The assurance engagement report

The purpose of the assurance engagement report is to provide a context and conclusion for the assurance engagement. In addition to meeting the requirements of the NGER Audit Determination, the assurance engagement report must document whether sufficient appropriate evidence has been obtained to support the conclusion expressed in the assurance engagement report. This file must be retained for at least five years after the finalisation of the audit to ensure compliance with record keeping requirements.

The mandatory content of the assurance report is detailed in sections 3.21 to 3.23 of the NGER Audit Determination. Final authorised subject matter and key excerpts (or the full text) of the criteria must be appended to the assurance engagement report so that the basis of the audit and what the assurance engagement report covers is clear to the reader.

Division 3.4 of the NGER Audit Determination lists the specific requirements of the assurance engagement report. These requirements include:

the assurance engagement conclusion
a summary of engagement procedures performed
issues that required particular attention during the audit
details of all matters that the auditor believes amounts to a contravention of the NGER Act
the details of the outcome of the peer review, and
the amount paid for the audit, the total hours spent on the audit by the audit team leader, and non-audit fees.

Audit team leaders must include in the assurance engagement report:

a cover sheet
Part A, containing the matters specified in section 3.22 of the NGER Determination, and
Part B, containing the matters specified in section 3.23 of the NGER Determination.

5.7.1 The cover sheet

Section 3.21(3) lists what audit team leaders must include in the cover sheet of the audit. These requirements are also listed in the templates included at the end of this handbook.

Disclosing fees on the audit coversheet

On 1 July 2017, this section of the NGER Determination was amended to include paragraphs 3.21(3)(k) to 3.21(3)(m). These paragraphs require auditors to disclose in the cover sheet the amount paid for the audit and the amount paid to the audit team leader or audit firm for services other than Part 6 audits. These requirements improve the Clean Energy Regulator’s capacity to target risk, and monitor audit quality and potential conflicts of interest, as well as providing greater transparency over the value of the audit and other services provided by the audit firm, and trends in audit costs for clients.

The audit fee required in the assurance engagement coversheet is the amount required under paragraph 3.21(3)(k). This is the total amount paid or payable to the audit team leader or audit firm for preparing and carrying out the assurance engagement and preparing the assurance engagement report. This paragraph does not require a breakdown of the costs. All that is required is the total cost of the entire audit, which includes the preparing, planning, performing and reporting components.

Audit fees must take into account:

Details of the amounts paid or payable must be expressed as a GST inclusive amount and include any disbursements or administration costs incurred by the auditor or audit firm in undertaking the assurance engagement.
Total person hours the audit team spent on the assurance engagement must include hours from the peer reviewer and any other contributors to the assurance engagement while underway.

Paragraph 3.21(3)(k) also requires the cover sheet to include the total person hours the audit team spent on the assurance engagement. This would include hours from the peer review and any other contributors to the assurance engagement while underway.

The non-audit fees required in the assurance engagement templates is the amount required under paragraph 3.21(3)(l). This amount is the combined total of all non-Part 6 services or activities provided by the audit team leader and the audit firm to the body being audited for 12 months prior to the audit team leader signing the terms of engagement. Non-Part 6 services or activities means any service or activity provided to the audited body that is not an NGER assurance engagement, ERF audit or safeguard mechanism audit. This could include fees from other types of audits and consultancy arrangements.

Alternatively, if the auditor has signed the terms of engagement of an audit within four months of the start of a financial year, the auditor can choose to include non-audit fee information from the previous financial year instead of the 12 months prior to the signing of the terms of engagement. This will assist those auditors who already have information from the previous financial year readily on hand. However, if the audit commences more than four months from the start of the financial year, the auditor will not be able to use an alternative period.

Non-audit fees must take into account:

The combined total of all non-Part 6 services provided to the audited body for 12 months prior to the audit team leader signing the terms of engagement; or, if the audit terms of engagement are signed within four months of the start of a financial year, the auditor can choose to include non-audit fee information from the previous financial year.

If there is any amount listed in the coversheet under non-audit fees, then the audit team leader must provide an explanation as to why the provision of the services or activities did not result in a conflict of interest.

Finally, under paragraph 3.21(3)(m), if there is any amount listed in the coversheet under non-audit fees, then the audit team leader must provide an explanation as to why the provision of the services or activities did not result in a conflict of interest. This explanation should be a concise description of how the audit team leader has assured themselves that the other services or activities covered in paragraph 3.21(3)(l) did not impact on the independence of the audit opinion. The explanation may make reference to internal assessments undertaken as part of the audit engagement process.

If auditors do not wish to disclose audit and non-audit fees on the audit report coversheet, auditors can write to the Clean Energy Regulator requesting to disclose this information on a document separate to the cover sheet of the audit. This would still require disclosure of all the information listed above.

5.7.2 Part A

The purpose of Part A is to set out a summary of the assurance engagement procedures, and the audit team leader’s conclusions for the assurance engagement. Paragraph 3.22(2)(b) of the NGER Audit Determination sets out what Part A must contain. Detailed findings and conclusions are to be included in Part B.

In preparing Part A, the audit team leader must include details of any standards, in addition to the NGER Audit Determination, used in undertaking the audit. Please refer to section 1.6 of this handbook for more information on relevant standards.

Audit team leader’s conclusion

Paragraph 3.22(2)(b)(ix) of the NGER Audit Determination requires that the assurance engagement provides the audit team leader’s conclusion for the assurance engagement and the reasons for the conclusion. The type of the assurance engagement conclusion will depend on the level of assurance provided. For a reasonable assurance engagement, the conclusion will need to be provided in a positive form and for a limited assurance engagement the conclusion is provided in a negative form.

Conclusions permitted by the NGER Audit Determination include:

reasonable assurance conclusion
qualified reasonable assurance conclusion
limited assurance conclusion
qualified limited assurance conclusion
adverse conclusion, and
a conclusion that the audit team leader is unable to reach a conclusion as to whether or not to give limited or reasonable assurance.

Example: Assurance conclusions

The following examples are taken from sections 3.17 and 3.18 of the NGER Audit Determination.

Reasonable assurance conclusion

‘In my opinion, the audited body has prepared the matter to be audited, in all material respects, in compliance with the requirements of the NGER legislation’, or
‘In my opinion, the audited body has reported its greenhouse gas emissions, energy production and energy consumption, in all material respects, in compliance with the NGER legislation’.

Reasonable assurance qualified conclusion

‘In my opinion, except for ‘X’, the audited body has prepared the matter to be audited, in all material respects, in compliance with the NGER legislation’, or
‘In my opinion, except for ‘X’, the audited body has reported its greenhouse gas emissions, energy production and energy consumption, in all material respects, in compliance with the NGER legislation’.

In the above examples, ‘X’ represents any misstatement that is material but not pervasive enough to affect matters as a whole.

Limited assurance conclusion

‘Based on the work described in this report, nothing has come to my attention that causes me to believe that the audited body has not prepared the matter to be audited, in all material respects, in compliance with the NGER legislation’, or
‘Based on the work described in this report, nothing has come to my attention that causes me to believe that the audited body’s greenhouse gas emissions, energy production and energy consumption were not reported, in all material respects, in compliance with the NGER legislation’.

Limited assurance qualified conclusion

‘Based on the work described in this report, with the exception of ‘X’, nothing has come to my attention that causes me to believe that the audited body has not prepared the matter to be audited, in all material respects, in compliance with the NGER legislation’, or
‘Based on the work described in this report, with the exception of ‘X’, nothing has come to my attention that causes me to believe that the audited body’s greenhouse gas emissions, energy production and energy consumption were not reported, in all material respects, in compliance with the NGER legislation’.

Note: In the above examples, ‘X’ represents any misstatement that is material but not pervasive enough to affect matters as a whole.

Conclusion that the auditor is unable to reach a conclusion about the matter being audited (for both reasonable and limited assurance engagements)

'Because of the significance of the circumstances described in the preceding paragraph, we are unable to obtain sufficient appropriate evidence to provide a basis for a reasonable/limited assurance conclusion. Accordingly, I do not express a reasonable/limited assurance conclusion as to whether the greenhouse gas emissions, energy production and energy consumption are prepared in accordance with the NGER legislation.'

Adverse conclusion (for both reasonable and limited assurance engagements)

'In our opinion, because of the effects of the matter discussed in the preceding paragraph, the reported greenhouse gas emissions, energy production and energy consumption is not presented in accordance with the NGER legislation.’

Basis for [qualified/adverse/disclaimer] conclusion

All modified conclusions, whether qualified, adverse of an inability to form a conclusion (disclaimer), are preceded by an explanation of the basis for the modification.

If any of the following circumstances exist and the auditor considers the effect of the matter may be material, the auditor should consider issuing a different assurance conclusion⁹:

There are circumstances that prevent the auditor from obtaining sufficient appropriate evidence required to reduce the assurance risk to an acceptably low level for an unqualified conclusion.
Restrictions are placed on the auditor by other members of the three party relationship that prevent the auditor from obtaining sufficient appropriate evidence required to reduce the assurance risk to an acceptably low level.
The assurance conclusion is worded in terms of the audited body’s assertion and that assertion is not fairly stated.
The assurance conclusion is worded in terms of the criteria and subject matter and the subject matter is materially misstated or is likely to mislead the intended users.

Sections 3.17 to 3.19 of the NGER Audit Determination stipulate the requirements relating to the provision of reasonable and limited assurance conclusions.

A qualified conclusion should be issued when the effect of a matter is not so material or pervasive as to require an adverse conclusion or an inability to reach a conclusion, but either misstatements are present or there is a lack of evidence which prevent the audit team leader from issuing a reasonable assurance conclusion or a limited assurance conclusion.

A conclusion that the auditor is unable to form an opinion about the matter being audited shall be issued when the effect of a limitation on scope or significant circumstance is so material and pervasive that the auditor has not been able to obtain sufficient appropriate assurance evidence, and therefore is unable to express a conclusion on the reported information.

An adverse conclusion should be issued when the effect of a misstatement is so material and pervasive to the matter to be audited that a qualification of the assurance conclusion is not sufficient to disclose the misleading or incomplete nature of the information¹⁰.

The assurance engagement report must be signed and dated on the day the assurance engagement is completed and the conclusion is reached. The audit team leader will obtain a management representation letter and a peer review report signed and dated on the same day, prior to signing the assurance engagement report.

Templates for assurance engagement reports for audits under each scheme are included at the end of this handbook.

Example: Drafting the assurance engagement report

The auditor has finished their reasonable assurance engagement of Company D’s 2009–10 greenhouse and energy information. Company D, a logistics company operating a number of truck and van delivery businesses, has:

addressed the recommendations raised by the auditor over its final greenhouse gas manual
corrected the errors noted in the summary of uncorrected findings in the final reported greenhouse and energy information, and
provided written management representations on the specific matters requested by the auditor.

However, during testing it was noted that for two of Company D’s five operating divisions, a significant amount of estimated fuel consumption, Company D’s largest emissions source, had not been included due to missing fuel activity data (invoices from the fuel supplier). The reported greenhouse gas emissions and energy consumption for the two divisions are material.

The missing source data was discussed between the auditor and management at the time of performing the testing. In the intervening time prior to the audit team leader sign off deadline imposed by the Clean Energy Regulator, management has not been able to obtain the missing data from the fuel suppliers or provide other alternative evidence. In this case the auditor should express a conclusion that they are unable to form an opinion as to whether or not to give limited or reasonable assurance due to the materiality of the missing data.

5.7.3 Part B

Part B of the audit report provides evidence to support the audit conclusion. It is an important tool to assist the audited body and the Clean Energy Regulator in understanding and taking action on the audit findings. The findings, conclusions and recommendations inform the audited body and the Clean Energy Regulator of any compliance issues; they can also inform regulatory decisions and they provide broader advice to the regulated community.

In Part B, auditors should provide their findings and procedures in a concise but thorough way. Reporting should not be by exception—all conclusions and findings should be included, even if the auditor found no issues in the risk area investigated.

At the end of this handbook, you will find audit report templates for audits required under the different schemes. Whilst it is not mandatory that you use the templates, we recommend you do so. This will ensure that you are not asked to resubmit the audit report because of failure to provide all the required information.

As required under section 3.23 of the NGER Audit Determination, audit team leaders must outline the points below.

Issues requiring particular attention

In this section, auditors should provide details of the items or issues related to the matter audited that required particular attention during the assurance engagement. This may include a summary of key risks identified prior to or during the audit engagement.

Aspects impacting on assurance engagement

In this section, auditors should provide aspects of the matter audited that particularly impacted on the carrying out of the assurance engagement. This may include issues such as the weather, key resources, access to facilities, documentation, data and personnel, and maintenance schedules.

Contraventions of the legislation

In this section, auditors should provide details of matters that the audit team leader believes may lead to a contravention of the legislation. These matters are all those found during the assurance engagement that relate to the matter being audited. This section should also cross-reference to the audit findings and conclusions table.

For example, when an auditor identifies a misstatement, the audit report should articulate the contraventions and provide supporting evidence, even if the misstatement is rectified.

It is important that the auditor include all contraventions of the legislation, whether they are material or non-material. This is because the Clean Energy Regulator may still wish to engage in a compliance discussion on non-material contraventions of legislation and collect information on broader compliance issues.

Auditors should also include a statement about the audit team leader’s judgement on materiality of these issues, both individually and in aggregate.

Matters corrected during the course of the audit

During the course of the audit, auditors should bring matters of potential non-compliance to the attention of the audited body. Even if these matters did not have an impact on the audit conclusion because the audited body addressed these areas before the signing of the audit report, the matters should be included in this table.

For example, where a re-calculation is performed during the course of the audit, the auditor should provide evidence of this. The evidence could include input variables that were put into the calculation, screenshots of the re-calculation, or evidence of the tests that were used to ensure the correct variable was applied.

Other matters

In this section, auditors should include details of any other matter, related to the matter audited, that the audit team leader believes should be mentioned in the assurance engagement report.

Audit findings and conclusions table

In this table, auditors should provide evidence to support the audit conclusion. The table should not be construed as providing an opinion on the matter being audited as a whole; instead, it should be read in the context of providing evidence to support the conclusion.

Auditors should list all risk areas investigated in the column on the left side of the table and acquit against those that were not an issue; not just the areas that the audit team leader believes to be an issue. This allows full disclosure of how the audited body is performing in the risk areas, and demonstrates the scope and depth of the audit.

Testing conducted

In this section of the table, auditors should provide a description of the audit procedures carried out to audit the associated risk area. This could include specifics about facilities and retesting.

Findings

In this section of the table, auditors should provide a description of the audit findings. This could include detailed descriptions of the process or figures audited, or whether the auditor identified any material misstatements. The auditor should list the qualitative findings, including sources of evidence and details of the documents obtained.

Conclusion

In this section of the table, auditors should provide a detailed conclusion against the associated risk area based on the findings. If the auditor identifies an issue with a risk area, this section should outline the size of the issue and any recommendations that they provided to the audited body.

Examples of Part B

The table below provides a good example of Part B audit findings and conclusion tables. This example was chosen because it provides thorough summary of the risk area investigated and the testing conducted, and it includes the auditor’s recommendations.

Good example

The example below provides a thorough summary of the area investigated and the testing conducted. The auditor provided a detailed outline of findings and conclusion, in addition to a set of recommendations provided to the audited body.

Issue/ Risk area investigated	Testing conducted	Findings	Conclusion	Recommendation
Compliance with general requirements for coal sampling under method 2 For the application of method 2, the NGER legislation requires that coal be sampled in accordance with the requirements of the NGER Measurement Determination. The general requirements for coal sampling are noted in subdivision 2.3.3.2 (section 2.23) of the NGER Measurement Determination	Interviewed key Company A personnel to understand how the coal samples are collected and prepared for analysis to ensure the samples are representative, and the approach satisfies each of the requirements under Division 2.23 of the NGER Measurement Determination, including: the frequency of sampling performed the integrity of the equipment used for coal sampling and, where applicable, compliance with relevant standards (e.g. AS4264.1: Coal and Coke – Sampling), and the time period covered by the samples used in reporting for the NGER reporting period from dd/mm/yyyy to dd/mm/yyyy. Reviewed the most recent testing, including for bias performed over the entire coal sampling system, including: outcomes of the bias testing and any actions undertaken by Company A as a result of the findings or issues identified from the bias testing, and credentials and relevant qualifications of third party performing the bias testing.	No material issues were identified, however we did identify a technical non-compliance as follows: At present, the coal sampling occurs at the mine site, prior to the coal being conveyed to the power station. The majority of this coal is sent directly for combustion; however, a small proportion is stockpiled. In addition, a small amount of coal is reclaimed from the stockpile for combustion, which is not re-sampled to confirm its properties. With the exception of moisture, we understand that coal properties are not susceptible to significant change over time whilst located on a stockpile. Based on our understanding of coal chemistry and the fact that the amount of coal reclaimed from the stockpile was not significant in the period dd/mm/yyyy to dd/mm/yyyy compared to the total amount combusted, we are satisfied that the emissions from coal combustion would not be materially misstated for the NGER period.	Risk area has been appropriately addressed as part of our NGER reasonable assurance engagement	We recommend Company A undertake monthly coal sampling at the point of combustion, to ensure any coal which is reclaimed from the stockpile is also included in the overall analysis results and not just the coal which is conveyed from the mine. This will also provide additional support to demonstrate that the coal properties are not materially different from that which has been sampled by Company B at the mine prior to being delivered to the overland conveyor.

Issue/ Risk area investigated

Testing conducted

Findings

Conclusion

Recommendation

Compliance with general requirements for coal sampling under method 2

For the application of method 2, the NGER legislation requires that coal be sampled in accordance with the requirements of the NGER Measurement Determination. The general requirements for coal sampling are noted in subdivision 2.3.3.2 (section 2.23) of the NGER Measurement Determination

Interviewed key Company A personnel to understand how the coal samples are collected and prepared for analysis to ensure the samples are representative, and the approach satisfies each of the requirements under Division 2.23 of the NGER Measurement Determination, including:

the frequency of sampling performed
the integrity of the equipment used for coal sampling and, where applicable, compliance with relevant standards (e.g. AS4264.1: Coal and Coke – Sampling), and
the time period covered by the samples used in reporting for the NGER reporting period from dd/mm/yyyy to dd/mm/yyyy.

Reviewed the most recent testing, including for bias performed over the entire coal sampling system, including:

outcomes of the bias testing and any actions undertaken by Company A as a result of the findings or issues identified from the bias testing, and
credentials and relevant qualifications of third party performing the bias testing.

No material issues were identified, however we did identify a technical non-compliance as follows:

At present, the coal sampling occurs at the mine site, prior to the coal being conveyed to the power station. The majority of this coal is sent directly for combustion; however, a small proportion is stockpiled. In addition, a small amount of coal is reclaimed from the stockpile for combustion, which is not re-sampled to confirm its properties.

With the exception of moisture, we understand that coal properties are not susceptible to significant change over time whilst located on a stockpile.

Based on our understanding of coal chemistry and the fact that the amount of coal reclaimed from the stockpile was not significant in the period dd/mm/yyyy to dd/mm/yyyy compared to the total amount combusted, we are satisfied that the emissions from coal combustion would not be materially misstated for the NGER period.

Risk area has been appropriately addressed as part of our NGER reasonable assurance engagement

We recommend Company A undertake monthly coal sampling at the point of combustion, to ensure any coal which is reclaimed from the stockpile is also included in the overall analysis results and not just the coal which is conveyed from the mine.

This will also provide additional support to demonstrate that the coal properties are not materially different from that which has been sampled by Company B at the mine prior to being delivered to the overland conveyor.

The two tables below are examples of the Part B component of the assurance engagement report that need improvement.

Poor example 1

The below example did not provide sufficient information as to why the issues/risks were included as part of the audit, and the auditor did not include sufficient information around the testing conducted against the risk, and the outcome of that testing.

Issue/ Risk area investigated	Testing Conducted	Findings	Conclusion
Project eligibility	Reviewed section 27 declaration	Nil	No further action required
CEA areas are valid	Reviewed satellite imagery	Nil	No further action required
Modelling inputs are accurate	Reviewed project inputs and spreadsheets	Nil	No further action required

Poor example 2

The below example provided limited information on the risk areas investigated and no information regarding testing conducted. The findings and conclusions provide little value to the Clean Energy Regulator and assessment staff. The example also does not include any recommendations.

Issue/ Risk area investigated	Findings	Conclusion
Operational control completeness	Facility was under operational control of Company A. No other issues identified.	No issues identified
Suitability of the criteria against the requirements	Criteria used was suitable	No issues identified
Emissions apportionment between production variables	Emissions apportioned correctly. Immaterial discrepancy in natural gas use for product A and product B.	No issues identified
Reported measurement data	Emissions and production materially correct.	No issues identified
Assumptions and methodologies of calculations for production and emission intensity	Assumptions are reasonable and can be supported with contracts.	No issues identified

Footnotes

⁹ These circumstances are derived from ASAE 3000 Assurance engagements other than audits or review of historical financial information, issued by the AUASB, available on the Auditing and Assurance Standards Board website.

¹⁰ ASA 701 Modifications to the auditor’s report (April 2006), issued by the AUASB, available on the Auditing and Assurance Standards Board website.