Environmental Risk And Audit Fees

Previous studies have found many factors that affect audit fees,such as company size,business complexity,internal control quality,firm characteristics and so on.Under the background of the increasingly serious environmental problems,the environmental risk will inevitably affect the operating status of the enterprise,thus affecting the auditor's judgment on the risk.However,whether environmental risks affect audit fees is still unknown.In this paper,seeing PM2.5 explosion event as an exogenous event,using propensity matching score method and difference-in-difference model to test the relationship between environmental risk and audit fees.The empirical results show that,first,after PM2.5 is started to be monitored in 2012,compared with the heavily polluting listed companies located in the cities that began been monitored until 2015,those located in the cities that take the lead in monitoring will be charged higher audit fees.Second,this relationship exists only in heavily polluting enterprises with lower internal control quality.Third,different auditors respond differently to this,and the above relationship is even more significant in the non-big 4 and non-top 10 audit firms.Combined with the results of the interview study,we can say that auditor will pay attention to environmental risks,however,only when substantive risks are exposed,auditors can take environmental risk into consideration and adjust their own audit activities.This is one of the possible innovations in this article.In addition,there are another innovation,which is in the research methods.In addition to the empirical research,this article also uses the interview to provide supplementary evidence for the empirical results.