Environmental disclosure credibility and audit fee pricing in large US firms

Whether external auditors incorporate the credibility of corporate environmental disclosure into audit pricing remains unresolved in the ESG reporting literature. This study examines the relationship between audit fees and the alignment of firms’ environmental narratives with their realized environmental conduct, using a panel of large U.S.-listed non-financial firms over 10 years. The analysis distinguishes the direction of disclosure–performance misalignment from its magnitude. It finds that larger gaps are associated with higher audit fees, regardless of whether firms over-disclose or under-disclose. The association becomes stronger as divergence widens, and external media attention does not significantly alter this relationship. The findings are consistent with a risk-based view of audit pricing in which disclosure credibility, rather than disclosure alone, enters the auditor’s assessment of engagement risk. The study also provides a transparent and replicable framework for measuring disclosure–performance divergence, with implications for ongoing discussions surrounding sustainability reporting and assurance.