Climate Risk and the Price of Audit Services: The Case of Drought

2020 ◽  
Vol 39 (4) ◽  
pp. 167-199
Author(s):  
Cameron Truong ◽  
Mukesh Garg ◽  
Christofer Adrian
Keyword(s):  
State Level ◽  
Severity Index ◽  
Audit Fees ◽  
Climatic Conditions ◽  
Climate Risk ◽  
Drought Severity ◽  
Firm Risk ◽  
Audit Risk ◽  
Drought Intensity ◽  
The Impact

SUMMARY This study examines the impact of drought on the pricing of audit services for U.S. firms over the period 2001–2015. We employ the Palmer Drought Severity Index (PDSI) to determine drought intensity conditions at the state level on a yearly basis and regress audit fees on drought intensity after controlling for other known factors of audit fees. We document that auditors charge significantly higher audit fees for client firms headquartered in areas affected by drought. The effect of drought on audit fees is more pronounced among firms with lower accruals quality and among firms with high business operation concentration in their headquarter states. Collectively, our findings suggest that climate risk in the form of drought not only affects firm risk but also audit risk, thereby highlighting that externalities from climatic conditions are relevant to firms and auditors.

Conditional Conservatism and Audit Fees

2014 ◽  
Vol 29 (1) ◽  
pp. 83-113 ◽  
Author(s):  
Hye Seung (Grace) Lee ◽  
Xu Li ◽  
Heibatollah Sami
Keyword(s):  
Corporate Governance ◽  
Potential Benefit ◽  
Audit Fees ◽  
Accounting Conservatism ◽  
Audit Risk ◽  
Debt Contracting ◽  
Conditional Conservatism ◽  
Governance Quality ◽  
Corporate Governance Quality ◽  
The Impact

SYNOPSIS In this study, we examine the impact of conditional conservatism on audit fees and, more importantly, the influence of corporate governance on this relationship. Prior literature presents evidence regarding explanations for the existence and pervasiveness of accounting conservatism such as compensation and debt contracting, shareholder litigation, taxation, and accounting regulation. However, there is very limited evidence or discussion of the potential benefit of accounting conservatism on audit risk and thus audit fees, and how the potential benefit can be attenuated by corporate governance quality. Using a sample of firm-year observations over the period of 2004–2009, we provide evidence consistent with conditional conservatism and firms' commitment to such conservatism reducing their audit fees. However, our evidence shows that this reduction in audit fees is moderated by higher corporate governance quality. These results have implications for auditors, regulators, standard setters, and firms' managers. In addition, our study extends the literature on the determinants of audit fees. JEL Classifications: M41; M42; D81; D22.

Flash Drought Characteristics by Different Severities in Humid Subtropical Basins: A Case Study in the Gan River Basin, China

2021 ◽  
pp. 1-44
Author(s):  
Yuqing Zhang ◽  
Qinglong You ◽  
Guangxiong Mao ◽  
Changchun Chen ◽  
Xin Li ◽  
...  
Keyword(s):  
Soil Moisture ◽  
River Basin ◽  
Vapour Pressure Deficit ◽  
Severity Index ◽  
Drought Severity ◽  
Rapid Decline ◽  
Drought Risk ◽  
Drought Event ◽  
Drought Period ◽  
Drought Intensity

AbstractIt is essential to assess flash drought risk based on a reliable flash drought intensity (severity) index incorporating comprehensive information of the rapid decline (“flash”) in soil moisture towards drought conditions and soil moisture thresholds belonging to the “drought” category. In this study, we used the Gan River Basin as an example to define a flash drought intensity index that can be calculated for individual time steps (pentads) during a flash drought period over a given grid (or station). The severity of a complete flash drought event is the sum of the intensity values during the flash drought. We explored the spatial and temporal characteristics of flash droughts with different grades based on their respective severities. The results show that decreases in total cloud cover, precipitation, and relative humidity, as well as increases in 500 hPa geopotential height, convective inhibition, temperature, vapour pressure deficit, and wind speed can create favorable conditions for the occurrence of flash droughts. Although flash droughts are relatively frequent in the central and southern parts of the basin, the severity is relatively high in the northern part of the basin due to longer duration. Flash drought severity shows a slightly downward trend due to decreases in frequency, duration, and intensity from 1961 to 2018. Extreme and exceptional flash droughts decrease significantly while moderate and severe flash droughts trend slightly upward. Flash drought severity appears to be more affected by the interaction between duration and intensity as the grade increases from mild to severe. The frequency and duration of flash droughts are higher in July to October. The southern part of the basin is more prone to moderate and severe flash droughts, while the northern parts of the basin are more vulnerable to extreme and exceptional flash droughts due to longer durations and greater severities than other parts. Moderate, severe, extreme, and exceptional flash droughts occurred approximately every 3-6, 5-15, 10-50, and 30-200 year intervals, respectively, based on the copula analysis.

scholarly journals Standardized Drought Indices for Pre-Summer Drought Assessment in Tropical Areas

Atmosphere ◽  
2020 ◽  
Vol 11 (11) ◽  
pp. 1209
Author(s):  
David Romero ◽  
Eric Alfaro ◽  
Roger Orellana ◽  
Maria-Engracia Hernandez Cerda
Keyword(s):  
Vegetation Index ◽  
Temporal Variations ◽  
Climatic Conditions ◽  
Drought Indices ◽  
Drought Severity ◽  
Severe Drought ◽  
Summer Drought ◽  
Tropical Zone ◽  
Drought Assessment ◽  
The Impact

The main climatic indices used for the determination of pre-summer drought severity were developed for temperate zones with very different climatic conditions from those found in the tropical climate zones, particularly with respect to seasonal rainfall variations. The temporal evolution of pre-summer drought leads the authors to compute the indices for each year over a defined period according to the climatic normals of each meteorological station and to consider the months inside the dry episode differently, according to the law of emptying the water reserves. As a function of this, standardized drought indices are proposed for the evaluation of the pre-summer drought in tropical zone. Two new indices were tested: one developed from precipitation and the other also considering temperature. These indices were validated by correlation with Advanced very-high-resolution radiometer (AVHRR) normalized difference vegetation index (NDVI) time series and used to identify the most severe drought conditions in the Yucatan Peninsula. The comparison between the indices and their temporal variations highlighted the importance of temperature in the most critical events and left indications of the impact of global warming on the phenomenon.

scholarly journals The impact of climate mitigation on projections of future drought

2013 ◽  
Vol 17 (6) ◽  
pp. 2339-2358 ◽  
Author(s):  
I. H. Taylor ◽  
E. Burke ◽  
L. McColl ◽  
P. D. Falloon ◽  
G. R. Harris ◽  
...  
Keyword(s):  
Climate Model ◽  
Severity Index ◽  
Baseline Period ◽  
Drought Indices ◽  
Drought Severity ◽  
Climate Mitigation ◽  
Climate Projections ◽  
Standardised Precipitation Index ◽  
The Impact ◽  
Future Emissions

Abstract. Drought is a cumulative event, often difficult to define and involving wide-reaching consequences for agriculture, ecosystems, water availability, and society. Understanding how the occurrence of drought may change in the future and which sources of uncertainty are dominant can inform appropriate decisions to guide drought impacts assessments. Our study considers both climate model uncertainty associated with future climate projections, and future emissions of greenhouse gases (future scenario uncertainty). Four drought indices (the Standardised Precipitation Index (SPI), Soil Moisture Anomaly (SMA), the Palmer Drought Severity Index (PDSI) and the Standardised Runoff Index (SRI)) are calculated for the A1B and RCP2.6 future emissions scenarios using monthly model output from a 57-member perturbed parameter ensemble of climate simulations of the HadCM3C Earth System model, for the baseline period 1961–1990, and the period 2070–2099 ("the 2080s"). We consider where there are statistically significant increases or decreases in the proportion of time spent in drought in the 2080s compared to the baseline. Despite the large range of uncertainty in drought projections for many regions, projections for some regions have a clear signal, with uncertainty associated with the magnitude of change rather than direction. For instance, a significant increase in time spent in drought is generally projected for the Amazon, Central America and South Africa whilst projections for northern India consistently show significant decreases in time spent in drought. Whilst the patterns of changes in future drought were similar between scenarios, climate mitigation, represented by the RCP2.6 scenario, tended to reduce future changes in drought. In general, climate mitigation reduced the area over which there was a significant increase in drought but had little impact on the area over which there was a significant decrease in time spent in drought.

scholarly journals Family control, audit committees and audit fees

2010 ◽  
Vol 7 (3) ◽  
pp. 73-85 ◽  
Author(s):  
Sidney Leung ◽  
Ran Wang
Keyword(s):  
Hong Kong ◽  
Audit Committee ◽  
Positive Association ◽  
Audit Fees ◽  
Audit Committees ◽  
Fiscal Year ◽  
Audit Risk ◽  
Family Control ◽  
The Impact

This paper examines the impact of family control on audit effort and audit risk as proxied by audit fees, the relation between the quality of the audit committee (AC) and audit fees, and how family control influences the association between AC quality and audit fees. Using a sample of Hong Kong companies from the 2005/06 fiscal year, we find that family-controlled firms have lower audit fees. The results also show a positive association between AC quality and audit fees in Hong Kong. Moreover, the association of higher AC quality with higher audit fees is stronger in family-controlled firms than in non-family-controlled firms. Collectively, our findings suggest that audit committees in family-controlled firms require a higher degree of external audit effort than do those in non-familycontrolled firms.

scholarly journals Drought losses in China might double between the 1.5 °C and 2.0 °C warming

2018 ◽  
Vol 115 (42) ◽  
pp. 10600-10605 ◽  
Author(s):  
Buda Su ◽  
Jinlong Huang ◽  
Thomas Fischer ◽  
Yanjun Wang ◽  
Zbigniew W. Kundzewicz ◽  
...  
Keyword(s):  
Temperature Increase ◽  
Loss Rate ◽  
Severity Index ◽  
Rate Function ◽  
Drought Severity ◽  
Analysis Method ◽  
Drought Intensity ◽  
Cluster Analysis Method ◽  
Increasing Precipitation ◽  
Intensity Loss

We project drought losses in China under global temperature increase of 1.5 °C and 2.0 °C, based on the Standardized Precipitation Evapotranspiration Index (SPEI) and the Palmer Drought Severity Index (PDSI), a cluster analysis method, and “intensity-loss rate” function. In contrast to earlier studies, to project the drought losses, we predict the regional gross domestic product under shared socioeconomic pathways instead of using a static socioeconomic scenario. We identify increasing precipitation and evapotranspiration pattern for the 1.5 °C and 2.0 °C global warming above the preindustrial at 2020–2039 and 2040–2059, respectively. With increasing drought intensity and areal coverage across China, drought losses will soar. The estimated loss in a sustainable development pathway at the 1.5 °C warming level increases 10-fold in comparison with the reference period 1986–2005 and nearly threefold relative to the interval 2006–2015. However, limiting the temperature increase to 1.5 °C can reduce the annual drought losses in China by several tens of billions of US dollars, compared with the 2.0 °C warming.

scholarly journals Fair value measurement and its impact on audit fees: evidence in the Brazilian market

2021 ◽  
Vol 13 (2) ◽  
Author(s):  
Edson Vinícius Pontes Bastos ◽  
Luciana Holtz ◽  
Odilanei Morais dos Santos
Keyword(s):  
Risk Premium ◽  
Audit Fees ◽  
Fair Value ◽  
Audit Risk ◽  
Audit Firms ◽  
Fair Value Measurement ◽  
Before And After ◽  
Multiple Regression Technique ◽  
Value Measurement ◽  
The Impact

Objective: The purpose is to verify the impact of using the measurement at fair value on the audit fees, differentiating even the period before and after the adoption of IFRS 13 (CPC 46).  Methodology: The research is quantitative, for testing the hypothesis raised, the multiple regression technique was used, with data available from companies listed in B3 for the period between 2010 and 2016.  Results: The evidence indicates that the complexity and subjectivity of fair value is recognized by the audit firms, that is, audit firms recognize that fair value measurement implies more effort and that the associated audit risk rises, leading firms to charge of a risk premium for the provision of the service. However, it was not possible to confirm that auditors' fees increased after the adoption of IFRS13 (CPC 46).  Contributions of study: Theoretical/methodological - The study contributes to understanding the impacts of adopting international accounting standards, in this specific case on audit fees. Social/management - Given the evidence that there is a higher audit cost associated with the greater complexity of information in a fair value environment, companies can develop mechanisms to minimize the uncertainty of the information to be audited.

The impact of non-timely 10-Q filings and audit firm size on audit fees

2018 ◽  
Vol 33 (5) ◽  
pp. 503-516 ◽  
Author(s):  
Tiffany Chiu ◽  
Feiqi Huang ◽  
Yue Liu ◽  
Miklos A. Vasarhelyi
Keyword(s):  
Regression Model ◽  
Firm Size ◽  
Audit Fees ◽  
Audit Risk ◽  
Content Type ◽  
Audit Firm ◽  
Big 4 ◽  
Audit Firms ◽  
Audit Fee ◽  
The Impact

Purpose Prior studies suggest that non-timely 10-Q filings indicate higher potential risks than non-timely 10-K filings. Furthermore, larger audit firms tend to be more risk-averse and conservative about reporting. Inspired by these research streams, this paper aims to investigate the influence of non-timely 10-Q filings on audit fees and the impact of audit firm size on this association. Design/methodology/approach The cross-sectional audit fee regression model used in this study is similar to that used in prior audit fee research (Simunic, 1980; Francis et al., 2005; Hay et al., 2006; Wang et al., 2013). The model includes the following five major characteristics that would influence auditors’ fee decisions: auditee size (LNAT), complexity (REIVAT, FOREIGN, SEG), financial condition (LOSS, ROA, GROWTH, ZSCORE), special events (ICW, RESTATE, INITIAL, GC) and auditor type (BIG4). To examine the effect of non-timely 10-Q filings on audit fees, the variable NT10Q is included in the audit fee model. Findings The results indicate that when both non-timely 10-K and non-timely 10-Q filings are included in the regression model, only non-timely 10-Q filings are significantly associated with higher audit fees, suggesting that the presence of non-timely 10-Q filings signals more serious underlying problem than non-timely 10-K filings in the audit fees decision processes. In addition, we find that audit fees for firms audited by Big 4 auditors are 26.4 per cent higher when those firms file non-timely 10-Q reports, whereas there is no significant association between non-timely 10-Q filings and audit fees for firms audited by non-Big 4 auditors. Practical implications As no attention has been paid to the investigation of the impact of non-timely 10-Q filings on audit fees, with the aim of filling the gap of this specific research area, this study examines the association between non-timely 10-Q filings and audit fees and the influence of audit firm size on this association. Originality/value The contribution of this paper is threefold: first, it is the first study to examine the association between non-timely 10-Q filings and audit fees. The results show that non-timely 10-Q filings are a better and earlier indicator of audit risk than non-timely 10-K filings. Second, the results reveal that the relationship between non-timely 10-Q filings and audit fees is affected by audit firm size. Specifically, Big 4 auditors tend to charge higher audit fees in the presence of non-timely 10-Q filings, reflecting that they are more sensitive to audit risk than smaller audit firms are. Third, an examination of the quarterly effect of non-timely 10-Q filings on audit fees indicates a stronger effect from the first quarter’s non-timely 10-Q filings, compared to the second or third quarter.

Volatile Climate Conditions Cahokia: Comment on Benson, Pauketat and Cook 2009

2010 ◽  
Vol 75 (4) ◽  
pp. 978-983 ◽  
Author(s):  
Kevin C. Nolan ◽  
Robert A. Cook
Keyword(s):  
Social Complexity ◽  
Palmer Drought Severity Index ◽  
Severity Index ◽  
Climatic Conditions ◽  
Drought Severity ◽  
Climate Data ◽  
Climate Conditions ◽  
American Bottom ◽  
Drought Severity Index ◽  
Made In

The rapidly growing archaeological literature on Palmer Drought Severity Index (PDSI) reconstructions (e.g., Benson et al. 2007; Cooper 2008; Stahle et al. 2007) demonstrates the significant gains that can be made in explaining cultural developments in prehistory when appropriate climate data are available. Benson et al. (2009) added to this literature with an analysis of the climatic conditions associated with peak social complexity in the American Bottom. They focus on abundance of precipitation. We applaud their effort and offer an additional perspective on the development of social complexity using the same data, by highlighting the importance of variability in conditioning complexity.

scholarly journals SPEI-Based Approach to Agricultural Drought Monitoring in Vojvodina Region

Water ◽  
2019 ◽  
Vol 11 (7) ◽  
pp. 1481 ◽  
Author(s):  
Jovana Bezdan ◽  
Atila Bezdan ◽  
Boško Blagojević ◽  
Minučer Mesaroš ◽  
Borivoj Pejić ◽  
...  
Keyword(s):  
Developmental Stages ◽  
Crop Yields ◽  
Standardized Precipitation Index ◽  
Severity Index ◽  
Climatic Conditions ◽  
Agricultural Drought ◽  
Drought Monitoring ◽  
Drought Severity ◽  
Second Phase ◽  
The Standardized Precipitation Index

This paper presents the standardized precipitation evapotranspiration index (SPEI)-based approach to agricultural drought monitoring (ADM-SPEI approach) combining well-known methods, expert’ critical opinions, and local agro-climatic specificities. The proposed approach has been described in detail in three phases. This allows its application in any region and modification according to different agro-climatic conditions. The application of the ADM-SPEI approach has resulted in obtaining a modified SPEI for different crops (agricultural drought SPEI (AD-SPEIcrop)) in the Vojvodina region. In the first phase of the proposed approach, analytical hierarchy process (AHP) was used to obtain an experts’ group decision regarding the most suitable method for calculating evapotranspiration for a particular analyzed region. In the second phase, SPEI was modified and adjusted to the conditions in Vojvodina, where ET0 was replaced by ETc. In the validation phase, the results of the application of AD-SPEIcrop were compared to crop yields and well-known indices and evaluated by the experts’ feedback. The statistically significant correlations were achieved between AD-SPEIcrop and crop yields. The highest correlations were achieved in the months when the analyzed crops were in the developmental stages when they are most sensitive to drought. The AD-SPEIcrop better correlates to the crop yields compared to SPEI. The comparison of AD-SPEIcrop to the standardized precipitation index (SPI), SPEI, and self-calibrated Palmer drought severity index (SC-PDSI) shows that it can successfully detect dry and wet periods. The results have indicated that the proposed approach can be successfully applied, and AD-SPEIcrop has shown a good performance for agricultural drought monitoring.

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