This is an informal summary of the discussion at the European Roundtable. It does not include all points raised, and because a point has been raised and noted here does not indicate that it necessarily represents a consensus view of those present. Nothing in this summary is intended to indicate a considered view of the IAASB, IFAC, FEE, governments or other organizations present at the roundtable.
The structure of these notes follows the IAASB Issues Paper at http://www.ifac.org/IAASB/Meeting-BGPapers.php?MID=0144&ViewCat=1017 , which to focus discussion.
Net v Gross

Net includes offsets, and some would prefer to disclaim all offsets

In UE ETS (and planned Japanese ETS), only allowed to use regulated offsets, which are safer than voluntary offsets

If offsets scoped in, must ensure they are separately identified in the inventory, and the ambit of the auditor’s work on them is clear.
 Still a danger that users will just read firm’s name without reading report and think everything is covered

On the other hand, there is a danger that if profession says it can’t assure offsets, they will not be reported; but this not in public interest because gross information is useful.
 Maybe ISA 720 (other information) should be the extent of the assurer’s involvement with offsets.

May need a SAS 70 (ISAE 3402)-type or ISA 600-type relationship
 This project should not attempt to deal with assurance on the seller’s side of offsets as it would extend the project considerably

Conclusion: any notion of carbon neutrality is meaningless unless have offsets; so they must be included in inventories. They should be clearly disclosed. No conclusion on nature of assurer’s responsibility (see para A.15
– 3 rd
dot point)
Level 3

Auditor access to data can be a problem (e.g., how to calculate emissions for transport of raw materials if you don’t have access to transport company’s data?)

May need a SAS 70 (ISAE 3402)-type relationship
Prepared by: Michael Nugent (December 2008) Page 1 of 6

Emissions Assurance
Notes of EU Roundtable

For some entities, level 3 is where all their significant emissions are

Need more standardization for Scope 3 because of greater poetntail for misunderstanding
Cover NOx and SO2 too, i.e. “emissions” not just “GHG emissions”
Need for standard

Assurance rules for ETS schemes are usually at facility level. Need a company-level standard.

Some assurers (and not just small firms) are doing assurance by phone – credibility issue for profession

Some discussion indicated a need for a broader sustainability assurance ISAE too
Role of assurer

Some concern about, e.g., (a) whether purchasing offsets is beneficial overall
(like using proceeds from selling offsets to build polluting factories), and (b) whether assuring data will skew market towards this harder data when in fact it is the company’s strategy that is important.

Assurers should not become evangelists because it is not our role.
 We cannot assure outcomes (i.e., we are not saying that company’s actions are good or bad), just the information (like in a financial statements audit)

Assurance specialists must have sufficient involvement – can’t just leave it all to engineers/scientists on the team.
Should assurance be given on underlying systems too?
 Some countries like this, some don’t
Users, not standard-setter, should determine desired level

In France, only 5 of top 40 companies do reasonable assurance.

Only specialists understand the difference: o Market still confused about financial statements audit versus review o Need to educate market (e.g., EU ETS wording picked up from accounting profession, but other assurers, regulators, users, and emitters didn’t understand it) o Communication issue – need to make sure report is clearly worded.
Double negative in limited assurance report IS meaningful. If users don’t want double negative they will demand reasonable assurance o Danger that users will just read firm’s name without reading report and not understand limitations o If allow both levels, need to include details of procedures in the report

Should perhaps emphasize reasonable assurance, particularly for Scope 1 and
Scope 2
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Emissions Assurance
Notes of EU Roundtable

Cost can be a big impediment to reasonable assurance, especially for SMEs.
Better to allow limited assurance, which may be affordable, than outlaw it and end up with no assurance.
Need to stipulate minimum level of work for each level

Should keep strong link b/w financial statement work effort and emissions work effort

In Netherlands, changed from limited assurance to reasonable assurance – but no difference in behavior

Perhaps should have 2 separate standards to make sure it is clear that they are different things
Changes to ISAE 3000 may lead to less confusion over limited assurance versus reasonable assurance
If there is a material financial statement effect, then should require reasonable assurance
Sarbanes-Oxley shows that requiring an assertion focuses the mind and leads to improvement
No direct reporting engagements at the moment – no need to focus on them in ISAE
There appears to be some confusion about direct versus assertion-based, e.g., when management presents the GHG information as its own but does not make a separate, explicit, public assertion that the information is presented fairly
Oversight

Big issue – at the moment there are no meaningful sanctions

Disclosure of assurance fees may provide some indication of quality, but not necessarily straight-line correlation

One firm that was accredited under non-accounting system. After 4 hour chat, was told they are the benchmark: o What are others doing? o Do we know what users want (maybe we do too much)? o Low cost verifiers are winning business.
Non-accountants don’t understand some of the concepts embedded in EU ETS and
ISO standards that derive from accountants’ literature
Views included:

Users can work out difference between an accountant using a standard written for accountants, and someone else using it

If limit standard to accountants, then impose a restriction on its usefulness, and therefore on our ability to influence regulators
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Emissions Assurance
Notes of EU Roundtable

If used by a non-accountant, they should be required to say so in assurance report

Others could perhaps be allowed to use it for guidance (which they will anyhow), but not refer to in their assurance report

Cannot regulate non-accountants because they are non-accountants, so doesn’t matter what we say

Other experts well educated in their fields, but only accountants are well educated in assurance

IFAC should focus in its constituents only, i.e. professional accountants

Should recognize the need to acknowledge in the assurance report the experts within a multidisciplinary team– perhaps even have them sign off too (this is different from sign off by 2 firms – one accountants, and one experts)

We should recognize that others will use our standards – can’t live in goldfish bowl and ignore the ocean. What is important is that whoever applies them does so properly

We need to communicate why our standards when applied by a professional accountant give a better result than when applied by a non-accountant

Not all accountants know about sustainability and emissions, so need to require this

Can build in ethics, QC etc. Others (e.g. engineers, and certification bodies) may develop similar measures

Perhaps the standard should be silent on this issue.

Could say that if use the ISAE, then must use it in full

Analogy: why are accountants not allowed to do surgery if they say that they comply with surgeons’ standards?
Emissions Factors

In EU ETS, the emissions factors to use are in the Monitoring Plan – can’t just change willy nilly.

Important for emissions factors to be consistent over time so can spot trends in actual emissions.

If introduce company-specific factors, should not be allowed to slide backwards to general factors
EU uses tiers to indicate quality. This works; but need to know who users are and what they need information for before determining if tiers are useful
If uncertainty is too high – should not report at all
Similar to pension forecasts – very sensitive to minor variations in assumptions. Can we learn from our experience here?
Can go for less certain method on cost benefit grounds, but should be disclosed
Page 4 of 6

Emissions Assurance
Notes of EU Roundtable
Monitoring Plan in EU ETS is vitally important
Diversity b/w member states on detail and effectiveness of monitoring plans
Can audit to the criteria, but if different criteria for similar circs, then market illinformed
Examples of suitable criteria would be very helpful
Elements of criteria should be jurisdiction-neutral
Para F4 is useful – consider adding that all key judgments need to be explained (if assurer needs to 2 nd
guess every judgement, then could default to direct reporting engagements)
GHG Protocol often not suitable by itself – needs company’s reporting policy
(equivalent to Note 1 to the financial statements). May be suitable for voluntary reporting. DEFRA is doing work on this
If no true and fair override, then criteria may not be suitable. Assertions that underpin emissions inventory can be spelled out in ISAE, which would amount to a true and fair override
Assurer should be allowed to accept boundary, once agreed to in the scope of the engagement
–
View expressed that recommendations may be OK for limited assurance because a limited assurance conclusion is so “limp” it may need supplementation to add value
Cannot necessarily transpose financial statement audit model – may be that users have a legitimate desire/need for additional information
Recommendations, if allowed, will likely end up as boilerplate. Management should disclose all relevant info (including, e.g., weaknesses); it’s not up to the assurer to make good deficient disclosures
In some jurisdictions, assurer is required to report all observed non-compliance. It is a logical step to require them to report what should be done about them. But perhaps this should be in the report to the regulator and/or management only (but this offers potential to hide/go soft on a qualifications)
Already too many freestyle assurance reports on sustainability reports. We should require more standardization for GHGs
Negative assurance says “nothing came to attention,” but when put recommendations in, it sounds like something did - confusing
Page 5 of 6

Emissions Assurance
Notes of EU Roundtable
Materiality

Non-accountants don’t understand, e.g., one jurisdiction wanted zero materiality (thought that if 5%, then only need look at 95% of emissions)

Must take account of qualitative matters as well as quantitative (e.g., 1% of large emitter may be more than 100% of small emitter and so of interest, i.e. material)

Stakeholder engagement may be able to play a role in determining materiality

In ETS, government can set the materiality it wants. This is different for a voluntary scheme where users are broader. Need to think clearly about who are the intended users
Standard preferred by all bar one
Guidelines are too soft – can be walked around
Perhaps guidance first if can get that out quickly
Consider how to handle any inconsistency b/w standard and legislation/regulation

Liaision with regulators important, e.g., will change their regulations for an
ISAE because they were aware of it early enough
How does assurer deal with:

Cost v benefit, which is a principle for preparing the emissions inventory

Restatement of emissions quantities in subsequent years

Completeness

Assembly Bill 32 in USA

EA-6/03 (2nd revision) "EA Guidance For Recognition of Verifiers Under EU
ETS Directive"

IETA, verification guidance (2003)

EU ETS: Annex 5, and Section 3 of Annex 1

Dutch CDP report (especially re intersectoral differences)

DEFRA work on GHG Protocol
Page 6 of 6