Greenhouse gas statement and assurance engagements on greenhouse gas statements (part I)

 Greenhouse gases (GHGs) is carbon dioxide (CO2) and any other gases required by the applicable criteria to be included in the GHG statement, such as: methane; nitrous oxide; sulfur hexafluoride; hydrofluorocarbons; perfluorocarbons; and chlorofluorocarbons. Gases other than carbon dioxide are often expressed in terms of carbon dioxide equivalents (CO2 -e.)

GHG (Greenhouse gas) statement is a statement setting out constituent elements and quantifying an entity’s GHG emissions for a period. and, where applicable, comparative information and explanatory notes including a summary of significant quantification and reporting policies.

As there exist a link  between greenhouse gas (GHG) emissions and climate change, many entities are quantifying their GHG emissions for internal management purposes, and many are also preparing  a GHG statement:

(a) As part of a regulatory disclosure regime.

(b) As part of an emissions trading scheme; or

(c) To inform investors and others on a voluntary basis. Voluntary disclosures may be, for example, published as a stand-alone document; included as part of a broader sustainability report or in an entity’s annual report.

Example of extract from Greenhouse gas statement (report) is given below.

*Base year – A specific year or an average over multiple years against which an entity’s emissions are compared over time.
**Boundary selection - The boundary that determines which operations to include in the entity’s GHG statement.
*** Data collection methodology – the descriptions of methods and techniques used by the company to gather data on gas emissions.
****Scope 1 emissions- direct emissions which are emissions from sources that are owned or controlled by the entity.
*****Scope 2 emissions -  indirect emissions, which are emissions associated with energy that is transferred to and consumed by the entity.
******Scope 3 emissions, which are all other indirect emissions, for example: employee business travel; outsourced activities; consumption of fossil fuel or electricity required to use the entity’s products; extraction and production of materials purchased as inputs to the entity’s processes; and transportation of purchased fuels.

Assurance engagement on greenhouse gas statements is an engagement in which a practitioner aims to obtain either reasonable assurance or limited assurance that the GHG statement is free from material misstatement, whether due to fraud or error and express a conclusion designed to enhance the degree of confidence of the intended users other than the responsible party about GHG emissions.

Performing the assurance engagement on greenhouse gas statements

The practitioner should use a risk-based approach regardless of whether it is reasonable or limited assurance engagement on greenhouse gas statements.

Performing assurance engagements on greenhouse gas statements could involve the following steps:

1.      Understanding the entity and its environment, including the entity’s internal control.

2.      Identifying and assessing risks of material misstatement.

3.      Planning and determining materiality.

4.      Performing procedures to address the identified risks.

5.      Preparing reports in accordance with findings.

Understanding the entity and its environment to perform the assurance engagements on greenhouse gas statements

When performing the assurance engagements on greenhouse gas statements the auditor shall obtain an understanding of the following:

(a) Relevant industry, regulatory, and other external factors including the applicable criteria.

(b) The nature of the entity, including:

·        The nature of the operations included in the entity’s organizational boundary, including the sources and completeness of emissions and, if any, sinks and emissions deductions, the contribution of each to the entity’s overall emissions, the uncertainties associated with the quantities reported in the GHG statement.

·        Changes from the prior period in the nature or extent of operations.

·        The frequency and nature of interruptions to operations.

(c) The entity’s selection and application of quantification methods and reporting policies, including the reasons for changes thereto and the potential for double counting of emissions in the GHG statement.

(d) The requirements of the applicable criteria relevant to estimates, including related disclosures.

(e) The entity’s climate change objective and strategy, if any, and associated economic, regulatory, physical and reputational risk

(f) The oversight of, and responsibility for, emissions information within the entity.

(g) Whether the entity has an internal audit function and, if so, its activities and main findings with respect to emissions.