Carbon Accounting Quality: Measurement and the Role of Assurance

We examine the role of assurance—third-party verification—on carbon accounting quality. We develop a measure of carbon accounting quality based on the deviation of reported emissions from a model-based expected level, akin to discretionary accruals. We show that assurance is associated with improved carbon accounting quality. This association cannot be explained by firm type or firm-level transparency, is isolated to the scope-specific emissions being assured, does not relate to financial reporting quality, and is stronger when assurance is more pervasive and thorough. Assurance improves carbon accounting quality by identifying issues in a firm’s carbon accounting system, resulting in fewer carbon reporting omissions, less managerial uncertainty, and more timely reporting. Using the implementation of mandated assurance in three E.U. countries for non-financial reporting, we show that countries with these mandates experience within-firm improvements in carbon accounting quality post-regulation. Together, the findings highlight the importance of external assurance in shaping carbon accounting quality.