1. Edwin Aalders 24 March 2012 Materiality Applying Materiality in the Flexible Mechanism

2. © Det Norske Veritas AS. All rights reserved. Materiality 24 March 2012 Compliance under the Flexible Mechanism 2

3. © Det Norske Veritas AS. All rights reserved. Materiality 24 March 2012 Materiality  Materiality is not an take a way the need to be in compliance with CDM & JI requirements!  Materiality is not about not verifying what is required! - Materiality is used to determine closing out of non-compliances - Materiality does not stop auditors from checking all requirements it is about defining risks - Current focus is on applying Materiality in relation to non-compliances & changes 3

4. © Det Norske Veritas AS. All rights reserved. Materiality 24 March 2012 An Example During the audit in week 1 of 2011 it is found that during the week 23 of 2010 no records are available on the number of trucks and no records exist of the actual weight of the individual trucks, even though the plant was operational; 4 - The audit team raises a CAR for not complying with the requirement of the methodology which requires all trucks to be measured entering the compound; Methodology requires that Project Proponent measures all incoming truck loads of biomass.

5. © Det Norske Veritas AS. All rights reserved. Materiality 24 March 2012 An Example - In order for the audit team to accept this proposal the audit team has to determine that: - Distribution within the data set and its average ; - Determine the upper and lower limit at interval 95% - Determine by using the average daily number of trucks and their weights the potential over estimation is above or below the materiality level set for that particular project. 5 In order to close out the CAR the Project Proponent looks at ways to obtain the actual weights of the incoming trucks during week 23. As they can not physically measure the trucks any more and as such the Project Proponents proposes to estimate the actual number of daily trucks and their weight that entered the plant during week 23 by using the daily records of the other 51 weeks in which the plant was operating; - Above. - Below.

6. © Det Norske Veritas AS. All rights reserved. Materiality 24 March 2012 Materiality & RfR  Materiality will not only be used by DOEs also by the UNFCCC Secretariat  Errors found in the DOE & PP documentation which could lead to an RfR should also apply a materiality test using the same principles as outlined in the example  Not all RfR however will be have a materiality issues 6

7. © Det Norske Veritas AS. All rights reserved. Materiality 24 March 2012 Safeguarding life, property and the environment www.dnv.com 7