Terms of Engagement

ASAE 3000 requires the terms of engagement for all assurance engagements to be agreed with the engaging party in writing, which is consistent with the requirements of the NGER Audit Determination.^[71]  The NGER Audit Determination^[72] and ASAE 3410^[73] also list the matters to be set out in the written terms.  ASAE 3410 requires the following items to be included in the terms, in addition to those set out in the NGER Audit Determination:

1. The responsibilities of the assurance practitioner;
2. Identification of the applicable criteria for the preparation of the Greenhouse and Energy Report or Emissions Report, if additional to the inclusion of provisions of the NGER legislation  that relate to the matter being audited as required by the NGER Audit Determination;
3. Reference to the expected form and content of any reports to be issued by the assurance practitioner and a statement that there may be circumstances in which the report may differ from its expected form and content; and
4. An acknowledgement that the entity agrees to provide written representations at the conclusion of the engagement.

The terms required by ASAE 3410 can be adapted to all assurance engagements.  Example engagement letters for both limited and reasonable assurance engagements are provided in Appendix 4, Example 2.

When agreeing the terms of engagement for an assurance engagement on a Greenhouse and Energy Report, the objective and scope of the engagement needs to address whether NGER Uncertainty, which is required to be reported to the Regulator along with the Greenhouse and Energy Report, is to be assured.

Where the engaging party is not the responsible party, such as for Regulator initiated engagements under the NGERS or CFI, clarification of the nature of any communication between the assurance practitioner and the responsible party needs to be addressed prior to commencement of the engagement and may be covered in the terms of engagement.

The responsible party may request that the assurance practitioner signs a confidentiality agreement. If the assurance practitioner signs such an agreement it needs to allow for the assurance practitioner to share such confidential information with the engaging party so that the scope of the engagement is not restricted.

Professional Competencies

When accepting or continuing an assurance engagement under any of the schemes addressed in this Guidance Statement, NGERS,^[74] ASAE 3000, and ASAE 3410^[75] all require the assurance practitioner to be satisfied that those who are to perform the engagement, including the engagement team and any assurance practitioner’s external experts, collectively possess the necessary professional competencies, encompassing knowledge and skills. For all assurance engagements these professional competencies include technical expertise in each of the subject matters to be assured, assurance skill and experience, which includes a depth of experience in applying the AUASB standards.

The technical expertise needed on the team will depend on the subject matter of the engagement, whether it be activity descriptions, emissions, production or record keeping. Technical expertise may be needed in emissions quantification, assessment of operational control, production processes for the relevant industry or carbon farming methods, in which case the assurance practitioner or team leader will need to be satisfied that the relevant expertise is reflected in the team or will be provided by an external expert. Whilst the market for assurance on emissions schemes is immature, it is beneficial for the assurance practitioner as team leader to engage a peer reviewer for the engagement with complementary expertise to that possessed themselves, regardless of the team’s expertise. For example, a team leader with primary expertise in emissions measurement may engage a registered company auditor as the peer reviewer and vice versa.

Suitable Criteria

The assurance practitioner is required to assess the suitability of the criteria when accepting an assurance engagement, whether the engagement is being conducted under ASAE 3000, ASAE 3410 or ASAE 3100. The criteria, which are the benchmarks against which the subject matter is evaluated or measured, for the engagements covered by this Guidance Statement include:

• NGERS – For Regulator initiated or voluntary assurance engagements under sections 73, 73A, 74 or 74A of the NGER Act, the criteria depends on the subject matter which is selected by the engaging party, which may include:
  • Greenhouse and Energy Report (section 19, NGER Act) - the NGER Measurement Determination provides the criteria for measuring emissions and energy and the NGER Act^[76] provides the criteria for determining operational control of facilities.
  • Compliance requirement - Requirements in the NGER Act or Regulations selected by the Regulator or engaging party for assurance.
• CPM – For mandatory reasonable assurance engagements under section 74AA, NGER Act:^[77]
  • Emissions Report (section 22A, NGER Act) - the CE Act^[78] and NGER Measurement Determination provides the criteria for measuring covered scope 1 and potential emissions embodied in an amount of designated fuel and the NGER Act^[79] provides the criteria for determining the facilities for which the liable entity has operational control.
  • Section 22B record keeping requirements (NGER Act) - the broad criteria for record keeping are whether the records allow the liable entity to report accurately in the Emissions Report, provide adequate evidence to the Regulator of their compliance with section 22A, are in a form that is easily and quickly accessible for inspection and audits and are retained for 5 years.^[80] More detailed criteria for record keeping are not legislated.
• JCP – For mandatory assurance on eligibility applications for an activity as EITE:
  • Measurement criteria for direct scope 1 emissions and electricity use are contained in the activity definitions in the guidance issued by the DCCEE^[81] and the NGER Measurement Determination.
  • The basis of preparation accompanying the application and the DCCEE guidance papers provide the criteria for determining production and revenue reported.
• JCP – For mandatory assurance on assistance applications for EITE activities:
  • The CE Regulations Schedule 1 provide the criteria for the activity definitions.
  • The measurement policies set out in the application provide the criteria for production and expected production, if applicable.
• JCP – For supplementary assistance applications for LNG production:
  • The CE Regulations^[82] provide the criteria for measurement and apportioning of emissions.
  • The measurement policies set out in the application provide the criteria for the process flow diagram and production reported.
• CFI – For mandatory assurance reports on an eligible offsets project required to accompany Applications for Certificate of Entitlement, under section 13 of the CFI Act, and Offsets Reports, under section 76 of the CFI Act, as set out in the CFI Regulations:^[83]
  • CFI Act section 27 declaration for the project, including project areas and attributes, provide criteria for project definition and boundaries.
  • CFI Methodology Determinations provide measurement criteria for relevant offset activity.
  • Requirements of the CFI Act provide the criteria for the project’s compliance with the Act, including notification and record keeping requirements.
  • Requirements of the applicable CFI methodology determination provide the criteria for the project proponent’s compliance with section 106, CFI Act, including content of the Offsets Report, information to be supplied to the Regulator, record keeping and monitoring requirements.
• CFI – For Regulator initiated or voluntary assurance engagements under section 214 or section 215, CFI Act:
  • Requirements in the CFI Act or associated provisions, including the CFI Regulations, selected by the Regulator or engaging party for assurance, which include reporting, notification requirements and record keeping requirements, provide broad criteria.
• RET – For mandatory engagements under regulation 22UB, RET Regulations, on applications for PEC:
  • RET Regulations Schedule 6 provides the criteria for definition of EITE activities.
  • RET Regulations[84] and the measurement policies set out in the application provide the criteria for measuring production and expected production, if applicable.
• The criteria for each engagement are summarised in Appendix 3.

For most of the engagements covered by this Guidance Statement, the criteria is provided by legislation or regulation, which is a prima facie indication that the criteria will be suitable. However, the criteria for measurement of emissions and energy which are provided in the NGER Measurement Determination, allow for multiple methodologies for most sources of emissions, so it is still necessary for the assurance practitioner to assess the suitability of the method selected as the criteria. The entity is required to identify the method type (1 to 4) and, if applicable, the criterion (AAA, AA, A or BBB) applied when submitting Greenhouse and Energy Reports and Emissions Reports. When assessing the suitability of the method applied as criteria, the assurance practitioner considers if the entity has changed methods from the previous period, as a lower order method can only be applied after a four year period of applying a higher method.^[85] If possible, the assurance practitioner obtains a basis of preparation from the responsible party at the outset, even if it is not required by legislation or regulation, to enable the assurance practitioner to readily identify the measurement methodologies applied and the manner in which other criteria, such as operational control in determining activity boundaries, have been applied in preparing the report or application.

For Offsets Projects, CFI provides a methodology determination^[86] for each activity for which ACCUs may be claimed and the Application for Declaration of an Eligible Offsets Project requires identification of the chosen CFI methodology determination. The relevant determination may allow for different methods of measurement and the entity may have applied judgements which impact how the offsets are measured in the Offsets Report.

Criteria for production reported in applications for assistance under JCP or RET are not provided by legislation or regulation, however the suitability of the criteria can be assessed against industry practice. The criteria for compliance matters are the requirements contained in the relevant legislation or regulation.

Applications for formal assessment of activities as EITE under JCP do require the basis of preparation to be reported. As the criteria for applications for free carbon units under JCP allow for some choices in methodologies, it is again important that the assurance practitioner determines whether the criteria used and significant judgements made in preparing the JCP application will be adequately documented and made available to the engagement team.

In accepting the engagement, the assurance practitioner needs to be satisfied that they will be provided with the criteria used in preparation of the subject matter, such as a basis of preparation, detailing which quantification methods were applied, and information regarding significant judgements made in preparing the relevant report or application. Where it appears unlikely that this information will be available to the assurance practitioner when conducting the engagement, the practitioner may choose not to accept the engagement.

Criteria for Assurance over Record keeping

Reasonable assurance is required under the CPM, for liable entities meeting the threshold, on compliance with the record keeping requirements in the NGER Act in relation to the eligible financial year.^[87] Although those records are required to be kept for 5 years, as the reasonable assurance report relates only to the eligible financial year, there is no need for the assurance practitioner to gather evidence regarding retention of records relating to prior reporting periods. If the assurance practitioner becomes aware of a failure of the liable entity to retain records for the required 5 year period, then this is communicated to the Regulator and those charged with governance along with any other compliance breaches.^[88]

The assurance practitioner can expect records to include both the decisionmaking process for selecting measurement methodologies and the details of the calculation and data analysis methods used for GHG emissions and energy production and consumption. Records may include:

1. A list of all emissions sources monitored;
2. The activity data used for calculation of GHG emissions for each source, categorised by process and fuel or material type;
3. Documentary evidence relating to calculations—for example, receipts, invoices, and details of payment methods;
4. Documentation of the methods used for GHG emissions and energy estimations;
5. Documents justifying selection of the monitoring methods chosen;
6. Documentation of the collection process for activity data for a facility and its sources;
7. Records supporting business decisions and accuracy, especially for high risk areas relating to reporting coverage (for example, applying concepts of controlling corporation, corporate group, and facility); and
8. When facility specific emissions factors are used, the monitoring or sampling methods used, evidence of compliance with relevant sampling and analysis standards adhered to in applying those methods and the results from the development of these emissions factors, as well as information such as biomass fractions and oxidisation or conversion factors.

Availability of Evidence

When the assurance practitioner is engaged by the Regulator to report on compliance with requirements of the NGER Act or CFI Act, invariably this occurs after the relevant period end, as the Regulator usually initiates engagements after the reporting entity’s Greenhouse and Energy, Emissions or Offsets Report is lodged. Greenhouse and Energy, Emissions and Emissions Reports are required to be lodged by 31 October, four months after the end of the reporting period, and Offsets Reports are required to be lodged between 12 months and 5 years after the project was declared eligible. So engagements which are initiated after period end will require evidence with respect to activities which occurred at least three months and up to 5 years earlier. This presents some potentially substantial restrictions on the availability of sufficient appropriate evidence to support an assurance conclusion. When accepting the engagement, the assurance practitioner considers the sources of evidence which may be available and considers whether procedures which are able to be conducted after period end are likely to be adequate to obtain sufficient appropriate evidence. Reliance on controls, for example, may be hampered, as evidence of the operating effectiveness of controls may need to be gathered by observation and enquiry contemporaneously with the operation of those controls. If controls cannot be effectively tested, the assurance practitioner may be able to conduct tests of details alone to support the assurance conclusion. However, if there is likely to be a limitation of scope due to lack of available evidence, the assurance practitioner may choose not to accept the engagement or bring the potential for a modified assurance report to the Regulator’s attention prior to commencement of the engagement.

For assurance engagements required by legislation on Emissions Reports^[89] or Offsets Reports^[90], it is preferable if the engaging party initiates the engagement prior to or early in the reporting period, to allow the assurance practitioner the opportunity to plan the engagement and conduct assurance procedures during the period if necessary in gathering sufficient appropriate evidence. Liable entities under CPM and ROEs under CFI may find it beneficial to consult with an assurance practitioner at the start of the reporting period to ensure that suitable evidence will be available for the assurance practitioner when the engagement is conducted, so that the likelihood of modifications to the assurance conclusion is reduced. This is particularly pertinent to Offsets Reports which may cover a period of up to 5 years after the declaration of the Offsets Project.

In order to plan an assurance engagement on a report, whether prepared under section 19 or section 22A, NGER Act, or section 76, CFI Act, or an application for assistance, the assurance practitioner obtains information regarding the basis of preparation for that report or data in that application, which may include:

1. The organisational structure, operations and facilities, including outsourcing;
2. Sources of emissions, energy or offsets for each material facility;
3. Description of reporting and facility boundaries, including distinction between site and facility definitions;
4. Measurement methodologies and measurement criterion selected, including key points of measurement, assumptions, basis of estimates, significant judgements made and any change in methodologies from the previous reporting period, if any;
5. Description of process to ensure completeness of sources per facility;
6. Discussion of complex areas of operation or areas of significant uncertainty; and
7. Description of data collection, record keeping and aggregation process, including key controls.

The form by which a basis of preparation may be documented will vary and may include a formal document to accompany the report, a reporting manual, checklists or responses to an assurance practitioner questionnaire. The availability of a basis of preparation may also assist the assurance practitioner in planning assurance procedures on record keeping which is required to be opined on for mandatory assurance engagements under the CPM^[91] and CFI.^[92]

Materiality in Planning and Performing the Engagement

When planning and performing an assurance engagement, whether the engagement is being conducted under ASAE 3000, ASAE 3100 or ASAE 3410, the assurance practitioner considers materiality.^[93] The materiality levels set (overall and performance materiality) will determine the nature, timing and extent of risk assessment and further assurance procedures to be performed on the subject matter, whether it be emissions, energy, offsets, disclosures, production, activity description or compliance matters. During the engagement the assurance practitioner reassesses materiality if matters come to their attention that indicate that the basis on which materiality was assessed has changed.

In determining materiality, the assurance practitioner applies their professional judgment to understand and assess what factors might influence the decisions of the Regulator and other intended users and the magnitude and nature of omissions, misstatements, non-disclosures or compliance breaches which may adversely affect decisions made by those users. Where particular types of emissions, disclosures or compliance matters may have a greater impact on the decisions of users, materiality may need to be set lower for those amounts or matters.

Materiality is determined in the same way whether the engagement is a reasonable or limited assurance engagement. The difference between limited and reasonable assurance engagements lies in the nature, timing and extent of evidence gathering procedures, which will differ in order to reduce the risk of a material misstatement or compliance breach remaining undetected to an acceptably low level, in the case of a reasonable assurance engagement, or to a limited level, in the case of a limited assurance engagement. So the risk of material misstatements or compliance breaches in a limited assurance engagement is not reduced to the same extent as in a reasonable assurance engagement, because of the more limited nature, timing and extent of procedures conducted. In a limited assurance engagement, the assurance practitioner seeks to obtain a meaningful level of assurance, which is likely to enhance the intended users’ confidence about the subject matter to a degree that is clearly more than inconsequential.

Factors which may influence the decisions of the intended users, include whether the reported amounts, volumes, disclosures or compliance matters:

• Are close to a reporting or liability threshold.
• May impact government targets.
• May influence resources allocation of the intended users.
• Give rise to a carbon unit liability.
• Give rise to eligibility for assistance.
• Give rise to a saleable offset.

The assurance practitioner determines:

1. Materiality for the report or application as a whole and, if appropriate, materiality for particular classes of emissions, energy production, consumption, disclosure or compliance matter, for assessing misstatements or breaches identified; and
2. Performance materiality, for assessing the risks of material misstatement and determining the nature timing and extent of further procedures.

For Greenhouse and Energy Reports, under section 19, NGER Act, overall materiality is determined separately for emissions, energy consumption and energy production, as these amounts are discrete and quantified in different units so they cannot be aggregated.

When considering materiality, both quantitative factors, that is the magnitude of the amounts, and qualitative factors, such as how the information will be used or how close the reported amounts are to applicable thresholds, are taken into account.

As a starting point for determining materiality a percentage may be applied to a chosen benchmark. The benchmark which is appropriate for determining materiality for the report or application as a whole or compliance matter will depend on the circumstances and subject matter of the engagement. In the absence of other circumstances, the benchmark chosen is within the context of the assurance being sought, so if the subject matter of the engagement is at a group level then the materiality will be based on benchmarks for the group and likewise if assurance is on a single facility then the benchmark will be at a facility level. Examples of benchmarks for overall materiality which may be appropriate, depending on the nature of the engagement, include:

1. Scope 1 emissions in an Emissions Report for liable entity under the CPM;
2. Separate benchmarks for total emissions (scope 1 and 2), energy consumption and energy production in a Greenhouse and Energy Report;
3. Specific amount, volume or compliance matter subject to assurance, where the subject matter of the engagement is not the entire report or application;
4. Each main disclosure (emissions, assumptions in the process flow diagram and production) in an application for assistance under JCP, resulting in multiple benchmarks; or
5. Total offsets in an Offsets Report, which may cover a period of 1 to 5 years, for an eligible offsets project.

The percentage applied to the benchmark to determine overall materiality will depend on the circumstances of the engagement and the amounts or volumes which may influence the decisions of users.

Performance materiality is usually set below the overall materiality so that the aggregated uncorrected or undetected misstatements is not likely to exceed overall materiality. If only one source is reported, it may be appropriate for performance materiality to be set at the same amount as overall materiality. It is not simply a mechanical calculation but involves the exercise of professional judgement.

Overall, materiality and performance materiality, including the percentages and benchmarks on which they are based, are documented in the assurance engagement plan.

Identifying and Assessing the Risks of Material Misstatement or Compliance Breach

When identifying and assessing risks of material misstatement or compliance breach as a basis for designing and performing further assurance procedures, the assurance practitioner does so at the level of the report or application as a whole and, for reasonable assurance engagements, also at the assertion level for material classes of emissions, energy production, energy consumption or compliance matters.

Factors impacting the risk assessment for engagements on emissions, energy or offsets, in addition to those identified in ASAE 3410,^[94] include:

1. The immaturity of the reporting systems;
2. The lack of a double entry recording system;
3. The estimation and uncertainty inherent in the methodologies applied;
4. The application of thresholds to determine liabilities which may create a bias towards understatement or fractionalisation of facilities to fall below the threshold; and
5. Any bias inherent in the measurement methodology.

Assurance engagements conducted for the first time will be higher risk usually than subsequent years, as the entity’s systems and controls over the measurement and recording of emissions, energy consumption, energy production or offsets is likely to be immature and so more likely to contain deficiencies. In addition, the documentation maintained by the entity may not entirely meet the assurance practitioner’s needs and measurement methodologies may not yet be well understood or procedures well established.

Assertions

Assertions are used as a means of assessing the risk of material misstatement and designing procedures to address those risks in reasonable assurance engagements and may also be applied in limited assurance engagements. The assurance practitioner identifies and assesses risk at the overall report level, whether it be a Greenhouse and Energy Report, an Emissions Report, application for assistance or Offsets Report, which is subject to assurance, and also at the assertion level for volumes and disclosures. The assertions identified in the NGER Measurement Determination are: reliability, accuracy and completeness of the matter being audited. ASAE 3410^[95] provides more extensive assertions, which can be applied by the assurance practitioner in considering the different types of potential misstatements in emissions and can also be applied when assuring production or offsets volumes reported, which can be categorised as follows:

1. Assertions about activities during the period, including quantification of emissions, production or offsets:
   1. Occurrence – quantities that have been recorded have occurred and pertain to the entity;
   2. Completeness – all quantities that should have been recorded have been recorded;
   3. Accuracy – quantities have been measured and recorded appropriately;
   4. Cut off – quantities have been recorded in the correct period; and
   5. Classification – quantities have been recorded in the proper category.
2. Assertions about presentation and disclosure:
   1. Occurrence and rights and obligations – disclosed quantities and other matters have occurred and pertain to the entity;
   2. Completeness – all disclosures that should have been included in the report or application have been included;
   3. Classification and understandability – information on the subject matter is appropriately presented and described, and disclosures are clearly expressed;
   4. Accuracy and quantification – quantification and other information on the subject matter is appropriately disclosed; and
   5. Consistency – quantification policies are consistent with those applied in the prior period, or changes are justified and have been properly applied and adequately disclosed; and comparative information, if any, is as reported in the prior period or has been appropriately restated.

When assessing the risks for engagements for which compliance with legislative or regulatory requirements is reported upon, some or all of these assertions may be applicable depending on the nature of the compliance matter.

Certain amounts or volumes will be assessed as higher risk due to the nature of those emissions or energy. For example, fugitive emissions, which are inherently difficult to measure, may be assessed as high risk with assurance procedures targeting completeness and accuracy of those fugitive emissions in response to that assessed risk.

Measurement Methodologies

When the criteria for the engagement includes measurement methodologies, the NGER Measurement Determination provides measurement methodologies for estimating scope 1 and scope 2 emissions, energy production and energy consumption and the CFI Methodology Determinations provides measurement methodologies for each offset activity. The methodologies are likely to be amended periodically to reflect new information in relation to methods and factors. The current methodologies are reflected and explained in Technical Guidelines for the estimation of greenhouse gas emissions by facilities in Australia.

Methodologies allowed under the Measurement Determination for scope 1 emissions, being direct emissions that arise onsite from the activities of the controlling corporation or facility, may include methods rated 1, 2, 3 or 4, with 1 representing the lowest order method or the least accurate with the greatest measurement uncertainty and 4 representing the highest order method or most accurate with the lowest measurement uncertainty. These methods are based on:

• Method 1: Applies national average emissions factors determined by the DCCEE to estimate emissions.
• Method 2: A facility specific method using industry sampling and Australian or international documentary standards for analysis of fuels and raw materials.
• Method 3: A facility specific method using Australian or international documentary standards for both sampling and analysis of fuels and raw materials.
• Method 4: Direct monitoring of emissions systems on a continuous or periodic basis.

Once a method has been selected by the controlling corporation or facility, this method is required to be applied for a four year period unless a higher order method is applied. The controlling corporation may only move to a lower order method after the four year period. If multiple reports are produced for the one facility the same methods are required to be used for those reports.^[96]

Within certain methods, different criterion are permitted to be applied, which may include measurement criteria which are rated AAA, AA, A or BBB, ranging from the highest order to the lowest order measurement criteria. Once a higher order measurement criteria, either AAA or AA, is applied the reporting entity is required to continue applying that criteria for a minimum period.^[97]

Scope 2 emissions are indirect emissions which arise primarily as a result of the consumption of electricity, heating, cooling or steam by the controlling corporation or facility. Scope 2 emissions are either calculated from:

1. State or territory based factors, which are updated each year based on the current mix of electricity generation sources, for electricity purchased from the grid; or
2. Vendor estimates of scope 1 emissions, for electricity, heating, cooling or steam purchased off grid.

Whilst a number of different methodologies are permitted under the NGER Measurement Determination for calculating the emissions reported from each source, those methodologies vary in their accuracy. The accuracy of the methodology is reflected in the uncertainty associated with that methodology. The amount of uncertainty associated with the estimate for the total amount of scope 1 emissions in a Greenhouse and Energy Report is required to be reported to the Regulator.^[98] This NGER Uncertainty is equivalent to statistical uncertainty which is just one component of “estimation uncertainty”, as referred to in ASAE 3410^[99] which is defined in the GHG Protocol Guidance.^[100] Estimation uncertainty comprises model uncertainty and parameter uncertainty, which itself comprises statistical (reported under NGERS) and systematic uncertainty. Uncertainty which is inherent in the measurement methodologies, such as an emissions factor, which are provided under the NGER Measurement Determination, will not usually impact the assurance conclusion. However, any material uncertainty or misstatement in the parameters which feed into the methodology applied, such as a site specific factor or activity data, need to be considered in reaching the assurance conclusion.

ASAE 3410^[101] and ASAE 3100^[102] require the assurance practitioner to obtain an understanding of the entity and its environment and identify and assess the risk of material misstatement or compliance breach in order to plan the engagement. In gaining this understanding, ASAE 3410^[103] provides a comprehensive list of matters to be considered, which can be readily adapted to engagements which do not involve emissions. ASAE 3410^[104] requires the assurance practitioner to conduct the following procedures in obtaining that understanding and assessing risk: enquiries, analytical procedures and observation and inspection.

For a limited assurance engagement the assurance practitioner does not normally develop the depth of understanding of internal controls as is required in a reasonable assurance engagement^[105] and so gaining that understanding may be limited to enquiries.

The assessment of risk is directed at identifying those risks that may result in either the subject matter being materially misstated, as reported in a Greenhouse and Energy Report, Emissions Report, Offsets Report or an assistance application, or, for a compliance engagement, the existence of material breaches of the relevant requirements.

The assurance practitioner designs and performs further assurance procedures which are responsive to assessed risks of material misstatement or material compliance breach. The assurance procedures performed on any particular engagement is a matter of professional judgement and the nature, timing and extent of procedures will vary widely due to the different circumstances of each engagement. The assurance practitioner chooses a combination of assurance procedures, which may include: inspection, observation, confirmation, recalculation, reperformance, analytical procedures and enquiry. Irrespective of the assessed risks of material misstatement or material compliance breach, the assurance practitioner designs and performs test of details for each material source of emissions, energy or offset, production process, class of transaction or compliance matter. In designing these tests the assurance practitioner needs to consider the risks of material understatement, particularly with respect to immaterial amounts reported, or risk of material omission.

Work Effort for a Limited versus Reasonable Assurance Engagement

ASAE 3410 clearly differentiates between the work which is required to be conducted for a limited versus a reasonable assurance engagement. However, the nature, timing and extent of evidence gathering procedures which are conducted in any given circumstance is a matter of professional judgement and is determined in response to the assurance practitioner’s determination of materiality, risk assessment and the results of the procedures conducted in response to assessed risks. As the level of assurance obtained in a limited assurance engagement is lower than in a reasonable assurance engagement, the procedures the assurance practitioner will perform will vary in nature from and will be less in extent than for a reasonable assurance engagement.^[106] In a limited assurance engagement procedures primarily involve enquiries and substantive analytical procedures and may not include tests of controls. Although procedures in a limited assurance engagement will be much more limited in nature, timing and extent than for a reasonable assurance engagement, ASAE 3000, ASAE 3100^[107] and ASAE 3410^[108] require additional procedures to be conducted if the assurance practitioner becomes aware of a matter which causes them to believe the subject matter may be materially misstated or there may be a material compliance breach. The assurance practitioner may conduct procedures more akin to a reasonable assurance engagement on this particular matter in order to satisfy themselves that either the subject matter is not likely to be materially misstated or non-compliant or it is materially misstated or non-compliant.

Most engagements addressed in this Guidance Statement are reasonable assurance engagements, however limited assurance engagements may be:

1. Initiated by the Regulator for monitoring or compliance purposes under NGERS or CFI;
2. Initiated voluntarily by the entity; or
3. Required for applications for JCP assistance, which include facilities without continuously operating EITE activities or commencing significant expansions, on expected production. Limited assurance in this case is provided on the reasonableness of assumptions for the preparation of expected production and the preparation of expected production on the basis of the assumptions and the basis of preparation.

In a reasonable assurance engagement, procedures will include tests of controls as well tests of details. When conducting a reasonable assurance engagement, if the assurance practitioner is able to obtain evidence that the controls they wish to rely on are operating effectively, then the nature, timing and extent of tests of details may be reduced or modified. If reliance is to be placed on the operating effectiveness of controls throughout the period, then testing will need to cover that period. Alternatively, if the identified controls are not operating effectively, then the nature, timing or extent of tests of details will need to be increased or modified.

Sampling

When testing controls or conducting tests of details on amounts, volumes or compliance activities, the assurance practitioner may select:^[109]

1. All items, where the number of items are small and the risks are significant;
2. Specific items based on their attributes, although the results cannot be projected to the entire population;
3. A non statistical sample; or
4. A statistical sample, from which conclusions may be drawn about the entire population.

If a sample is to be selected for testing, the assurance practitioner considers the purpose of the procedure and the characteristics of the population,^[110] determines a sample size which may reduce sampling risk to an acceptably low level and selects items so that each unit has a chance of selection. Sampling may be used for a limited assurance engagement, if appropriate, however as the acceptable level of risk will be higher the sample size may be smaller than if a reasonable assurance engagement was being conducted. For any misstatements or compliance breaches identified the assurance practitioner investigates the nature and cause and (unless it is clearly established to be an anomaly) projects the misstatements to the population.

Sampling and analysis may be required to be used by an entity extensively under the NGER Measurement Determination to determine the composition of fuels or materials produced or consumed in order to estimate emissions and also under CFI methodologies. This sampling conducted by the entity is contrasted to that conducted by the assurance practitioner, in that the assurance practitioner may use sampling to test any of the parameters which form part of the emissions or offsets calculated, not solely the composition of a fuel or material.

Estimates

ASAE 3410^[111] explains the procedures which are conducted by the assurance practitioner with respect to estimates for limited and reasonable assurance engagements on reported emissions. This approach can be applied as guidance for other engagements addressed in this Guidance Statement.

Using the Work of Experts

Engagements to provide assurance on emissions, energy, offsets or compliance with NGER Act, CE Act, CFI Act or related regulations requires a broad ranges of skills, which may necessitate the engagement of an industry, environmental, scientific, assurance or other technical expert from outside of the assurance practitioner’s practice in order to ensure that those who are to perform the engagement collectively possess the necessary professional competencies. Experts may be engaged to work on the engagement as part of a multidisciplinary team, to provide advice on a discrete matter, such as certain measurement methodologies, or to be involved at a specific stage in the engagement, such as to provide a quality control review.

When an expert is to be used, the assurance practitioner still needs to understand their work sufficiently to conclude on the subject matter, including obtaining sufficient appropriate evidence that the expert’s work is adequate for the purposes of the engagement.^[112]

For an engagement involving assurance on emissions it is usually preferable if the expertise of the quality control reviewer is that of a different professional discipline to that of the assurance practitioner, as the quality control reviewer will bring complementary skills to the engagement and may be in a better position to challenge the adequacy of the evidence provided by the work of experts, within the quality control reviewer’s field of expertise.

Evidence Held at Service Organisations

Records may be kept by a third party or service organisation, which provides services to the controlling corporation or the facility, with respect to the subject matter of the engagement. These records may include documentation relating to emissions, energy, offsets, production or compliance. If evidence which is required for the purposes of the assurance engagement is held by a service organisation, then arrangements need to be made either for an assurance report to be obtained by the service organisation or for access to the records of the service organisation by the assurance practitioner to obtain that evidence directly.

When obtaining an understanding of the subject matter and other engagement circumstances as required by ASAE 3000 or an understanding of the entity and its environment under ASAE 3410,^[113] including the nature of the operations, the assurance practitioner considers the organisational boundary of the controlling corporation or facility applicable to the engagement. The assurance practitioner determines whether any service organisations maintain records of material amounts or volumes which fall within the organisational boundary of the activity which is being reported on and so hold evidence needed to support the assurance conclusion. If so, the assurance practitioner determines whether they intend to rely on the operating effectiveness of controls at the service organisation or on evidence held at the service organisation regarding assertions relating to amounts, volumes or compliance matters. The assurance practitioner determines whether that evidence may be obtained by:

1. An assurance practitioner’s report on controls over the subject matter provided by the service organisation;
2. Performing tests of controls or tests of details at the service organisation; or
3. Using another assurance practitioner to perform those tests of controls or tests of details.

Fraud

For assurance engagements on emissions, ASAE 3410 requires the assurance practitioner to respond appropriately to fraud or suspected fraud and compliance breach or suspected compliance breach identified during the engagement. The nature of that response is detailed in the application material to ASAE 3410.^[114] The requirements and application material in ASAE 3410 may also be used as guidance for other engagements addressed in this Guidance Statement to which ASAE 3410 does not directly apply. In addition, ASA 240^[115] may be used as additional guidance in these circumstances.

When assuring emissions, ASAE 3410^[116] requires the assurance practitioner to accumulate misstatements identified during the engagement, other than those that are clearly trivial. For engagements relating to other subject matters, including energy, offsets, record keeping or compliance, the assurance practitioner also accumulates any misstatements or compliance breaches. Misstatements or breaches may be factual, where they have been identified and quantified; judgemental, where they arise from differences between the assurance practitioner’s and management’s judgements; or projected, where they are an estimate based on a sample of the population.

Revision of the assurance engagement strategy or plan in order to perform additional procedures may be necessary if:

1. The nature of the misstatements or breaches and the circumstances of their occurrence indicate that other misstatements or breaches exist, which when aggregated with those identified could be material; or
2. The aggregated misstatements or breaches approach materiality.^[117]

Once the additional procedures have been conducted, ASAE 3410 requires the assurance practitioner to request that the identified misstatements are corrected by the responsible party.^[118] This will be possible if the report or application has not yet been lodged or if resubmission of data is permitted under the relevant scheme, but not for engagements conducted subsequent to lodgement where resubmission is not permitted. Compliance breaches identified may also be rectified by the responsible party in certain circumstances.

The assurance practitioner evaluates the effect of the remaining misstatements or breaches, to determine whether they are material individually or in aggregate. Materiality, determined in planning the engagement, may need to be reassessed if the engagement commenced prior to finalisation of the report or application.^[119]

Compliance Breaches

Compliance breaches which the assurance practitioner becomes aware of during the conduct of an assurance engagement are required to be reported to the Regulator under Part B of the assurance report, for reports issued under NGERS.^[120] They are also reported to those charged with governance under ASAE 3000 or ASAE 3410,^[121] along with any identified or suspected fraud and non-compliance with laws and regulations. However, a compliance breach does not impact the assurance report conclusion, unless the breach:

1. Relates to a compliance matter which is part of the subject matter of the engagement on which the assurance practitioner is required to conclude; or
2. Results in a material misstatement of the subject matter or insufficient evidence being available to form a conclusion.

Compliance breaches which may impact the assurance conclusion include:

• For engagements initiated by the Regulator under the NGER and CFI Acts: material breaches of the compliance matters under the NGER or CFI Act identified in the scope of the engagement.
• For assurance reports under the CFI Act, submitted with an Offsets Report: material breaches of any requirement of the CFI Act.
• For assurance reports under section 74AA, NGER Act for the purposes of the carbon pricing mechanism: material breaches of the section 22A reporting requirements or section 22B record keeping requirements.

Control Deficiencies

If the assurance practitioner identifies any deficiencies in internal controls, the assurance practitioner determines whether those deficiencies individually or in combination amount to significant deficiencies. Significant deficiencies are communicated to those charged with governance of the responsible party on a timely basis. Significant deficiencies which the assurance practitioner has communicated or intends to communicate to those charged with governance are also communicated to management with oversight responsibilities for the subject matter, along with other deficiencies of sufficient importance to merit management’s attention.^[122] When reporting under NGERS, the assurance practitioner determines whether significant deficiencies are a matter required to be included in Part B of the assurance report.

In assessing the significance of deficiencies identified the assurance practitioner may use ASA 265^[123] as useful guidance.

Where the Regulator is the engaging party, such as engagements under section 73 and section 74 of the NGER Act or section 214 and section 215 of the CFI Act, control deficiencies are communicated by the assurance practitioner to the responsible party in the manner agreed in the engagement letter.

Deficiencies in controls do not affect the conclusion in the assurance report unless:

1. The subject matter of the engagement includes the description, design or operating effectiveness of those controls; or
2. Reliance on the operating effectiveness of those controls is necessary in order to obtain sufficient appropriate evidence on which to base the assurance conclusion and alternative procedures are not available.

ASAE 3000 and ASAE 3100 require the assurance practitioner to obtain written representations from the responsible party, which may include:

1. Confirmation of oral representations;
2. Confirmation that the responsible party has provided the assurance practitioner with all information which they are aware is relevant to the engagement and all reasonable facilities and assistance during the engagement; and
3. Acknowledgement that the responsible party has prepared the report or application in accordance with the relevant legislation and regulations and that all relevant matters are reflected in that report or application.

These written representations are obtained as close as possible to the date of the assurance report, but not after that date, and cannot replace other evidence which the assurance practitioner can reasonably expect to be available.

ASAE 3410 expands on the matters to be addressed in representations from the responsible party.

ASAE 3000, ASAE 3100^[124] and ASAE 3410^[125] require the assurance practitioner to consider subsequent events up until the date of the assurance report and provide the requirements for the appropriate response to any such matters identified.

ASAE 3000, ASAE 3100^[126] and ASAE 3410^[127] provide requirements for the matters which are documented by the assurance practitioner. The NGER Regulations^[128] require retention of the assurance practitioner’s records for 5 years.

In determining the extent of documentation to be prepared and retained the assurance practitioner may consider what is necessary to provide an understanding of the work performed and the basis of the principal decisions taken to another experienced assurance practitioner who has no previous experience with the engagement. This understanding is not expected to extend to the detailed aspects of the engagement without discussions with the assurance practitioner who prepared the documentation.

Engagements conducted under the NGER Audit Determination, which include assurance engagements conducted under NGERS, CPM and CFI, are required to be evaluated by a peer reviewer.^[129] The outcomes of that evaluation are required to be reported in Part B of the assurance report.^[130] A peer review under NGER Audit Determination is equivalent to an engagement quality control review under ASAE 3410. Consequently, when conducting their evaluation the peer reviewer addresses the matters required by ASAE 3410.^[131]

The required content of the assurance report for each scheme is set out in:

• NGERS and CPM – NGER Audit Determination^[132] and ASAE 3410, whether initiated by the Regulator or required to be submitted with the related Greenhouse and Energy Report or Emissions Report.
• JCP activity assessments – ASAE 3000 for assurance on applications for formal assessment of activities as EITE.
• JCP assistance – CE Regulations^[133] and ASAE 3000 for assurance on applications for EITE assistance and LNG supplementary assistance.
• CFI – NGER Audit Determination and ASAE 3100 for assurance on compliance with the CFI Act.
• RET – RET Regulations, NGER Audit Determination, ASAE 3000 and ASAE 3100 for assurance on applications for a PEC.

ASAE 3000 applies to all engagements covered by this Guidance Statement and, in addition, ASAE 3410 applies to engagements to report on emissions and ASAE 3100 applies to engagements to report on compliance matters. The matters required to be included in assurance reports under the NGER Audit Determination are consistent with the content required in ASAE 3000, ASAE 3100 and ASAE 3410, except that those standards also require the assurance report to include:

1. When the criteria used to evaluate or measure the subject matter is only available to specific intended users, or are relevant only to a specific purpose, a statement restricting the use of the assurance report to those intended users or that purpose;^[134]
2. A statement to identify the responsible party and to describe the responsible party’s and the assurance practitioner’s responsibilities;^[135] and
3. In the case of a limited assurance engagement, a statement that the procedures performed in a limited assurance engagement vary in nature from, and are less in extent than for, a reasonable assurance engagement. As a result, the level of assurance obtained in a limited assurance engagement is substantially lower than the assurance that would have been obtained had a reasonable assurance engagement been performed.^[136]

Assurance practitioners’ reports under the NGER Audit Determination are long form reports which require detailed findings to be reported under Part B. Part B need not repeat the entirety of the engagement plan nor the detail contained in the working papers which document the work conducted. As the NGER Audit Determination requires that Part B contains details of matters that required particular attention during the engagement, particularly impacted carrying out the engagement, the assurance practitioner believes amounts to a contravention of the NGER Act or NGER Regulations or any other matters which should be mentioned, in addition to the outcome of the peer review, it is not necessary to report trivial matters. The assurance practitioner may report how any misstatements or breaches are aggregated, whether they are material and if they have impacted the conclusion reached.

The assurance practitioner is only required to conclude on NGER Uncertainty reported by the entity in OSCAR if the provision of assurance on NGER Uncertainty has been agreed in the terms of engagement. If assurance on NGER Uncertainty is not included in the scope of the engagement, the assurance practitioner may include a statement to that effect in the assurance report on a Greenhouse and Energy Report to avoid any misunderstanding. If the assurance practitioner identifies, in the course of their work, a material misstatement or inconsistency in the NGER Uncertainty reported, if it does not impact the assurance conclusion, they may report it in an “Other Matter paragraph”^[137] and in Part B of the assurance report.

Example reports for limited assurance and reasonable assurance engagements are provided in Appendix 5, Examples 2 and 3 respectively.

Other Information

If the Greenhouse and Energy or Emissions Report and accompanying assurance report is contained within other documents, ASAE 3410^[138] requires the assurance practitioner to read the other information in those documents and take appropriate action, including discussion with the entity, if it could undermine the credibility of the Greenhouse and Energy or Emissions Report and accompanying assurance report. When conducting other assurance engagements, the assurance practitioner uses ASAE 3410 and ASA 720^[139] to provide guidance with respect to other information. The assurance practitioner will usually need to take action if they identify a material inconsistency or a material misstatement of fact in the other information.

Modifications to the Assurance Conclusion

ASAE 3000 allows for the following modifications to the assurance conclusion:

1. A qualified conclusion;
2. An adverse conclusion; and
3. A disclaimer of conclusion, which is equivalent to an “inability to form a conclusion” in the NGER Audit Determination.

ASAE 3000 requires that:

1. If there is a limitation of scope, imposed either by circumstances, the responsible party or the engaging party, which imposes a restriction which prevents the assurance practitioner obtaining the evidence required, then the assurance practitioner is required to express, depending on the pervasiveness and materiality of the matter:
   1. A qualified conclusion; or
   2. A disclaimer of conclusion.
2. If the report or application is materially misstated or there is material non-compliance with the specified requirements, the assurance practitioner is required to express, depending on the pervasiveness and materiality of the matter:
   1. A qualified conclusion; or
   2. An adverse conclusion.

Even though the matters which lead to a qualified conclusion are not so material as those which lead to a disclaimer or adverse conclusion, it is still necessary for them to be material under ASAE 3000 to result in a qualification. Misstatements, compliance breaches or a limitation of scope, which are not material, may still be communicated to the Regulator if they relate to a contravention of the relevant legislation or regulations and to those charged with governance if they relate to significant deficiencies in controls which need to be addressed.

If a material misstatement or compliance breach is identified during the engagement and the report or application is adjusted to correct the misstatement or the breach rectified for the relevant period, the assurance practitioner will be able to issue an unmodified conclusion.

Emphasis of Matter and Other Matter Paragraphs

In complying with ASAE 3000 and ASAE 3410,^[140] when the assurance practitioner considers it necessary to draw users’ attention to:

• A matter or matters presented or disclosed in a Greenhouse and Energy Report, an Emissions Report, an Offsets Report or a JCP or PEC application that, in the assurance practitioner’s judgement, are of such importance that they are fundamental to users’ understanding of that report or application the assurance practitioner includes an Emphasis of Matter paragraph.
• Any matter or matters other than those that are presented or disclosed in the relevant report or application, which in the assurance practitioner’s judgement is relevant to users’ understanding of the engagement, the assurance practitioner’s responsibilities or the assurance report, the assurance practitioner communicates that matter in an Other Matter paragraph. Other Matter paragraphs may cover a pervasive limitation of scope, where the assurance practitioner cannot withdraw from the engagement, or a restriction on distribution.

Whilst Emphasis of Matter paragraphs and Other Matter paragraphs are not considered in the NGER Audit Determination, the assurance practitioner is not prevented by legislation or regulation from including such paragraphs when appropriate. An Emphasis of Matter or Other Matter paragraph does not affect the assurance practitioner’s conclusion.