External presentation The views and opinions expressed by guest speakers do not necessarily reflect the views or position of the Clean Energy Regulator. Kim Farrant, Ernst & Young

Annual Scheme Audit and Assurance Workshop EY’s Sustainability Assurance Methodology and the NGER Audit Determination Kim Farrant 31 March 2015

Page 3 Overview ► What is the Sustainability Assurance Methodology? ► Audit team selection and make up ► Sufficiency and appropriateness of audit evidence ► Documentation, retention and archiving processes ► Quality control and review processes Copyright © 2015 Ernst & Young Australia. All Rights Reserved. Liability limited by a scheme approved under Professional Standards Legislation

Page 4 What is EY SAM? ► The Ernst & Young Global Sustainability Assurance Methodology (EY SAM) provides a global framework for the application of a consistent thought process to all assurance engagements on sustainability information. ► EY SAM is based on the International Standard on Assurance Engagements 3000 Assurance engagements other than audits or reviews of historical financial information (ISAE 3000) and is supplemented to comply with the local assurance standards and regulatory or statutory requirements eg. NGER (Audit) Determination ► EY SAM reflects the typical flow of the execution of an assurance engagement in three broad phases: ► Planning and risk assessment ► Execution ► Conclusion and reporting These align with the following phases from the NGER (Audit) Determination ► Planning ► Performing ► Reporting Copyright © 2015 Ernst & Young Australia. All Rights Reserved. Liability limited by a scheme approved under Professional Standards Legislation

Page 5 Audit team selection and make up What the NGER (Audit) Determination says…. ► Responsibility for selection of team rests with the audit team leader ► Teams combined must have: ► Knowledge to carry out audit ► Skills to carry out audit ► Availability to carry out audit ► Supporting resources including equipment and access to key personnel ► Teams are typically multidisciplinary and may include assurance practitioners, engineers, environmental scientists and financial, legal or corporate experts ► It may be necessary to bring in an external expert Copyright © 2015 Ernst & Young Australia. All Rights Reserved. Liability limited by a scheme approved under Professional Standards Legislation

Page 6 Audit team selection and make up What we do…. ► Upfront when we meet with a client we have an idea of who will be the lead auditor and engagement manager, but at this stage the broader audit team is yet to be determined ► Only after developing an understanding of the auditee through risk assessment procedures, analytical procedures, assessment of systems, processes and controls, are we able to design procedures according to the risks identified and select a team ► While EY has a team of 100 climate change and sustainability professionals including assurance practitioners, engineers and environmental scientists, we also draw on the wider resources of the firm eg. IT for controls testing ► A specialised resourcing team ensures individuals aren’t over or under-committed ► Where the assurance engagement includes aspects requiring specialized knowledge of another profession (for example, a geologist), we consider the involvement of professionals with this knowledge Copyright © 2015 Ernst & Young Australia. All Rights Reserved. Liability limited by a scheme approved under Professional Standards Legislation

Page 7 Sufficient and appropriate evidence What the NGER (Audit) Determination says…. ► Collect sufficient and appropriate evidence to support the conclusion made ► Additional guidance regarding sufficiency and appropriateness of evidence is provided by ASAE 3000 and Guidance Statement GS 021 Engagements under the National Greenhouse and Energy Reporting Scheme, Carbon Pricing Mechanism and Related Schemes, issued by the Auditing and Assurance Standards Board (AUASB). ► The auditor should consider the cost / benefit of the time taken to gather information against its usefulness to support the assurance conclusion ► however, the issue of difficulty is not in itself a valid basis for omitting or not performing evidence gathering procedures for which there is no alternative, and ► the audit team leader uses professional judgement and exercises professional scepticism in evaluating the quantity and quality of evidence, and thus its sufficiency and appropriateness, to support the assurance engagement report. ► Guidance is provided in the handbook on substantive analytical procedures and tests of details. Copyright © 2015 Ernst & Young Australia. All Rights Reserved. Liability limited by a scheme approved under Professional Standards Legislation

Page 8 Sufficient and appropriate evidence ► Assurance evidence comprises information that supports and corroborates managements assertions and any information that contradicts such assertions ► The absence of information also constitutes assurance evidence ► Sufficiency and appropriateness of assurance evidence are interrelated ► The greater the risk of misstatement, the greater the quantity of evidence required ► Appropriateness of assurance evidence is its relevance and reliability in providing support for the conclusion. Reliability is influenced by its source and nature, and is dependent on the circumstances under which the evidence is obtained. ► Determining whether we have obtained sufficient appropriate assurance evidence is a matter of professional judgment. Copyright © 2015 Ernst & Young Australia. All Rights Reserved. Liability limited by a scheme approved under Professional Standards Legislation

Page 9 ► The glass of audit evidence Sufficient and appropriate evidence Inherent risk Control risk Detection risk Assess combined risk Design detection risk ► Filling the glass with sufficient appropriate audit evidence ► The extent of assurance procedures is unrelated to the engagement fee ► If an issue is identified, it is a requirement that the team see the investigation of that issue through to its conclusion Copyright © 2015 Ernst & Young Australia. All Rights Reserved. Liability limited by a scheme approved under Professional Standards Legislation

Page 10 Documentation, retention and archiving What the NGER (Audit) Determination says…. ► Assurance documentation is a key component of undertaking an assurance engagement. ► It enables effective review and evaluation of the assurance evidence obtained ► Provides a sufficient appropriate record of the basis for the audit report ► Provides evidence the assurance engagement was performed in accordance with the NGER Audit Determination ► Relevant assurance engagement documentation must be kept for five years after the date the assurance engagement report is signed. Copyright © 2015 Ernst & Young Australia. All Rights Reserved. Liability limited by a scheme approved under Professional Standards Legislation

Page 11 Documentation, retention and archiving What we do…. ► Standardised document templates for key stages in the engagement ► SharePoint based in-house system used to maintain all assurance documentation ► Provide a comprehensive summary of the nature, timing and extent of procedures ► Records results of the assurance procedures and assurance evidence obtained ► Shows a history of timely review and approval by relevant team members ► Archived to ensure retention requirements are met Copyright © 2015 Ernst & Young Australia. All Rights Reserved. Liability limited by a scheme approved under Professional Standards Legislation

Page 12 Governance and review oversight What the NGER (Audit) Determination says…. ► A robust system of quality control should be in place for all auditors. ► Peer review is an important quality control process for assurance and verification engagements undertaken under the National Greenhouse and Energy Reporting audit framework. The NGER Audit Determination requires that the judgements made by the audit team leader in preparing and carrying out the assurance engagement are peer reviewed by an impartial, objective and sufficiently qualified person Copyright © 2015 Ernst & Young Australia. All Rights Reserved. Liability limited by a scheme approved under Professional Standards Legislation

Page 13 Governance and review oversight What we do….. ► Maintain a registered of those authorised to sign assurance reports ► Each key document and work paper is reviewed by another member of the audit team ► Warm review – a review is conducted internally to ensure all quality processes have been adhered to and to ensure consistency between engagements ► Peer Review – a peer review is conducted in accordance with the requirements of the NGER (Audit) Determination ► Independent Partner Review – an independent partner review is conducted in relation to key assurance documentation Copyright © 2015 Ernst & Young Australia. All Rights Reserved. Liability limited by a scheme approved under Professional Standards Legislation

Copyright © 2015 Ernst & Young Australia. All Rights Reserved. This communication provides general information which is current as at the time of production. The information contained in this communication does not constitute advice and should not be relied on as such. Professional advice should be sought prior to any action being taken in reliance on any of the information. Ernst & Young disclaims all responsibility and liability (including, without limitation, for any direct or indirect or consequential costs, loss or damage or loss of profits) arising from anything done or omitted to be done by any party in reliance, whether wholly or partially, on any of the information. Any party that relies on the information does so at its own risk. Liability limited by a scheme approved under Professional Standards Legislation. Contacts Kim Farrant EY Climate Change and Sustainability Services, Melbourne Tel: