A recent consultation paper has some significant implications for the further development of sustainability reporting and the provision of sustainability report assurance. Called the National Greenhouse and Energy Reporting (NGER) Act 2007 and Carbon Pollution Reduction Scheme: External Audit Consultation Paper, it advocates a new development process for regulations controlling the external audit of companies’ reports of greenhouse gas emissions.
The call for companies to report on their greenhouse gas emissions and for this data to be audited shows definite progress, and a growing number of companies are voluntarily preparing sustainability reports which publicly disclose data on a range of social and environmental impacts, including greenhouse gas emissions. However, only a small proportion of these reports currently include an independent assurance statement and far too many companies are not providing any reports at all.
A more pressing problem is that the consultation paper is heavily based on the standards of the financial auditing profession and the work of Registered Company Auditors. It ignores significant developments in sustainability report assurance, such as the AA1000 Assurance Standard 2008 and its predecessors. As such, it is controversial. In Australia currently a high proportion of sustainability assurance reports are prepared by environmental auditors that are not accounting firms, let alone ‘Big 4’ accounting firms. The AA1000 Assurance Standard, developed through a lengthy multi-stakeholder consultation, is used widely by non accounting firms.
The preparation of sustainability reports within organisations involves a range of functions, but the accounting function is not usually one of them. Accountants are seen by their colleagues not to have the aptitude, to have a narrow focus and preference for quantified data expressed in dollar terms. They usually are not proactive in seek involvement in the sustainability reporting process. Yet, there are many ways their technical skills could be useful, if their image wasn’t a barrier. The accounting profession needs to work hard to address the perception that they do not see green issues as important to business success. Let's face it, accountants don’t immediately come to mind when we think of groups working hard to save our planet.
A requirement for external audits under the NGER Act to be conducted by Registered Company Auditors is likely to be unpopular with many sustainability assurance providers, their clients and report users. There would be organisations who, rather than have separate providers for energy data audits and sustainability report assurance - a costly option – would choose the same for both.
As recognised by the consultation paper, the quality of the audits under the NGER Act will benefit from being conducted by teams with a range of expertise from different disciplinary backgrounds drawing on the full range of relevant standards, not just those used by the financial auditing profession. It is likely that these skills would be found in teams from a range of service providers, not just accounting firms. The new audit regime requires training for lead auditors at a reasonably high level across a wide range of skills, the breadth of which is not currently provided by any one professional qualification.
Another contentious issue raised by the consultation paper is the proposed limited disclosure in, and availability of audit reports. An organisation’s performance on reducing greenhouse gas emissions is of public interest and the public has a right to know: who the auditors are; what level of assurance they have provided and at what cost; and any relationships which could be seen to affect the assurance provider’s ability to provide an independent and impartial statement.
These matters are recognised in financial statement audit as important issues for disclosure and regulation because they affect the credibility of the auditors report and, ultimately impact on the company’s financial statements. The external audit requirements under the NGER Act should be framed to produce a level of reporting credibility that is at least as high.
Professors Carol Adams and Jane Hamilton are from La Trobe University.
Editor's Note: An opinion provided by La Trobe University . The original article can be found here. This story is under copyright; for permission to reproduce it please contact La Trobe University .