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Need to answer the question based on topic The expanding role of auditors
Over 40 countries currently have mandatory reporting for greenhouse gas (GHG) emissions, including the US, the UK, the EU, Canada, Japan, New Zealand and Australia. In Australia, GHG reporting is governed the National Greenhouse and Energy Reporting Act 2007 (NGER Act) and overseen by the Clean Energy Regulator. While it is not mandatory for GHG reports to be audited unless requested by the regulator, some reporting entities will voluntarily have their GHG reports audited. If an audit is completed, it must be conducted within the guidelines of the National Greenhouse and Energy Reporting (Audit) Determination 2009 legislation and relative Australian Auditing and Assurance Standards.
In addition, many companies that lodge GHG Reports will also include details about their greenhouse gas emissions in an annual sustainability report. Assurance of sustainability reports is also not compulsory. However, there appears to be an increasing trend for these reports to be assured. In Australia, Woodside Petroleum Limited (Woodside) and AGL Energy Limited (AGL) are two companies that report to the NGER and issue audited Sustainability Reports.
Solution
Q.1. A. Environmental pollution is now world’s one of the biggest challenge for all of us. It is the industrial units that are the major contributors to water, noise and air pollution. Greenhouse gases which are Carbon Dioxide, Methane, Ozone, CFC etc. are affecting the our earth’s atmosphere and this is resulting increase in temperature, reduction in rainfall and many more problems for human being, animals and plants. To protect environment from such devastating effect, National Green House Reporting Act. 2007 came into action where organizations who are causing pollution are expected to submit report on pollution matrix under GHG reporting.
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In this case, we are going to give GHG emission disclosure of two companies which are Woodside Petroleum Limited and AGL Energy Limited.
Woodside Petroleum Limited- GHG reporting
The reporting of greenhouse gases emission is done in its “Sustainability Report”. The brief information about environmental sustainability is given in its section called “Managing our environmental impact”. At first, the company has given detailing about the approach to environmental management.
Approach of Woodside- “To understand the environment in which we work, minimise our impacts upon them and transparently report them.”
In next section a brief of environmental performance is done, which goes like this-
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• We introduced 1% reduction in fuel intensity (TJ per kt of hydrocarbon production) in 2016.
In a separate section under the main heading, it has mentioned scenario of GHG. It has claimed that since December 2016, it has minimised emission of heavy fuel (HFO) by maximising use of LNG as shipping fuel. It has also given a diagram showing flaring statistics over 4 years period.
Though the organization hasn’t mentioned any specific GHG reporting, but it has included the key figures under its “Environmental Performance Indicators”.
AGL Energy Limited- GHG Reporting
Unlike Woodside, AGL Energy Limited prepares a separate report for GHG which is not included in its sustainability report called as “Carbon Constraint Future- A change mitigation a scenario analysis”. In this report, it has mentioned a policy called as “Greenhouse Gas Policy” which says-
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• It will continue to provide the market with safe, reliable, affordable and sustainable energy option.
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• Improve the GHG efficiency of its operation and those over which it has influence.
The report has also mentioned “How measurement is done for GHG in AGL?” for ex- The operational greenhouse gas footprint is measured from the emissions from the activities and assets that AGL operates.
The organization provides emission figures in separate segment on sustainability reporting which is called as “Data Centres”.
Though both the organization discloses similar GHG information but Woodside puts the information in tabular format inside the report while AGL puts it in a different segment of reporting with graphical expression. [AGL Energy Team. (2017)]
B. NGER Audit Requirements
Here are the list of compliances that should be monitored under NGER legislation where the need of auditing comes- mentioned in 73 A-C.
Audit may be required for-
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• To support an application or a report
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• In event of breach of legislation suspected
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• As a part of broader compliance monitoring strategy
Examples- Emission reduction fund audit-regarding the assurance of calculation of carbon abatement reported by an organization is accurate.
Greenhouse and Energy Reporting Audit- To identify whether registered companies have followed NGER Act. 2007 or not.
C. Assurance Opinion
Assurance opinion is given by the auditor to make the sustainability report valid and authentic.
Woodside Petroleum Limited
Ernst and Young (EY) Service Pty Limited has done auditing for the organization and handed over “Independent Reasonable and Limited Assurance Report” to the directors. In the recent sustainability report, EY said that nothing has come to their attention that would give believe that subject matter in Woodside’s sustainability report 2016 was not presented. In their opinion, it is 6 material aspects that were presented fairly in sustainability report.
Subject matters are-
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• Transparency, anti-bribery and corruption
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• Regulatory compliance
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• Climate change
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• Major incident prevention
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• Major incident response
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• Health and safety performance.
Criteria applied- Global Reporting Initiatives G4 guidelines and Woodside’s own reporting pattern for non-financial performance.
Management responsibility- Collection, preparation and presentation of subject matter
Assurance practitioner’s responsibility- Australian Standard Assurance Engagement 3000 (revised)
Level of approach- Assessing and determining material aspects, interviewing selected corporate personnel and site personnel to understand process etc.
Limitations- The assurance report is limited to 2016 sustainability report only which doesn’t include financial data and forward looking statement of management. [Woodside Team . (2017)]
AGL Energy Limited
Deloitte Touche Tohmatsu has given the assurance report for the organization. The reporting is done in accordance to the sustainability report-2017. Nothing has come to their attention that would give believe that subject matter in AGL Energy Limited has not been reported and it is fairly presented.
Subject maters-
AA 1000 principles- It is the accountability principles standards for managing sustainability performance.
Strategic sustainability indicator- It talks about the sustainability performance and target.
Climate change, organizational safety and other performance data-
GRI standard- recording and presentation as per GRI guidelines
Rest report items are more or less similar as mentioned in Woodside Petroleum with few more items that are given here-
Use of report- The report is solely for directors of AGL. Deloitte disclaims any responsibility assumptions for any reliance on this report or subject matters it relates.
Independence- APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional and Ethical Standard Board.
Electronic information- Limited assurance engagement included in web-based information available via web-link. [AGL team. (2017)]
D. Audit assertions
The two audit assertions that are the most concerning point in case GHG reporting are-
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1. Establishing of the assessment boundary
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2. Evaluation of data quality and client data resource
Assessment boundary is based on selection of GHG, project boundary and operational boundary. It is difficult for the audit to set the boundary as it largely depends on organizational policy. It varies with one to other. Auditor has to rely on organizational policy to form opinion. In second case also, data quality and client data resource forms the base for assurance and opinion. As in above case, the assurance statement issued as per previous year sustainability report so the authenticity and accuracy of GHG is dependent what it was reported earlier and it is carried forward in such manner.
Legal Liability
A. Auditor sued for negligence
Warehousing Ltd. faced over-valuation situation after taking over CFW ltd and also the quantity of inventory reported was not exactly what it was shown in audited balance sheet. This is a severe financial loss and fraud case for Warehousing Ltd. for which not only the company but also auditor of the respective company is responsible. It is a breach of duty of care by the auditor as for his negligence Warehousing Ltd. has to suffer financial loss. [Westminister Road Construction and Engineering Company (Ltd) case]
Where did the duty of care negligence take place?
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• The auditor doesn’t take all stocks into consideration. Case- Lees estate Building and Investment Co. Ltd. vs. Shepherded.
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• Auditor didn’t verify the valuation of stock and it is coming under breaching of his independent examination to financial statements.
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• Auditor didn’t disclose the manipulation done in inventory (Company’s Bathurst facility). (case-Rex V Lord Kylsant and Another (1931)
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• Presumption of auditor regarding current year statement accuracy on the basis of past 6 year’s performance. 9Application of AS-12- Identifying and assessing risk of material misstatement.) [Perry, P. (2016)]
The auditor will be sued on grounds of liability to third party as when the takeover took place, being an auditor it was his duty and responsibility to state real scenario but he didn’t perform under pressure of management.
B. Successful in legal action
An auditor is the one who can give clearance and assurance to the outside parties who have financial interest on the organization. While takeover was about to happen, it was the duty of care (Leeds Estate Building Society vs Shepherded 1887)and duty of certifying statutory reports valid, duty to disclose all material information (Westminister Road Construction and Engineering Company (Ltd) 1932) : etc. but here in this case, auditor found to be deviating the duties assigned. Though no criminal liability has occurred as auditor has neither violated laws nor any falsified accounts were made or any reports were made by the auditor. This is so because no evidence has come into notice regarding this liability. [ICAI. (n.d.)]
Here the Auditor is also liable for third party as Warehousing Ltd. has gone with auditor’s decision. It is so because auditor has statement which was not accurate, over valuation caused financial loss to the organization and statement (Auditor’s statement) were made under pressure thus he is found guilty here. Thus, a legal proceeding will be done to him. [Canndler vs Crave Chrismas & Co. 1951 and De Srvary vs Holden Howwerd & Co. 1960]
C. Letter to Auditor
In earlier case, the point that liability to third party may not hold good of Warehousing Ltd. failed to prove that they went with audited statement. If the company had sent the letter to the auditor prior to acquisition, then probably two situation would have occurred- [Saab, K. (2011)]
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1. Warehousing Ltd. would come to know about the breach of independence of auditor and would have asked CFW to re-audit reports.
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2. If the auditor had not given any such disclosure, then the company can sue against auditor against criminal liability under the condition that falsified accounts and statements were made and produced to company and legal proceeding would have taken place.
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ACCA Global . (2018). Retrieved from http://www.accaglobal.com: http://www.accaglobal.com/in/en/student/exam-support-resources/professional-exams-study-resources/p7/technical-articles/auditor-liability.html
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AGL Energy Team. (2017). Retrieved from http://agl2017.reportonline.com.au: http://agl2017.reportonline.com.au/sustainabilityreport/assurance-statement
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AGL team. (2017). AGL sustainability report . AGL.
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ICAI. (n.d.). Liabilities of Auditor. New Delhi: ICAI.
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Perry, P. (2016, January 18). Retrieved from http://www.mondaq.com: http://www.mondaq.com/uk/x/458826/Accounting+Standards/Recent+Key+Cases+On+Accountants+Liabilities
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Saab, K. (2011, November 01). Retrieved from studypoints.blogspot.in: https://studypoints.blogspot.in/2011/11/discuss-in-details-liabilities-of_2717.html
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Woodside Team . (2017). SUSTAINABLE DEVELOPMENT REPORT 2016. Woodside.
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