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Assurance engagement process

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The assurance process is divided into four key phases. This section outlines these phases, and the relationships that exist between and within each phase. Each of the elements in the assurance process is explained in detail in chapter 5 of this handbook. The verification process is explained separately in chapter 6 of the handbook.

Figures 2 to 5 below outline the assurance engagement process. These diagrams must be interpreted in the context of the type of audit conducted.

Diagram shows the process of preparing, described below at 3.2.1

Figure 2 — The assurance engagement process: Preparing

Diagram shows the process of planning, described below at 3.2.2

Figure 3 — The assurance engagement process: Planning

Diagram shows the process of performing, described below at 3.2.3

Figure 4 — The assurance engagement process: Performing

Diagram shows the process of reporting, described below at 3.2.4

Figure 5 — The assurance engagement process: Reporting

3.2.1 Preparing

Section 2.4 of the NGER Audit Determination requires the audit team leader to sign an independence and conduct declaration. Assurance engagement terms have prescribed items to be included (s3.3), and must be agreed in writing by the body appointing the auditor (either the Clean Energy Regulator or the audited body (s3.4)).

Section 3.6 of the NGER Audit Determination requires the auditor’s understanding of these items to be documented in the assurance engagement plan, in addition to other items as set out in this section.

During this stage of the assurance engagement, the audit team leader completes acceptance or continuance procedures to assess the risks in accepting the engagement. Similar to quality control processes in manufacturing, the assurance engagement acceptance processes are implemented to ensure the end product is of a high standard and to protect the auditor from faulty goods claims.

The process is important as the value of the assurance engagement is derived in part from the integrity and perception of the audit team leader. A poorly performed assessment of the requirements of the commissioner of the audit (who may be either the Clean Energy Regulator or the audited body itself) and engagement risks could jeopardise both the value of the assurance engagement and the audit team leader’s reputation.

The audit team leader also determines whether the assurance engagement will be possible based on the criteria and subject matter, and develops a plan to undertake an audit that is efficient, effective and in compliance with both the assurance engagement terms and the legislation governing the various schemes administered by the Clean Energy Regulator.

If the terms are not agreed to or signed, the audit team leader must notify the Clean Energy Regulator (under section 3.4(3) of the NGER Audit Determination).

Example: Conflict of interest

The audit team leader agrees to conduct an assurance engagement of a registered corporation but was an employee of the corporation six months earlier.

In this case, the relationship—a relevant relationship under section 6.56 of the NGER Regulations—creates a conflict of interest situation which is prohibited under the NGER Regulations. The audit team leader would not be capable, or a reasonable person would conclude that they are not capable, of exercising objective or impartial judgement concerning the audit (regulation 6.49 of the NGER Regulations).

The NGER Regulations require audit team leaders to comply with the code of conduct set out in regulation 6.46 which includes behaving with objectivity when conducting a Part 6 audit.

3.2.2 Planning

The criteria for assurance engagements conducted under the various schemes administered by the Clean Energy Regulator are set by the legislation governing the schemes. For example, if an energy and emissions report under section 19 of the NGER Act is being audited, the criteria are primarily set out in the NGER Measurement Determination. For other engagements, the criteria may be compliance with a specific requirement of the legislation.

To address the audit criteria, the audit team leader should understand and assess:

  • the operations, business objectives and business strategies of the audited body that are relevant to the matter that is subject to the assurance or verification engagement
  • the systems and processes the audited body uses to prepare the matter being audited
  • the systems and processes the audited body uses to identify and address the risks of misstatements that are material and relevant to its reporting requirements under the relevant scheme, and
  • the industry sector in which the audited body operates.

The NGER Audit Determination (s1.4) defines a misstatement: 'misstatement, in relation to a matter being audited under an assurance engagement, means an error, omission or misrepresentation in the matter relating to compliance with the NGER Act or the NGER Regulations, or the CFI legislation or associated provisions'.

As part of this process, the audit team leader should also understand and assess:

  • the legislative requirements to be followed to gather and report the greenhouse emissions and energy information (the criteria)
  • the scope, size and variability of the greenhouse emissions and energy information (the matter to be audited)
  • the areas of the subject matter that are most significant to the business, and
  • whether the matter to be audited is clearly presented so as to avoid misinterpretation.

This knowledge is then used to assess and evaluate:

  • the risks that will affect the audit team leader’s ability to form a conclusion on the matter to be audited (assurance risks), and
  • the level at which an instance of non-compliance will affect the decisions people make (materiality).

The most efficient and effective way of conducting the assurance engagement is to develop a mix of assurance procedures tailored to address the significant risks of material misstatement identified. A summary of these procedures must be documented in the assurance engagement plan. These procedures should reflect the level of assurance being obtained. Procedures necessary for a limited versus reasonable assurance engagement may differ significantly.

If the results of the planned procedures are not as expected, the audit team leader will need to reassess their understanding of the above factors and review and update the assurance engagement plan to ensure it still represents the most efficient and effective way of conducting the assurance engagement.

If the audit team leader determines that the issues identified during the planning stage restrict the ability of the audit team leader to complete the assurance engagement and amendments are not made by the audited body to address the audit team leader’s concerns, the audit team leader should consider proceeding to the reporting stage as it is likely they will be unable to form an opinion. Alternatively, the audit team leader could seek other means of gathering evidence or consider withdrawing from the engagement.

3.2.3 Performing

During this stage, the auditor gathers evidence to support the assurance conclusions by undertaking the procedures developed during the planning stage.

The objective of the assurance engagement is to provide an independent conclusion on whether the audited body has complied in all material respects with the relevant requirements of the legislation governing the various schemes administered by the Clean Energy Regulator.

The objective of undertaking the procedures developed during the planning stage is to provide the audit team leader with sufficient evidence to enable the audit team leader to issue the conclusion. A discussion of procedures is provided in chapter 5 but they generally include at least detailed testing to source documentation and analysis of results against expectations.

The nature, timing and extent of evidence required to support the assurance conclusion is initially assessed in the planning stage and is developed based on the audit team leader’s understanding of the business and assurance risks. This assessment needs to be revised in accordance with the results of the procedures performed and how they affect the audit team leader’s understanding of the business and assurance risks.

3.2.4 Reporting

Before issuing the assurance engagement report, the audit team leader obtains written representations from management regarding:

  • the completeness and accuracy of the information provided to the audit team leader, and
  • other matters, including the audited body’s compliance with the legislation of the various schemes administered by the Clean Energy Regulator.

The audit team leader should discuss the audit findings with the audited body wherever there are doubts over their accuracy.

Division 3.4 of the NGER Audit Determination sets out the requirements for reporting on an assurance engagement.

Any audit report prepared in accordance with the NGER Audit Determination must include:

  • a cover sheet
  • Part A (audit opinion), and
  • Part B (detailed findings).

The conclusion of the assurance engagement report is based on whether the audit team leader has determined that the evidence supports the finding that the reported information is materially correct and compliant with the legislation of the various schemes administered by the Clean Energy Regulator. If the reported greenhouse and energy information contains what the audit team leader judges to be material errors, the pervasiveness of those errors will determine the nature of the conclusion provided.

Guidance for assurance engagement reports has been provided in the templates section at the end of this handbook.

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