Jiaze Xu
This study examines the impact of corporate climate risk on audit opinions, using a sample of Chinese A-share listed companies from 2015 to 2024. Climate change has emerged as a significant source of business uncertainty, affecting firms' operations, financial reporting quality, and internal controls. This paper investigates whether auditors respond to clients' climate risk exposure by issuing more conservative audit opinions. The empirical results indicate that firms with higher climate risk exposure are significantly more likely to receive modified audit opinions. The mechanism analysis reveals that climate risk influences audit opinions through two channels: increased earnings management and weakened internal control quality. Heterogeneity analysis shows that this effect is more pronounced in high-carbon industries, firms with lower ESG performance, and regions with stricter environmental regulations. This study contributes to the growing literature on climate risk and auditing by providing empirical evidence on how climate risk shapes auditors' reporting decisions, and offers practical implications for regulators, investors, and audit practitioners.
Climate Risk; Audit Opinion; Auditor Conservatism; Modified Opinion; Audit Risk