Information asymmetry and management incentives suggest that shareholders cannot rely on the correctness of the information supplied by managers. An independent audit is a mechanism that enhances the credibility of reports (O’Dwyer & Owen, 2005; Simnett et al., 2009), including environmental disclosures (Sutton & Arnold, 1998). Beets and Souther (1999, p.133) suggest that the comprehensiveness, accuracy and reliability of environmental reports “may be best assured by external
professional verification”. Furthermore, Epstein and Freedman (1994) report that 36% of shareholders were already in favour of an environmental audit in 1991, during an era before the current emphasis on environmental issues. We expect that shareholders will require an audit of environmental disclosures (expectation 3).