Sustainability Assurance - FAQs

General FAQs

• 1. What are the practical implications of using the same or separate lead auditors or audit firms/companies for the financial and sustainability reports?

  Under the Corporations Act 2001 (the Act) and in this FAQ:

  • the ‘auditor’ that is appointed by an entity to audit the entity’s financial and sustainability reports is an audit firm (i.e. partnership), authorised audit company or an individual auditor (i.e. sole trader); and
  • the ‘lead auditor’ is the individual partner of an audit firm or director (sometimes with the title ‘partner’) of an authorised audit company chosen by that firm or audit company to be responsible for conducting the audit accordance with AUASB standards on behalf of that firm or audit company.

  There are choices as to the auditor and lead auditor as follows (see ASIC ‘Review or audit of sustainability reports’):

  • A company, registered scheme or retail CCIV can choose to appoint one auditor (audit firms, audit companies or individual auditors) to the audit of their financial report and for any assurance over a sustainability report under the Act or separate auditors to audit each report. An RSE that is a reporting entity must have the same auditor for both the financial report and sustainability report.
  • An audit firm or authorised audit company can use one lead auditor or two different lead auditors for an entity’s financial report and sustainability report under the Act. All lead auditors and any review auditors must be registered company auditors.

  Careful consideration should be given to the costs and benefits flowing from these choices.  Practical matters that directors and auditors may wish to consider in making these choices may include:

  No.	Area	Considerations with one auditor (firm/audit company/individual auditor) and one lead auditor for the sustainability and financial reports	Considerations with one auditor (firm/audit company) and separate lead auditors for the sustainability and financial reports	Considerations with separate auditors (firms/audit companies/individual auditors)  for the sustainability and financial reports
  1	Decision-making on: ·   Auditor (audit firm, authorised audit company or individual auditor); and ·   Lead auditor(s) within an audit firm or authorised audit company	Whether to use one or two lead auditors is a matter for the auditor (firm/audit company) to decide.  As a matter of practice, this decision would often be made in consultation with the entity’s directors.	Whether to use one or two lead auditors is a matter for the auditor (firm/audit company) to decide.  As a matter of practice, this decision would often be made in consultation with the entity’s directors.	Whether to appoint the same or separate auditors is a matter for the entity and its directors to decide.  However, the auditors also need to consider whether to accept or continue with an engagement where there are the same or separate auditors. The auditor appointment, removal and resignation provisions of the Act should be considered (e.g. resignation may require consent of ASIC) and ASIC Regulatory Guide RG 26 Resignation, removal and replacement of auditors.
  2	Auditor	The auditor must be an audit firm, authorised audit company or individual auditor.	The auditor must be an audit firm, authorised audit company or individual auditor.	Both of the auditors must be an audit firm, authorised audit company or individual auditor.
  3	Registration of lead auditor	The lead auditor must be a registered company auditor.	Both lead auditors must be registered company auditors.	The lead auditors from each auditor (firm/audit company/individual auditor) must be registered company auditors.
  4	Director and management engagement	Avoids the need for directors and management to engage and coordinate with two separate auditors and lead auditors.	Directors and management will engage with one auditor but two separate lead auditors.	Directors and management will need to engage with two separate auditors who have overlapping responsibilities given the connectivity between the financial and sustainability reports.  Some of the coordination for the audits that would otherwise fall on the lead auditor(s) where there is one auditor will fall on the directors and management.
  5	Skills and expertise	The lead auditor for the financial report would audit/review disclosures in the sustainability report that it would be more difficult and inefficient for another lead auditor or auditor to audit/review (e.g. impacts of climate-related risks and opportunities on the financial position, financial performance and cash flows). The lead auditor should use experts where necessary.	A separate lead auditor for the sustainability report may have the expertise to directly perform work on particular disclosures without using another expert.  However, there may be areas where another expert is still required.	Entities may be able to choose an auditor for the sustainability report that is expected to have greater capacity and capability for assurance over the sustainability information than the auditor of their financial report.  The separate auditor may be able to directly perform work on the disclosures in the sustainability report without using another expert. However, a separate auditor of a sustainability report may not be best positioned to audit/review certain disclosures in the sustainability report (e.g. impacts of climate-related risks and opportunities on the financial position, financial performance and cash flows).
  6	Use of experts	The lead auditor determines the use of experts in their work and whether experts have the necessary competency skills, knowledge and expertise.	The auditor determines the use of experts in their work and whether experts have the necessary competency, skills, knowledge and expertise.	The directors should be satisfied that the auditor of the sustainability report has the necessary competency, skills, knowledge and expertise.
  7	There can be substantial connectivity of information and assumptions between sustainability report and financial report	A single lead auditor would be better placed to ensure that the requirements on connectivity and consistency between the sustainability report and financial report (e.g. information disclosed in the sustainability report and data and assumptions underlying asset values in the financial report) are met (see AASB S2 Appendix B para B65(e)).	Both lead auditors should identify material inconsistencies and misstatements between the financial report and sustainability report by communication and other means. This has regard to the underlying principles of Auditing Standard ASA 720 The Auditor's Responsibilities Relating to Other Information and ASSA 5000.	Both auditors will need to identify material inconsistencies and misstatements between the financial report and sustainability report by communication and other means. Connectivity challenges may increase as more sustainability information is subject to assurance (e.g. impacts on future financial performance) and there is a move from limited to reasonable assurance. This has regard to the underlying principles of Auditing Standard ASA 720 The Auditor's Responsibilities Relating to Other Information and ASSA 5000.
  8	Communication between auditors and lead auditors	No need for communication and cooperation between two lead auditors or auditors.	There is a need for the two lead auditors to have strong communication and cooperation.  In practice, this may result in inefficiency and increased costs.	There is a need for the two auditors to have strong communication and cooperation.  In practice, this may result in inefficiency and increased costs. Inadequate communication and cooperation between the separate auditors may negatively affect audit quality. Audit committees (or the directors) should inquire whether the two auditors are communicating and cooperating to identify material inconsistencies and misstatements.
  9	Using the work of another auditor	The lead auditor needs to have an enhanced understanding of the business to provide assurance over the sustainability report compared to the understanding that may be required for the financial report audit. The auditor can perform work once on common information that supports both the sustainability and financial reports.  Where necessary, they can use the work of experts.	The lead auditors will need to have an enhanced understanding of the business for assurance over the sustainability report and to understand climate-related risk and opportunity impacts on the financial report. The auditor can perform work once on common information that supports both the sustainability and financial reports.	With two separate auditors, there will be duplication of effort and inefficiencies for auditors, directors and management.  This may result in significant additional: (a) overall assurance time and effort; (b) audit and assurance fees; and (c) time costs for entities, directors and management. For example: (a) Both auditors will need an understanding of the business and control environment, and to identify and assess risks. (b) Both auditors will need to obtain assurance on common information that supports both the sustainability and financial reports (e.g. production volumes, sales). (c) There can be limitations and inefficiencies in one auditor using the work of the other auditor.  For example:  i. The auditor will need to satisfy themselves that the work of the other auditor is adequate for their purposes.  ii. The other auditor might not agree to the auditor accessing and reviewing their work as appropriate.  iii. Differences in assurance methodologies may limit the ability of auditors to use each other’s work.  iv. The auditors may be working to different materialities for the same information. (d) The sustainability report auditor may need to work with the financial report auditor in areas such as disclosures of the impacts of climate-related financial risks and opportunities and strategy on future financial performance and prospects. (e) The financial report auditor may need to work with the sustainability report auditor in considering the impact of climate-related financial risk in areas such as asset impairment. (f) There should be good communication between the auditors. The additional challenges where separate auditors are appointed may be factors for the auditor may be factors to consider in deciding whether to accept or continue with an appointment.
  10	Deadline implications	Having one lead auditor may reduce the risk of not meeting reporting deadlines.	Having two lead auditors may result in an increased risk of not meeting reporting deadlines if there is not sufficient coordination.	Having two separate auditors may increase the risk of: (a) Not meeting reporting deadlines due to inefficiencies. (b) The finalisation of the audits of the financial and the sustainability report and issue of the auditor’s reports not being aligned.  There may be a tension between the desire to give audited financial report results in ASX Preliminary Final announcements and the time needed to finalise the audit/review of the sustainability report. (c) Not meeting the requirement that the auditor’s reports on both the financial report and the sustainability report are issued no more than 7 days after the directors’ report is signed (s307C(5A)(c) of the Act). (d) There may be timing and logistical complications where the separate auditors seek to use each other’s work.  The auditors may find it difficult to share information and working papers until each auditor’s work is complete.  That may not give sufficient time for each auditor to review the other’s working papers, etc. (e) The auditor of the sustainability report may need to wait for the financial report auditor’s work on source information to be completed (e.g. sales revenue or production volumes used in estimating emissions).
  11	Auditor independence	Auditor independence is assessed for one auditor and lead auditor.	Auditor independence is assessed for one auditor and two lead auditors.	Auditor independence is assessed for both auditors.
  12	Auditor independence declaration	The lead auditor must provide an auditor’s independence declaration to the directors for inclusion in the directors’ report.	Each lead auditor will need to provide an auditor’s independence declaration to the directors for inclusion in the directors’ report.	The lead auditors for each auditor will need to provide an auditor’s independence declaration to the directors for inclusion in the directors’ report.
  13	Lead auditor rotation	The rotation requirements in s324DA of the Act and the applicable version of APES 110 Code of Ethics for Professional Accountants (including Independence Standards) and may apply to the lead auditor (and any review auditor and key audit partners).  Auditors should have systems to track rotation periods. The auditor should self-report any breaches of the auditor rotation requirements of the Act (see ASIC Regulatory Guide RG 34 Auditor obligations: Reporting to ASIC).	The rotation requirements in s324DA of the Act (listed entities) and the applicable version of APES 110 may apply to both lead auditors (and any review auditors and key audit partners).  Auditors should have systems to track rotation periods. The auditor should self-report any breaches of the auditor rotation requirements of the Act (see ASIC Regulatory Guide RG 34 Auditor obligations: Reporting to ASIC).	The rotation requirements in s324DA of the Act (listed entities) and the applicable version of APES 110 may apply to the lead auditors from both firms (and any review auditors and key audit partners).  Auditors should have systems to track rotation periods. The auditors should self-report any breaches of the auditor rotation requirements of the Act (see ASIC Regulatory Guide RG 34 Auditor obligations: Reporting to ASIC).  They should also consider their obligation to report any suspected breaches in connection with rotation of partners of the other auditor.
  14	Suspected contraventions of the Act	The lead auditor would need to consider reporting suspected contraventions of the Act to ASIC.	Both lead auditors would need to consider reporting suspected contraventions of the Act to ASIC.	Both auditors would need to consider reporting suspected contraventions of the Act to ASIC.
  15	Questions at an AGM	The Act requires the auditor to answer written questions submitted before the AGM by members of listed companies on the content of the annual financial report or sustainability report.  The lead auditor is responsible for answering questions for the auditor.	The Act requires the auditor to answer written questions submitted before the AGM by members of listed companies on the content of the annual financial report or sustainability report.  Good practice may be for both lead auditors to answer questions.	The Act requires ‘the auditor’ to answer written questions submitted before the AGM by members of listed companies on the content of the annual financial report or sustainability report.  Good practice may be for both lead auditors to be present to answer questions for both auditors.  There may be challenges where a single question is relevant to the audit of both the financial report and sustainability report.
  16	When considering a change in the sustainability report auditor	An incumbent financial report lead auditor may already have conducted planning and other work related to assurance over the sustainability information.	An incumbent sustainability report auditor may already have conducted planning and other work related to assurance over the sustainability information.	Particularly for a Group 1 entity where it is late in the first year of mandatory reporting, matters to consider in appointing a new separate auditor for the sustainability report may include: (a) Whether the auditor has sufficient time to conduct an effective audit/review; (b) Whether the auditor is able to meet the necessary auditor independence and other ethical requirements; (c) A possible perception of ‘opinion shopping’ or that the entity is seeking to reduce assurance costs at a risk of compromising assurance quality; and (d) Whether the auditor has the necessary competency, skills, knowledge, expertise and capacity to conduct an effective audit/review.
  17	Audit fee and non-audit services disclosures	Consideration may be given to expanded disclosure on the categories of fees paid/payable to an auditor in annual financial reports compared to the requirements of paragraph 10 of AASB 1054 Australian Additional Disclosures (and fees for non-audit services in listed entity directors’ reports). Consideration could be given to categorising the fees as follows: (a) Fees for the audit of the financial report (and half-year review) (b) Fees for the audit or review of the sustainability report (c) Fees for assurance required to be given under law or regulation (d) Fees for other assurance services (e) Fees for other assurance services A sub-total might be provided after the first two items.	Consideration may be given to expanded disclosure on the categories of fees paid/payable to an auditor in annual financial reports compared to the requirements of paragraph 10 of AASB 1054 Australian Additional Disclosures (and fees for non-audit services in listed entity directors’ reports). Consideration could be given to categorising the fees as follows: (a) Fees for the audit of the financial report (and half-year review) (b) Fees for the audit or review of the sustainability report (c) Fees for assurance required to be given under law or regulation (d) Fees for other assurance services (e) Fee for non-assurance services A sub-total might be provided after the first two items.	While there is no requirement for an entity to disclose fees paid/payable to a separate auditor of a sustainability report, the auditor may be required by APES 110 Code of Ethics for Professional Accountants (including Independence Standards) to discuss the benefits of disclosing fees with the directors of a public interest entity (APES 110 para R5410.3.  Where fees are not disclosed by the entity, the auditor may be required to publicly disclose fees (APES 110 para R5410.31).