View all As we continue to help multiple clients across Australia meet the requirements of the Australian Sustainability Reporting Standard (ASRS), we’re seeing some common themes and pain points emerge. Many of which have been captured in the reflections from the latest ASRS roundtable we hosted in Perth.
We’re increasingly supporting clients with decisions that could be deemed subjective, and which are likely to face much scrutiny from auditors. Indeed, fear of the audit process, especially from those who have not had their disclosures assured previously, is a very real phenomenon in the market right now.
Let’s face it ASRS is a new requirement, there are a lot of boxes to tick, and everyone is learning on the job. However, the companies that are finding an efficient way through the assurance process are those that are proactively guiding their auditors through a clear basis of preparation and a coherent disclosure narrative, which they themselves are owning.
Indeed, our most important message is always to start with the end in mind. This will give you a set of guiding principles that will support decision making through your entire disclosure journey.
Early and proactive engagement with your auditor is also essential. You need to agree the basis of the key commercial decisions that underpin your disclosure from the outset, to limit the amount of work, and potential rework, that you will need to do during assurance.
To assist, we have developed a set of seminal questions that you should be asking your auditor now, to ensure that everyone is starting the audit journey from the same place.
7 questions to ask your auditor now
1. These are our boundaries, base assumptions and thresholds based on what makes most sense for our organisation, do you agree?
This question considers the boundaries you have defined, how you have applied operational/equity/financial control to your operations, and the legal advice you have received relative to your registered entity(ies). This is as much about the scope of your operations as it is about complex structures, activities and geographies. Ultimately you need to guide your auditor through your information structures to the point that they understand and are comfortable with your data sources.
2. I have this description of our board’s capabilities; does this adequately describe the ability of my board to engage with climate disclosures?
This is one of the most vexed questions that we are trying to answer at present. While you may be able to demonstrate what training your board has attended, and what their qualifications are, demonstrating capability is challenging. A proxy indicator we have been considering is tracking the number and quality of questions relating to climate risk and opportunity raised by the board.
3. Do you agree with the scenarios I have used to inform my climate related risks and opportunities?
Choosing the scenarios you will use to stress test your business model is arguably the most valuable requirement of the ASRS framework. Sensible scenarios will help you meaningfully engage internal stakeholders in the need to evolve your business model. This is about ensuring profitability both now, in a carbon free economy, and under a natural environment; all which are quite different. Well-developed scenarios should inform business strategy. They are core to your ability to derive real value from your ASRS disclosures.
4. These are the thresholds we’re planning to use to define whether a climate-related risk is material enough to be disclosed - do you agree?
Materiality considerations guide the attention of the auditor. If you understand your auditor’s reasons for setting the materiality thresholds of your financial statements, you will have a clearer understanding of what your auditor will be looking for and what they care about. This should guide you in your response to auditor requests.
5. How will you consider my organisation’s climate-related risks (relative to other types of risk) both when auditing my climate-related financial disclosures, and when conducting the financial audit?
This question augments the materiality consideration above, by providing clear guidance on how to align your climate disclosures with your financial disclosures. It will also help you, and your auditor, unpack any bias they may hold as a result of lack of familiarity with climate information.
6. I am missing some information and have explained how I am going to address this gap, do you agree with this presentation of the outcome?
Let’s be honest, no one is going to have a complete information set in year one. To being with it’s entirely reasonable that the organisation will have focused limited resources on what matters most. Your inaugural ASRS-aligned Sustainability Report is going to be as much about explaining what is not there, and how you intend to fill those gaps in future, than simply narrating the data you do have. Clarity from your auditor about how they assess risk associated with missing information, relative to information that is available but uncertain, can guide how you describe the final information included in the report. You should also ask your auditor for guidance on how you have articulated any statements that you are having to “walk back” relative to previous public disclosures.
7. We’ve identified the higher complexity aspects of our reporting, can we discuss these areas up front and confirm the specific members of your audit team with knowledge of climate change risk in our sector?
ASRS is not simple, there are many sources of complexity which are specific to your assets, their location, how you choose to operate them, and your risk appetite. You should consider having robust, early conversations with auditors about the capability of the audit team to tackle complex sector-specific issues, so that knowledge gap can be addressed early on. This might be through sub-contracting experts/SMEs or recruiting. Ask them about your sector and satisfy yourself that they will be able to have the right conversation, reducing the risk of delays through the assurance process.
Framing a conversation for success
ERM are enjoying some hugely collaborative partnerships with auditors and together we are driving better commercial outcomes for our clients. In our opinion, the secret to success in that crucial early engagement is all about framing the conversation. As you present your auditor with information, consider how it is set out and explained. One of the things we have kept in mind as we have developed these questions is framing them so that “Yes” is the easiest answer!
In summary, ASRS is not simple, assurance cannot and must not be a tick box exercise, and we are all learning through doing. Having these robust and constructive conversations now will save you and your auditors time and can help you gain real value from your climate disclosures.
