Sustainability Assurance - Key Messages

Capacity and capability building

Sustainability reporting and assurance under the Act is fast approaching and creates opportunities and challenges for preparers and auditors.  There is a need for preparers and auditors to develop expertise, knowledge, resources, processes and controls to ensure timely, useful, meaningful and quality reporting and assurance.

Australia is at the forefront of reporting. Approaches to the disclosure requirements under the Act and AASB S2 Climate-related disclosures such as level of reporting detail and proportionality are developing.

Preparers and auditors need to:

1. Attract, upskill and retain staff for sustainability reporting and assurance;
2. Make a greater use of experts, which necessitates identifying requirements and suitable experts early;
3. Develop an enhanced understanding of an audited entity’s businesses, such as regulatory developments in the geographical locations in which the entity operates, production processes and operations of investees;
4. Understand the entity’s upstream and downstream value chains, and plan to obtain the information and assurance required for their sustainability reports;
5. Develop models and assumptions for forward-looking information;
6. Have the knowledge and expertise to identify where an expert is required and to be able to direct their work and challenge their assumptions, methodologies, outputs and conclusions, including for forward-looking information; and
7. Ensure that there is strong connectivity between information in sustainability reports and assumptions underlying financial reports.

The education materials available at Sustainability Assurance may assist in developing upskilling on sustainability assurance with a focus on sustainability reporting under the Act.

How preparers can support assurance quality

Entities should have appropriate processes and records to support the information in their sustainability report. They should apply appropriate experience and expertise to produce quality information on a timely basis that is supported by appropriate analysis and documentation for independent assurance. This will enable the auditor to focus on their role in providing independent assurance on the information in the sustainability report.

It is vital that year end reporting and assurance processes are planned to ensure that an effective quality assurance engagement can be conducted within the reporting deadlines.

The matters outlined in ASIC Information Sheet 196 Audit quality – The role of directors and audit committees (updated October 2021) in the context of the audit of financial reports equally apply for assurance over information in sustainability reports under the Act.

Limited assurance ‘myths’ for preparers and auditors

Obtaining and providing limited assurance may not significantly reduce the work effort of the auditor compared to reasonable assurance. Considerations may include:

1. Preparers may ask the auditor to provide reasonable assurance early to reduce the possibility of surprises when moving from limited to reasonable assurance in later years;
2. Because there is no prior period report that was subject to reasonable assurance (as would typically be the case with an interim financial report), the effort by auditor on systems, processes and required disclosures may be similar that for reasonable assurance;
3. Where an entity’s relevant systems and processes are inadequate, the work by the auditor may approach that required for reasonable assurance;
4. Similar to reasonable assurance, where material issues affecting the sustainability report are identified but not addressed, a modified assurance report would be required under limited assurance;
5. Limited assurance under ASSA 5000 General Requirements for Sustainability Assurance involves work that is not specified for a review of a half year financial report (e.g. on risk identification and assessment.);and
6. The financial report is subject to reasonable assurance and this may affect the extent of work on connected information in the sustainability report.

In the first year of reporting, the auditor will need to:

1. Gain an enhanced understanding of the business, consider its risks and opportunities and required disclosures;
2. Because there may be no prior period report subject to assurance, perform additional procedures for identifying risk and concluding. For example, there may be no assured comparative information for use in non-substantive analytical procedures; and
3. Read any other information in the sustainability report that is not subject to assurance by the auditor for material inconsistencies with the information reviewed or audited and for material misstatement.