Rendering climate risk auditable: the discursive emergence of C-KAMs in financial audit reports

Purpose
This article investigates how climate-related financial risks are addressed in statutory audit reporting through the lens of Key Audit Matters (KAMs), with a focus on those explicitly referencing climate concerns (C-KAMs). The study explores whether and how these disclosures reflect a meaningful engagement with complex and multi-layered climate-related materiality.
Design/methodology/approach
The study applies a mixed-method approach combining descriptive sorting and categorization with interpretive textual analysis. The sample comprises 678 C-KAMs identified from 80,628 total KAMs disclosed in European auditor reports between 2015 and 2023. Descriptive analyses were conducted using Excel-based filtering and cross-tabulation. Finally, audit procedures and communicative tone were qualitatively coded and interpreted from the C-KAMs.
Findings

C-KAMs have begun to emerge across European audit reports, but in a markedly uneven and cautious fashion. They are concentrated in a narrow set of high-carbon and infrastructure sectors, most notably utilities, oil and gas, mining and selected manufacturing and real estate firms, while sectors such as finance, insurance and agriculture are almost absent. Where C-KAMs are reported, climate-related risks are predominantly translated into familiar accounting containers such as impairment testing, provisions and valuation estimates, expressed in generic, neutral-to-negative language and supported by limited procedural detail. This pattern suggests that current practice often fits climate uncertainty into conventional accounting containers rather than engaging deeper with its strategic and system-level dimensions.
Research limitations/implications
The study is limited to publicly disclosed C-KAMs in European auditor reports and therefore cannot capture the internal deliberations, omitted climate concerns or firm-level judgments that shape whether climate issues become reportable audit matters. The interpretation of tone and procedural depth also remains dependent on textual disclosures rather than underlying audit files. These limitations nonetheless underscore an important implication: current audit reporting appears to render climate risk visible only when it can be translated into established financial statement categories. This highlights the need for further research on how audit practice may accommodate systemic, long-horizon and strategically diffuse climate-related uncertainties.
Practical implications
For practitioners, the findings suggest that climate-related audit reporting remains narrowly anchored in conventional accounting estimates such as impairment, provisions and valuation, which may understate broader strategic and systemic exposures. Auditors may therefore need more explicit guidance on when and how climate issues should be reflected in KAM reporting, especially beyond high-carbon sectors. For regulators and standard setters, the results indicate a need to clarify expectations around climate-related materiality in audit communication. For preparers and audit committees, the study highlights the importance of ensuring that climate-related assumptions and financial statement effects are documented in a way that supports transparent audit scrutiny.
Originality/value
This is among the first studies to systematically examine C-KAMs as distinct research subjects. The findings contribute to a growing understanding of how audit practices engage with climate risks and highlight emerging tensions in evidencing long-horizon, uncertain phenomena within existing financial audit frameworks. Our research offers a novel perspective on C-KAMs by examining them not merely as technical disclosures, but as sites where auditors negotiate financial materiality in the face of climate uncertainty.