Submission to the Department of Climate Change -Greenhouse Energy & Reporting Policy - External Audit Consultation Paper

14 November 2008

Greenhouse and Energy Reporting Policy
Department of Climate Change
GPO Box 854
CANBERRA ACT 2601
reporting@climatechange.gov.au

Dear Sir/Madam

External Audit Consultation Paper

The Group of 100 (G100) is an organization of chief financial officers from Australia’s largest business enterprises with a purpose of advancing Australia’s financial competitiveness. The G100 is pleased to provide comments on the Consultation Paper.

Emissions data may be reported in a number of external reports. The G100 believes that assurance framework should ensure that the requirements of all forms of reporting are met in order to avoid incurring unnecessary costs, duplication of effort and imposing regulatory burden on both companies and auditors.

For example, G100 member companies are likely to publish a number of reports that incorporate emissions data or financial information that is drawn from emissions-related data, including:

Annual Report
- - Financial statements and notes thereto
- - Director’s report
- - Governance statement – Principle 7.2 disclosures
National Greenhouse and Energy Reporting (NGER)
Carbon Pollution Reduction Scheme (CPRS) Reports (framework to be determined)
Sustainability Report (currently voluntary reporting)
Corporate Social Responsibility Reporting (currently voluntary reporting)

The G100 strongly encourages the development of an Assurance Framework that results in one consistent robust framework based on one recognized set of assurance standards to meet assurance requirements (both mandated and voluntary) for all emissions-related reporting.

The G100 considers that the approach to external auditing should involve specifying the general principles and objectives of the auditing process and avoid heavy-handed and detailed prescription of the qualifications of the auditor and audit staff and mandating how the external audit is to be conducted. Our responses to the questions below are developed from this perspective.

The G100 believes that the emphasis of any requirements should be on the qualities and experience of the lead auditor and that that person would have the professional skills, responsibility and judgment to establish an audit team with the requisite skills for undertaking the task. Given the professionalism of the lead auditor it should not be necessary for the legislation or regulation to specify how he/she should do their job. The legislation should focus on the objectives and purpose of the audit process.

A concern with the proposals is that, if adopted, there would be an immediate scarcity of lead auditors and technical experts in view of the number of audit engagements and their timing. The approach needs to recognize that the audit requirements are in effect creating a new profession.

Q1.	Are there any other generic skills or expertise that could be considered necessary in addition to those outlined in this section? No. However, we do not believe it is necessary that all members of the audit team have experience in similar projects. It is the responsibility of the lead auditor to develop a team with the range of skills and experience needed to perform the audit.
Q2.	Are there any situations in which the skills or expertise outlined in this section would not be applicable? No.
Q3.	Should minimum limits be applied on the number of years of experience in the relevant industry? If so, how many? No. The lead auditor should have the responsibility to develop a team with the requisite skills and experience to perform the audit.
Q4.	Stakeholder feedback is sought in relation to the professional expertise that would deliver skills appropriate for external auditors in different categories: a. lead auditors b. technical experts The G100 believes the role of the lead auditor is critical to the process and, as such, that person should have professional skills and qualities such as membership of an appropriate, recognized, professional body. We do not consider that the lead auditor must have a particular set of technical skills and expertise – rather the lead auditor would be the manager/coordinator of the audit process and in order to perform the role would appoint an audit team comprising the technical expertise necessary to perform the audit. The G100 does not believe that the skill sets of the so-termed technical experts need be specified. This should be a matter for the lead auditor to determine in the light of the nature of the audit and particular circumstances. It would be counterproductive for a lead auditor to develop an audit team which did not have the requisite skills and experience.
Q5.	Stakeholders are asked to comment on how important it is that external auditors have a minimum level of professional or academic qualifications and the appropriate types of qualifications. The G100 considers that the lead auditor should be a member of a recognized, relevant, professional body and subject to the ethical, technical competence and codes of conduct of that body. For example, the lead auditor may be a member of, say, the Institute of Chartered Accountants in Australia or, say, the Institute of Professional Engineers. It should be sufficient to rely on the academic and other qualifications and experience required for ongoing membership of a recognized relevant professional body.
Q6.	Stakeholder feedback is sought on the potential for using existing accreditation/recognition under other schemes as part of the professional expertise and qualifications for external audit framework. The G100 considers that a scheme similar to that used for registered company auditors would be desirable for accreditation as a lead auditor. As indicated above, we believe that the criteria should be quite broad and focus on the professional skills and experience of the person seeking registration and not on a narrow set of technical skills. However, initially it may be necessary to rely on accreditation under other schemes.
Q7.	Stakeholders are asked to comment on whether there are any other recognition options not included in this list? See response to Q6.
Q8.	Stakeholders are also asked to provide their views on options for third party organizations for registration/accreditation. See response to Q6.
Q9.	Stakeholders are also asked to consider whether recognition should apply only to the lead auditor or to all audit team members. The G100 believes that accreditation should apply to the lead auditor. This does not preclude other members of the audit team or technical experts engaged by the lead auditor from having accreditation in their own right.
Q10.	Stakeholders are invited to comment on the minimum level of recognition/accreditation necessary to ensure confidence in the quality of external auditors. Accreditation should be provided by the regulator. However, the G100 does not believe that it is the role of the regulator to provide training.
Q11.	Stakeholder feedback is sought on the form and extent of potential limitations that may be appropriate to apply to external auditors with regard to such issues, and on the handling of potential conflicts of interest in external audit processes. The G100 believes that the independence and conflict of interest issues should be adequately addressed in the guidelines of the relevant professional body of which the lead auditor is a member and a replication of the requirements of the Corporations Act. It is not necessary for the regulator to establish requirements. There is no reason why these issues in respect of external audit should be dealt with differently from those relating to the financial audit.
Q12.	Stakeholders are also asked to comment on the appropriateness of differentiated requirements for lead external auditors versus other team members in relation to independence and conflicts of interest. Audit team members should also be subject to similar requirements. However, in discharging the role the lead auditor would ensure that team members were aware of and subject to the independence and conflict of interest requirements.
Q13.	Stakeholder feedback is sought on the basic elements to be included in external audit reports using those outlined within this section as a guide. The content of the external audit report should be based on the guidance in ASAE 3000 in respect of financial audits. However, the G100 believes that requiring identification of members of the audit team and making conflict of interest disclosures for all members of the team is unnecessary and potentially impugns the professionalism of the lead auditor.
Q14.	Feedback is also sought on the benefits of a standardized external audit report format, and also on the benefits of any prescriptive wording to be included within external audit reports. The G100 does not believe that the audit report should be standardized and prescriptive wording used at this stage. The G100 considers that, initially, auditors should have the scope and flexibility to develop reports which seek to communicate the process and conclusions in a meaningful way. This type of approach is also likely to encourage innovation in reporting.
Q15.	Stakeholders may wish to propose a format for external audit reports, additional elements or wording for inclusion in external audit reports. The format and wording of external audit reports should be a matter for the lead auditor to determine within a framework based on ASAE 3000.
Q16.	Stakeholders are invited to comment on the use/referencing of existing Standards such as ASAE 3000 in the external audit guidelines. As indicated in response to Q13 the G100 considers that the content of the external report should be based on the requirements of ASAE 3000 and accordingly it would be useful to reference that and related documents for guidance and not to identify mandatory requirements.

Yours sincerelyy

Tony Reeves
National President