ABSTRACT
This study investigates the contents and trends of critical audit matters (CAMs) as they relate to ESG matters (ECAMs). Our examination of the description of ESG matters in ECAMs suggests that the majority of ECAMs fall under measurement issues from environmental liabilities and loss contingencies. To address ECAMs, auditing procedures must assess managerial assumptions by making frequent use of an environmental specialist. Our descriptive analysis suggests that firms that receive ECAMs are more profitable, more likely to have a Big 4 auditor, and have higher litigation risk. Our cross-country comparison suggests a similar trend between ECAMs and their equivalent reports in Europe, as both focus mainly on environmental matters rather than social or governance matters. Overall, our analysis suggests that the issuance of ECAMs represents an important source for discerning a portion of firms’ ESG standings.
Data Availability: Data are available from the public sources cited in the text.
JEL Classifications: M4.
