carbon risk, carbon risk awareness and the cost of debt financing. Journal of Business Ethics, 150(4), 1151–1171. https://doi.org/10.1007/s10551-016-3207-6
   Web of Science ®Google Scholar
• Karpoff, J. M., Lott, J. J. R., & Wehrly, E. W. (2005). The reputational penalties for environmental violations: Empirical evidence. The Journal of Law and Economics, 48(2), 653–675. https://doi.org/10.1086/430806
   Web of Science ®Google Scholar
• Kennedy, P. (1998). A guide to econometrics (4. ed.). Blackwell.
   Google Scholar
• Knechel, W. R., Rouse, P., & Schelleman, C. (2009). A modified audit production framework: Evaluating the relative efficiency of audit engagements. The Accounting Review, 84(5), 1607–1638. https://doi.org/10.2308/accr.2009.84.5.1607
   Web of Science ®Google Scholar
• Kolk, A., & Levy, D. (2001). Winds of change. European Management Journal, 19(5), 501–509. https://doi.org/10.1016/S0263-2373(01)00064-0
   Google Scholar
• Kolk, A., Levy, D., & Pinkse, J. (2008). Corporate responses in an emerging climate regime: The institutionalization and commensuration of carbon disclosure. European Accounting Review, 17(4), 719–745. https://doi.org/10.1080/09638180802489121
   Web of Science ®Google Scholar
• Kreß, A., Eierle, B., & Tsalavoutas, I. (2019). Development costs capitalization and debt financing. Journal of Business Finance & Accounting, 46(5-6), 636–685. https://doi.org/10.1111/jbfa.12370
   Web of Science ®Google Scholar
• Krueger, P., Sautner, Z., & Starks, L. T. (2020). The importance of climate risks for institutional investors. The Review of Financial Studies, 33(3), 1067–1111. https://doi.org/10.1093/rfs/hhz137
   Web of Science ®Google Scholar
• Labatt, S., & White, R. R. (2007). Carbon finance: The financial implications of climate change. Wiley finance series. Wiley. http://www.loc.gov/catdir/enhancements/fy0741/2006033468-b.html.
   Google Scholar
• La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. W. (1998). Law and finance. Journal of Political Economy, 106(6), 1113–1155. https://doi.org/10.1086/250042
   Web of Science ®Google Scholar
• Li, Y., Simunic, D. A., & Ye, M. (2014). Corporate environmental risk exposure and audit fees. Working Paper. Retrieved from https://www.isarhq.org/2014_downloads/papers/ISAR2014_Li_Simunic_Ye.pdf.
   Google Scholar
• Liesen, A., Hoepner, A. G., Patten, D. M., & Figge, F. (2015). Does stakeholder pressure influence corporate GHG emissions reporting? Empirical evidence from Europe. Accounting, Auditing & Accountability Journal, 28(7), 1047–1074. https://doi.org/10.1108/AAAJ-12-2013-1547
   Web of Science ®Google Scholar
• LópezPuertas-Lamy, M., Desender, K., & Epure, M. (2017). Corporate social responsibility and the assessment by auditors of the risk of material misstatement. Journal of Business Finance & Accounting, 4(1), 485. https://doi.org/10.1111/jbfa.12268
   Google Scholar
• MacKenzie, D. (2009). Making things the same: Gases, emission rights and the politics of carbon markets. Accounting, Organizations and Society, 34(3-4), 440–455. https://doi.org/10.1016/j.aos.2008.02.004
   Web of Science ®Google Scholar
• Marlon, J. R., Wang, X., Bergquist, P., Howe, P. D., Leiserowitz, A., Maibach, E., … Rosenthal, S. (2022). Change in US state-level public opinion about climate change: 2008–2020. Environmental Research Letters, 17(12), 124046. https://doi.org/10.1088/1748-9326/aca702
   Web of Science ®Google Scholar
• Matisoff, D. C. (2010). Making cap-and-trade work: Lessons from the European union experience. Environment: Science and Policy for Sustainable Development, 52(1), 10–19. https://doi.org/10.1080/00139150903479530
   Web of Science ®Google Scholar
• Matsumura, E. M., Prakash, R., & Vera-Muñoz, S. C. (2014). Firm-value effects of carbon emissions and carbon disclosures. The Accounting Review, 89(2), 695–724. https://doi.org/10.2308/accr-50629
   Web of Science ®Google Scholar
• Naranjo Tuesta, Y., Crespo Soler, C., & Ripoll Feliu, V. (2021). Carbon management accounting and financial performance: Evidence from the European Union emission trading system. Business Strategy and the Environment, 30(2), 1270–1282. https://doi.org/10.1002/bse.2683
   Web of Science ®Google Scholar
• Nguyen, J. H., Truong, C., & Zhang, B. (2020). The price of carbon risk: Evidence from the Kyoto protocol ratification. SSRN Electronic Journal. Advance online publication, https://doi.org/10.2139/ssrn.3669660
   Google Scholar
• Niemi, L. (2002). Do firms pay for audit risk? Evidence on risk premiums in audit fees after direct control for audit effort. International Journal of Auditing, 6(1), 37–51. https://doi.org/10.1111/j.1099-1123.2002.tb00004.x
   Google Scholar
• Niemi, L., Knechel, W. R., Ojala, H., & Collis, J. (2018). Responsiveness of auditors to the audit risk standards: Unique evidence from Big 4 audit firms. Accounting in Europe, 15(1), 33–54. https://doi.org/10.1080/17449480.2018.1431398
   Web of Science ®Google Scholar
• Oestreich, A. M., & Tsiakas, I. (2015). Carbon emissions and stock returns: Evidence from the EU Emissions Trading Scheme. Journal of Banking & Finance, 58, 294–308. https://doi.org/10.1016/j.jbankfin.2015.05.005
   Web of Science ®Google Scholar
• Palmrose, Z-V. (1991). Trials of legal disputes involving independent auditors: Some empirical evidence. Journal of Accounting Research, 29(1), 149–185. https://doi.org/10.2307/2491008
   Google Scholar
• Panfilo, S., & Krasodomska, J. (2022). Climate change risk disclosure in Europe: The role of cultural-cognitive, regulative, and normative factors. Accounting in Europe, 19(1), 226–253. https://doi.org/10.1080/17449480.2022.2026000
   Web of Science ®Google Scholar
• Patnaik, S. (2020). Emissions permit allocation and strategic firm behavior: Evidence from the oil sector in the European Union emissions trading scheme. Business Strategy and the Environment, 29(3), 976–995. https://doi.org/10.1002/bse.2411
   Web of Science ®Google Scholar
• Pinkse, J., & Kolk, A. (2007). Multinational corporations and emissions trading. European Management Journal, 25(6), 441–452. https://doi.org/10.1016/j.emj.2007.07.003
   Google Scholar
• Pratt, J., & Stice, J. D. (1994). The effects of client characteristics on auditor litigation risk judgments, required audit evidence, and recommended audit fees. The Accounting Review, 69(4), 639–656. http://www.jstor.org/stable/248435.
   Web of Science ®Google Scholar
• Rabarison, M., Siraj, I., & Wang, B. (2020). Environmental policy and audit pricing. SSRN Electronic Journal. Advance online publication, https://doi.org/10.2139/ssrn.3542562
   Google Scholar
• Sariannidis, N., Zafeiriou, E., Giannarakis, G., & Arabatzis, G. (2013). Co2 emissions and financial performance of socially responsible firms: An empirical survey. Business Strategy and the Environment, 22(2), 109–120. https://doi.org/10.1002/bse.1737
   Web of Science ®Google Scholar
• Schaltegger, S., & Csutora, M. (2012). Carbon accounting for sustainability and management. Status quo and challenges. Journal of Cleaner Production, 36, 1–16. https://doi.org/10.1016/j.jclepro.2012.06.024
   Web of Science ®Google Scholar
• Schiemann, F., & Sakhel, A. (2019). Carbon disclosure, contextual factors, and information asymmetry: The case of physical risk reporting. European Accounting Review, 28(4), 791–818. https://doi.org/10.1080/09638180.2018.1534600
   Web of Science ®Google Scholar
• Sharma, D. S., Sharma, V. D., & Litt, B. A. (2018). Environmental responsibility, external assurance, and firm valuation. AUDITING: A Journal of Practice & Theory, 37(4), 207–233. https://doi.org/10.2308/ajpt-51940
   Web of Science ®Google Scholar
• Simunic, D. A. (1980). The pricing of audit services: Theory and evidence. Journal of Accounting Research, 18(1), 161–190. doi:10.2307/2490397
   Web of Science ®Google Scholar
• Sprengel, D. C., & Busch, T. (2011). Stakeholder engagement and environmental strategy - the case of climate change. Business Strategy and the Environment, 20(6), 351–364. https://doi.org/10.1002/bse.684
   Web of Science ®Google Scholar
• Stanley, J. D. (2011). Is the audit fee disclosure a leading indicator of clients’ business risk? AUDITING: A Journal of Practice & Theory, 30(3), 157–179. https://doi.org/10.2308/ajpt-10049
   Web of Science ®Google Scholar
• Subramaniam, N., Wahyuni, D., Cooper, B. J., Leung, P., & Wines, G. (2015). Integration of carbon risks and opportunities in enterprise risk management systems: Evidence from Australian firms. Journal of Cleaner Production, 96, 407–417. https://doi.org/10.1016/j.jclepro.2014.02.013
   Web of Science ®Google Scholar
• Thompson, P. (1998). Bank lending and the environment: policies and opportunities. International Journal of Bank Marketing, 16(6), 243–252. https://doi.org/10.1108/02652329810241384
   Google Scholar
• Truong, C., Garg, M., & Adrian, C. (2020). Climate risk and the price of audit services: The case of drought. AUDITING: A Journal of Practice & Theory, 39(4), 167–199. https://doi.org/10.2308/AJPT-18-097
   Web of Science ®Google Scholar
• WBCSD, WRI (2004). The greenhouse gas protocol: A corporate accounting and reporting standard (Revised ed.). World Resources Inst.
   Google Scholar
• Weber, O. (2012). Environmental credit risk management in banks and financial service institutions. Business Strategy and the Environment, 21(4), 248–263. https://doi.org/10.1002/bse.737
   Web of Science ®Google Scholar
• Weinhofer, G., & Hoffmann, V. H. (2008). Mitigating climate change - how do corporate strategies differ? Business Strategy and the Environment, 19(2), 77–89. https://doi.org/10.1002/bse.618
   Web of Science ®Google Scholar
• Wooldridge, J. M. (2020). Introductory econometrics: A modern approach (Seventh edition). Cengage.
   Google Scholar
• World Bank. (2022). Carbon pricing dashboard: Map and data. Retrieved from https://carbonpricingdashboard.worldbank.org/map_data.
   Google Scholar
• Yao, S., Pan, L., & Zhang, Z. (2019). Does environmental disclosure have an auditing effect? Managerial Auditing Journal, 35(1), 43–66. https://doi.org/10.1108/MAJ-10-2018-2030
   Web of Science ®Google Scholar
• You, J., Wu, X., Luo, L., Shen, H., & Tan, X. (2021). New business as a bargaining factor in audit pricing: evidence from emission trading schemes. Accounting and Business Research, 51(6-7), 800–823. https://doi.org/10.1080/00014788.2021.1874265
   Web of Science ®Google Scholar
• Zhang, Y-J, & Liu, J-Y. (2020). Overview of research on carbon information disclosure. Frontiers of Engineering Management, 7(1), 47–62. https://doi.org/10.1007/s42524-019-0089-1
   Web of Science ®Google Scholar