SUMMARY
In response to current and increasing demand for assurance on greenhouse gas statements, the International Auditing and Assurance Standards Board (IAASB) released an exposure draft of a new assurance standard, ISAE 3410 “Assurance on a Greenhouse Gas Statement” (IFAC 2011), to provide comprehensive guidance on these types of greenhouse gas (GHG) assurance engagements. Internationally, approximately 50 percent of GHG statements are independently assured. The related assurance market is competitive, with the accounting profession and those outside the profession currently holding approximately equal shares. This paper highlights the characteristics of GHG assurance engagements that warrant multi-disciplinary teamwork, the unique and interdependent skill-sets that different practitioners bring to these engagements, and the market forces that create a demand for diverse providers.
INTRODUCTION
As governments throughout the world implement emissions reporting schemes (ERSs) and, where appropriate, associated tax and emissions trading schemes (ETSs) to address the global challenges related to climate change, the demand for assurance on greenhouse gas (GHG) information disclosures is escalating.1 Disclosure of companies' GHG information usually is in the form of a stand-alone GHG report, or as part of a separately issued sustainability report. Assurance on GHG information is topical internationally, as evidenced by the International Auditing and Assurance Standards Board's (IAASB) recently released exposure draft of a new assurance standard, International Standard for Assurance Engagements (ISAE) 3410, “Assurance on a Greenhouse Gas Statement,” which is intended to provide comprehensive guidance for assurance on both of these forms of GHG information (IFAC 2011, para. 3).2
A growing body of evidence shows a significant market demand for GHG assurance; currently, members of the accounting profession and other assurance providers offer these services (Simnett et al. 2009b; Dhaliwal 2011b; Green and Zhou 2011).3 This paper adds to this literature by analyzing the current market for assurance on GHG information and discussing the appropriate skills and competencies of the different types of GHG assurance providers, thereby making a timely contribution by enhancing our understanding of aspects of this important new assurance market. This paper highlights the characteristics of GHG assurance engagements that warrant multi-disciplinary teamwork, the unique and interdependent skill-sets that different practitioners bring to these engagements, and the market forces that create a demand for diverse providers.
The remainder of the paper is structured as follows. The next section provides background on the types of GHG information provided, followed by a discussion of who provides this information, whether it is assured and, if so, by whom. We then explore the value of assurance and whether it differs among the different types of assurance providers. We conclude with a discussion of the issues raised and outline future research opportunities in this emerging field.
WHAT IS THE NATURE OF THE GHG INFORMATION PROVIDED?
A GHG statement is defined in proposed ISAE 3410.13j as “a statement setting out constituent elements and quantifying an entity's GHG emissions for a period and, where applicable, comparative information (sometimes known as an emissions inventory) and explanatory notes including a summary of significant quantification and reporting policies … The GHG statement is the subject matter information of the engagement.” GHG statements usually quantify the GHG emissions in CO2 or CO2-e.4 Such emissions appear in stand-alone statements, where the GHG information provided is the sole subject matter.
Commonly, GHG information is included as part of a sustainability report that covers a broader set of environmental accountabilities. If the GHG information is a significant component of this broader information set, the proposed ISAE 3410 will be applied to the GHG statement, and ISAE 3000 “Assurance Engagements Other Than Audits or Reviews of Historical Information” will be applied to the rest of the information. If the GHG statement is a relatively minor portion of this broader information set, then it is expected that the assurance engagement will be undertaken under ISAE 3000.
WHO PROVIDES GHG INFORMATION, WHO USES THIS INFORMATION, IS IT ASSURED AND, IF SO, BY WHOM?
In recent years, in response to the concern that climate change presents serious global risks that demand an urgent global response, we have seen a proliferation of national and regional GHG reporting regulations and emissions trading schemes, accompanied by a range of voluntary emissions reporting initiatives. Significant existing regulatory frameworks include the European Union Emissions Trading Scheme (EU ETS; EU 2009), the United States Environmental Protection Agency's Mandatory Greenhouse Gas Reporting Program (U.S. EPA 2009), California's Regulation for the Mandatory Reporting of Greenhouse Gas Emissions (California ARB 2007), Alberta's Climate Change and Emissions Management Act (Government of Alberta—Environment 2009), Australia's National Greenhouse and Energy Reporting Scheme (NGERS; Australian DCCEE 2009), and the New Zealand Emissions Trading Scheme (New Zealand PCO 2009). There also are a number of voluntary schemes spanning multiple jurisdictions, some of which have enacted the scheme guidelines into state-based legislation. In the United States, these include the North American Regional Greenhouse Gas Initiative (RGGI 2008) and the Western Climate Initiative (WCI 2010).
There also has been a significant increase in voluntary reporting of GHG emissions (Green et al. 2011). Entities can disclose their GHG emissions through participation in various voluntary disclosure initiatives. High profile examples of such initiatives include the Carbon Disclosure Project (CDP 2010), the Global Reporting Initiative (GRI 2010), Japan's Voluntary Emissions Trading Scheme (Ministry of the Environment, Japan 2009) and the Climate Registry (Climate Registry 2010).5
The need for emissions information reporting is underscored by the growing economic significance of the carbon market. According to the 2010 version of an annual World Bank report, State and Trends of the Carbon Market 2010, the carbon market doubled in size during 2008 and continued to grow in 2009, despite the global recession in financial markets. By the end of 2009, the total value of the carbon market was $US144 billion, with 8.7 billion tons of CO2-e traded worldwide (World Bank 2010). Given the potential political and reputational costs (e.g., whether a company is seen to be a good corporate citizen) of disclosing under ERSs and the additional financial implications for entities trading in ETSs, there are significant incentives for entities to understate the extent of their GHG emissions.
Recent research highlights the growing incidence of reporting and assurance on sustainability reports, generally, and stand-alone GHG reports, specifically (Pflugrath et al. 2011). In a recent international study, KPMG (2008) reported that the largest 100 companies (by revenue) in each of 22 countries had a rate of stand-alone sustainability reporting of 45 percent in 2008, 39 percent of which were assured. Members of the accounting profession assured 65 percent of these sustainability reports, with the other assurance providers being from outside the profession. Similarly, an international archival study by Simnett et al. (2009b) identified 2,113 stand-alone sustainability reports from various countries for 2002–2004, 31 percent of which were assured. A significant proportion of the assured reports (43 percent) was assured by members of the accounting profession, almost exclusively by Big 4 firms. Similarly, Dhaliwal et al. (2011b) found that, for a sample of 7,004 stand-alone sustainability reports from 22 countries for 1990–2007, 27 percent were assured; however, they did not identify the type of assurer.
In terms of the incidence of reporting and assurance on GHG statements, Green and Zhou (2011) examine the GHG assurance trends for 3,008 companies across 47 countries between 2006 and 2008 based on data collected from the Carbon Disclosure Project (CDP) databases for 2007 to 2009. Of the 3,008 companies that disclosed GHG information, 37 percent had these statements assured, with more than half (56 percent) assured by providers outside the accounting profession.6 In aggregate, this research (1) demonstrates a significant increase in the incidence of reporting and assurance on sustainability and GHG information in recent years; and (2) indicates the diverse nature of assurance providers.
WHAT IS THE VALUE OF ASSURANCE AND DOES IT VARY BETWEEN THE DIFFERENT ASSURANCE PROVIDERS?
PricewaterhouseCoopers (PwC 2007) and Simnett et al. (2009a) have identified the benefits of independent assurance on GHG reports, which include the increased confidence that can be placed on the information for decision-making purposes. Specifically, assurance enhances the credibility of entities' GHG reports and facilitates the efficient operation of ERSs (Simnett et al. 2009a).
A number of government regulators and national and international standard setters currently is grappling with how to ensure that assurance professionals have the appropriate knowledge of how GHG emissions should be quantified and reported, as well as assurance skills and competencies required to complete GHG assurance engagements.7 ISAE 3000 tends to be the assurance standard currently used by members of the accounting profession, despite the fact that it was not specifically designed for this purpose (IFAC 2008). The IAASB's proposed ISAE 3410 is intended to fill this gap by providing comprehensive guidance on the assurance on GHG reports (IFAC 2011). When GHG reports are assured by practitioners external to the accounting profession, including engineers and environmental scientists, the International Organization for Standardization's (2006) ISO 14064-3 is the commonly used assurance standard. The main differences between these two standards lie in the use of materiality to determine the level of assurance that is appropriate and the amount of detail about the assurance plan revealed to the entity (Green et al. 2011).8 In addition to the differences in the governing assurance standards, there are other differences between what assurance providers from accounting backgrounds and from other backgrounds bring to such engagements.
Assurance Providers from Accounting Backgrounds
As outlined by Nugent (2008), practitioners from the accounting profession are well placed to deliver GHG assurance services for a number of reasons. The risk model used for audits of financial statements, which involves understanding the entity and assessing the risk of material misstatement, and then appropriately responding to assessed risks, translates well into the GHG reporting domain, as discussed in the proposed ISAE 3410.9 The assessment of the risk of material misstatement can be at both the GHG statement level (which permits a performance materiality to be calculated for the GHG statement) as well as the assertion level for each GHG statement line item. The GHG statement is a statement of GHG emissions for a period, so it is similar in nature to an income statement. Thus, the use of similar assertions (e.g., occurrence, completeness, accuracy, cut-off, classification) and assertions concerning presentation and disclosure of the GHG emission inventory (e.g., occurrence and responsibility, completeness, classification and understandability, accuracy and quantification, consistency) are contemplated (proposed ISAE 3410.A78). In terms of reporting, the assurance report on a GHG statement is similar in structure to audit reports for audits of financial statements. An example of an assurance report on a GHG statement at the reasonable assurance level is contained in Appendix 2 of the proposed ISAE 3410.
The proposed ISAE 3410 recognizes that competencies in both assurance and the related subject matter are necessary to undertake these assurance engagements. It is widely accepted that assurance practitioners from accounting backgrounds have the assurance competencies to undertake these engagements, such as those developed from the audit methodologies commonly used for audits of financial statements. While some argue that assurers from the accounting profession do not have the necessary subject matter (scientific) knowledge to complete these engagements, the accounting profession quickly points out that many of its members come from diverse backgrounds and that it has standards in place to address the need to assemble multi-disciplinary teams with both the assurance and subject matter competencies necessary to complete these engagements (see responses to the Exposure Draft of ISAE 3410; IFAC 2011). The accounting profession also has developed experience in assembling multi-disciplinary teams for financial statement audits. Where needed on the audit engagement, specialists in areas such as valuation, IT, actuary, and fraud can be included as part of the audit team or engaged as outside experts. Existing auditing standards address situations in which the work of an individual or an organization with expertise in a field other than accounting or auditing is used to assist the auditor in obtaining sufficient appropriate evidence (for example, refer to ISA 610, IFAC 2009b). We discuss the issues involved with assembling multi-disciplinary teams in more detail later in this paper.
The accounting profession also has stringent education and experience benchmarks for entry to the profession, ongoing continuing professional development requirements to retain certification, and competency benchmarks for providing particular services.10 IFAC also has quality assurance policies and procedures implemented at both the engagement and the audit firm levels, external quality review programs, and performance standards for particular types of engagements, such as the proposed ISAE 3410. Moreover, the accounting profession is governed by a strong and detailed Code of Ethics founded on “fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behavior,” and it is enforced by strict disciplinary processes (Nugent 2008, 11; IFAC 2010c). Consequently, the accounting profession's stringent quality control requirements suggest that the accounting profession is well placed to enhance the credibility of reported GHG data through assurance processes.
More generally, the value of accountants' unique skills (Gray 2000, 256) and the audit tradition of facilitating the provision of “high-quality, decision-making information” (Elliott 1997, 62) are highly relevant in the emissions trading context. Public confidence in assured emissions information may further be enhanced by the reputational capital of the leading accounting firms (Simnett et al. 2009a). On a practical level, the global reach of the multinational audit firm networks allows them to offer “multidisciplinary industry specialist teams supported by global knowledge management databases and common industry-specific work programs and training” and to provide a logistically streamlined option for companies with operations in multiple jurisdictions (Carson 2009, 356). Other types of assurance providers do not have this global coverage or level of support (Simnett et al. 2009b).
Assurance Provided by Practitioners with Other Than Accounting Backgrounds
The risk-based assurance approach used by the auditing profession also is reflected in the assurance standard most commonly used by assurance practitioners from outside the accounting profession, ISO 14064-3. Both the proposed ISAE 3410 and ISO 14064-3 recognize that competencies in both assurance and subject matter are necessary for those completing GHG assurance engagements. The claims of legitimacy of assurance providers from outside the profession for GHG assurance engagements tend to emphasize the relative importance of subject matter expertise for these engagements, and they commonly claim a competitive edge because of their specific skills-sets and extensive knowledge of the subject matter (Corporate Register 2008). For example, the Association of Consulting Engineers Australia (ACEA) made the following submission as part of the Australian Government's Department of Climate Change external audit consultation process in November 2008:
Much of the efficacy of the audit process will be dependent upon and relate to the engineering qualifications and competency of auditors, and less on the contributions of corporate law, business management and financial accounting … We feel the full involvement of engineering and related practitioners offers the genuine understanding of the physical processes that lead to the various types of emissions. (ACEA 2008)
The individual engagements undertaken by GHG assurance providers in practice vary widely. For example, the skills-sets required by a team conducting a GHG assurance engagement on the GHG statements of cement producers are different from those providing such services for oil and gas producers or banks.11 As PwC noted in its response to the IAASB's discussion paper regarding ISAE 3410 in late 2009:12
For some carbon emissions sources, principally those involving Scope 113 emissions, specific engineering and chemical expertise needs to be appropriately applied in the assurance process. In contrast, when assuring carbon emissions arising from other sources such as electricity usage and air flights, which can be checked back to financial information such as invoices, different areas of expertise may be required. (IFAC 2010a, PwC response, 5).
The variety of types of engagements means that the required subject matter expertise varies considerably, and that a case can be made that the subject matter expertise and knowledge of engineers and environmental scientists can be invaluable for particular types of GHG assurance engagements.
Supply and Demand in the GHG Assurance Market
An important issue is whether clients will be willing to pay for the potentially higher quality assurance services that the accounting profession offers. Accounting firms have high levels of quality controls; however, these come with a price. This perceived quality will suit certain parts of the market irrespective of the concerns about whether the assurance teams constructed by the accounting firms have the requisite subject matter (GHG) expertise. The accounting firms usually counter this specific concern by employing or contracting experts with appropriate subject matter expertise who also possess the technical expertise necessary for specific engagements.14
In some areas of the GHG assurance market, practitioners from either financial or non-financial audit backgrounds will be capable of competently leading GHG assurance engagements. In such cases, the decision of which type of assurance provider to engage will depend on an assessment by the client of the relative benefits of hiring the assurance provider. For example, while accounting firms may have more stringent quality controls and bring other advantages (as noted previously) to the assurance service (IFAC 2009c), which are predicted to promote higher quality work, they also may come with the disadvantage that they normally charge higher fees. Conversely, while other lower cost providers may have less rigorous quality controls, they may be able to provide GHG assurance services at a lower cost. Based on current trends (KPMG 2008; Simnett et al. 2009b), we foresee that there will be ongoing demand in the market for a range of assurance providers with varying levels of quality controls and associated differences in fee levels.
One of the trends that appears to be occurring as a determining factor in the consideration of the type of assurance provider is whether the information is produced for general consumption (general purpose report) or whether it is produced only to satisfy a specific purpose, such as a disclosure and assurance requirement of a regulator under an ERS (special purpose report). Many of the stand-alone GHG reports that companies currently produce are special purpose reports, prepared for regulators under various mandatory ERSs. Some of this information has become publicly available when companies choose to disclose this information on their websites or as part of other initiatives (e.g., the Carbon Disclosure Project; Green and Zhou 2011). It may be that some companies prepare GHG statements with the primary (or sole) aim of achieving regulatory compliance, and that they, therefore, are satisfied to have assurance provided by the cheapest available assurance provider. In practice, this means that these assurance providers are not members of the accounting profession (Simnett et al. 2009b). Other companies may highly value GHG information and its assurance; presumably, this group will undertake a cost-benefit analysis in their choice of assurance provider. Anecdotal evidence and trends in assurance of GHG information to date suggest that opinions in the marketplace vary regarding whether there is better value in the assurance being offered by practitioners within or outside the accounting profession.
As outlined earlier, GHG information also can be disclosed as part of a sustainability report. Sustainability reports have the characteristics of general purpose reports, produced by companies with the aim of providing relevant stakeholders with a broader range of information than is available in the annual report. As documented by Simnett et al. (2009b), Dhaliwal et al. (2011a), and Dhaliwal et al. (2011b), there has been significant growth in the number of these reports being produced worldwide, and a growing proportion of these reports are being assured. In contexts where assurance is not required for compliance purposes, companies choose to assure their sustainability reports for a variety of reasons, including obtaining benefits from acting on the advice of the assurer about how to improve the information disclosed and signaling the credibility of the information (Beatty 1989).15 There also are economies of scale in producing assured sustainability information, which means that large international organizations are more likely to produce and assure this information. Thus, for the reasons outlined earlier (e.g., global reach of international accounting firms, actual and/or perceived quality, perceived signaling), there is a greater likelihood, and evidence in practice, that, if this information is assured, then it will be assured by members of the accounting profession (KPMG 2008; Simnett et al. 2009b).
Multi-Disciplinary GHG Assurance Teams
The unique and complementary skill sets that professionals from accounting and non-accounting backgrounds bring to these types of engagements, coupled with the inherent complexities in this type of work, underscore the benefit of multi-disciplinary GHG assurance teams. Subject matter and technical expertise is required in the context of scientific estimation uncertainties in the nascent field of GHG measurement and reporting; such expertise is complemented by auditors' skills in assessing reporting entities' risks of material misstatement. The IAASB's 2009 discussion paper on draft ISAE 3410 noted that, in order to successfully assure most complex engagements, a multi-disciplinary team consisting of subject matter experts from disciplines including engineering and environmental science and assurance experts from accounting backgrounds will be required (IFAC 2009a). Complex engagements include those with significant Scope 1 emissions that require measurement; multi-disciplinary skills may be less important for GHG engagements with predominantly Scope 2 emissions, which arise primarily from emissions consumption such as through electricity use.16
There is a role in the GHG assurance market for engagement teams made up of practitioners from both accounting and non-accounting backgrounds. In practice, this may largely correspond with engagements undertaken by accounting firms and specialist environmental consultancies. GHG assurance teams within accounting firms typically are structured so that they are led by a professional with an accounting background who is responsible for assembling a multi-disciplinary team comprised of an appropriate mix of assurance and subject matter expertise. Anecdotal evidence suggests that GHG assurance teams from other providers typically are led by subject matter experts, including professionals from the disciplines of engineering and environmental science.
Implications of Incorporating GHG Information into Financial Statements
There are a number of developments occurring that may result in GHG assurance becoming a natural domain of assurers from the accounting profession. For example, if companies combine their non-financial accounting disclosures (e.g., GHG emissions levels) with their financial accounting disclosures in the financial statements, assurers from the accounting profession will need to provide assurance on this combined information. A recent development in this direction has been the integrated reporting movement, which aims to combine reporting of financial and non-financial information in one report (Eccles and Krzus 2010). A memorandum of understanding was entered into by the International Federation of Accountants (IFAC) and The Prince's Accounting for Sustainability (A4S) Project in late 2010 to support the global accountancy profession's role in developing and promoting sustainable organizations (IFAC 2010b). The Prince's Accounting for Sustainability Project and the Global Reporting Initiative recently collaborated to form the International Integrated Reporting Committee (IIRC), which is tasked with creating a “globally accepted framework towards accounting for sustainability” (IIRC 2011b). An IIRC discussion paper was issued in September 2011, and is expected to lead to an exposure draft on integrated reporting in 2012 (IIRC 2011a).
Similarly, to the extent that emissions trading schemes result in the issuance of tradable securities that will have the characteristics of assets or liabilities, these securities will need to be included in financial statements, the audits of which are the unequivocal domain of the accounting profession. As a group representing the Australian Accounting Professional Bodies notes, higher levels of professional skepticism are required where the GHG statement will “ultimately impact the financial statements of the entity, and the financial statement audit engagement” (IFAC 2010a, Joint Accounting Bodies response). Consequently, there is a possibility that GHG assurance engagements will become a natural domain for assurers from the accounting profession for some sectors of the market and an exclusive domain of the profession to the extent that GHG emissions disclosures become integrated into financial statements.
CONCLUSION AND FUTURE DIRECTIONS
The increased market for assurance of GHG information has resulted in a competitive marketplace in which engagements are performed by practitioners within and outside the accounting profession. The GHG information being assured is either GHG stand-alone reports or GHG information presented as part of broader sustainability reports. This paper discusses the current and ongoing demand for the various types of assurance providers for assuring these types of subject matter information.
We emphasize that there are benefits of having GHG information assured by multi-disciplinary teams. This is particularly important for certain types of GHG assurance engagements, such as those with significant Scope 1 emissions where it is necessary to have both assurance expertise and subject matter expertise, and less important for other types of GHG engagements, such as those with predominantly Scope 2 emissions. Finally, we discuss forces at play that may result in this type of assurance becoming the natural domain of the accounting profession. As we move toward GHG information disclosures in annual reports, it is more likely that the accounting profession will be involved in assuring this information. A notable trend in this regard is the integrated reporting movement, which aims to streamline reporting of financial and non-financial information into one report. Further, to the extent that emissions trading schemes result in the issuance of financial instruments, these instruments will need to be included in financial statements, which will be assured by the accounting profession.
In terms of future directions, there are benefits associated with narrowing the differences between the major competing assurance standards currently utilized by accounting and non-accounting assurers, the proposed ISAE 3410 and ISO 14064-3, respectively. There are a number of similarities between these two assurance standards, and there is a nascent dialogue between the two standard-setting bodies, which could result in unnecessary differences between these two standards being eliminated.
For academics, there are both teaching and research opportunities arising from the growth of this assurance service. From a pedagogical perspective, GHG statements provide an example of where the assurance process can be applied to subject matters other than financial statements. Avenues for research include further exploration of current practices for reporting and assuring GHG information throughout the world. In particular, the factors driving entities' choice of assurance provider and assurance standard warrant further investigation. Examination of the procedures required for a limited assurance engagement compared with a reasonable assurance engagement and how this should be reported in the assurance report to communicate appropriately the level of assurance obtained are also rich research areas. Further, research on the aspects of uncertainty inherent in measuring and reporting GHGs, and how the auditors would deal with these uncertainties, would be beneficial, as would research addressing the decision usefulness of GHG information for various stakeholders.
From a practitioner's perspective, this discussion has reinforced the important role of the auditing profession in this evolving field, including in the context of multi-disciplinary GHG assurance teams. In addition, the discussion highlights the existing duality of this market. Practitioners will benefit from a consideration of the factors that have created and perpetuate this duality as they move increasingly to engage in this new market.
REFERENCES
ERSs are regulatory-based greenhouse gas reporting schemes wherein specified entities are required to report relevant greenhouse gas emissions to a state or federal regulatory body at specified intervals. ETSs, for which ERSs are typically regulatory forerunners, generally are premised on a “cap and trade” model that allows entities to buy and sell carbon credits and provides market incentives for overall emissions reductions (Johnston et al. 2008).
The project history and its current status are outlined at: http://www.ifac.org/IAASB/ProjectHistory.php?ProjID=0081. This site states that this ISAE is expected to be issued in 2012.
Members of the auditing profession undertaking these engagements include the Big 4 accounting firms and non-Big 4 firms such as BDO International and Grant Thornton. Other assurance providers include engineering, environmental consultancies, and risk management firms (e.g., Environmental Resources Management [ERM] and Det Norske Veritas [DNV]).
CO2 and CO2-e are abbreviations for carbon dioxide and carbon dioxide equivalents, respectively. PricewaterhouseCoopers (2011) provides an example of a GHG statement (available at http://www.pwc.co.uk/eng/publications/carbon_reporting.html).
See Green et al. (2011) for a review of the reporting and assurance requirements under these schemes.
The major non-accounting firms assuring sustainability information, and their international reach, were identified in Simnett et al. (2009b). These same types of firms, including engineering, environmental consultancies, and risk management firms such as Environmental Resources Management (ERM) and Bureau Veritas also are providing assurance on GHG reports.
The American Carbon Registry (ACR) is the standard setter for carbon accounting in the US. The ACR publishes standards, methodologies, protocols, and tools for GHG accounting, all of which are based on ISO 14064.
The major differences between ISO 14064-3 and proposed ISAE 3410 are the relationship of materiality to the level of assurance provided (ISO 14064-3 states that the acceptable materiality level is based on the agreed level of assurance, while ISAE 3410 states that judgments about materiality are not affected by the level of assurance) and the level of detail that the assurance plan communicates to the client. ISO 14064-3 states that the assurer is to describe to the client verification activities and how they will be undertaken, while ISAE 3410 states that, when discussing the engagement plan with the client, the assurer must not be seen to compromise the effectiveness of the engagement by discussing the nature and timing of detailed procedures with the client (Green et al. 2011).
For countries adopting international standards, such engagements would currently be undertaken under the national equivalent of ISAE 3000, if there is not an appropriate approved subject matter specific standard. In the U.S., such engagements currently would be undertaken under attestation standards. There is an AICPA Statement of Position for Attest Engagements on Greenhouse Gas Emissions Information, SOP 03-2 (AICPA 2003).
See the International Education Standard for Professional Accountants (IES) 8, Competence Requirements for Audit Professionals (IAESB 2010).
The main GHG emissions for entities such as banks are indirect emissions arising from electricity consumption.
As part of the IAASB standard development process, a discussion paper released in October 2009 asked for stakeholder comments on specific issues relating to the development of draft ISAE 3410 (IFAC 2009a).
The Greenhouse Gas Protocol, the most widely used international accounting tool for quantifying GHG emissions, classifies Scope 1 as direct emissions and Scopes 2 and 3 as indirect emissions (see WBCSD and WRI 2004).
Subject matter expertise for particular engagements can be sourced from within the accounting firm, denoted as an “internal expert,” or externally, known as an “external expert” (IFAC 2009a).
Green and Li (2012) indicate that the signal intended to be sent by GHG report preparers may not be the signal received by GHG report users, suggesting an expectations gap in this context. In particular, shareholders were found to have a significantly lower level of confidence than the report preparers in the reported data.
Refer to footnote 13 for definitions of Scopes 1 and 2 emissions.
This paper has been financially supported by an industry linkage grant from the Australian Research Council, with industry partners being The Institute of Chartered Accountants in Australia and CPA Australia.
