The Expanding Role of the Auditor in Sustainability Reporting

This article discusses the expanding role of auditors in sustainability reporting, including the use of sustainability reports by organizations and the guidelines for reporting. It also provides examples of organizations in Australia that have adopted sustainability reporting and the audit firms that have provided assurance services on these reports.

Running head: AUDITING AND ASSURANCE
Auditing and Assurance
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

1AUDITING AND ASSURANCE
Table of Contents
Question 1: The expanding role of the auditor...........................................................................2
Requirement 3:.......................................................................................................................2
Requirement 4:.......................................................................................................................2
Question 2: Auditor independence.............................................................................................3
1. Potential independence threats:..........................................................................................3
2. Ways of eliminating threats:..............................................................................................4
3. Recommendation:..............................................................................................................5
References:.................................................................................................................................6

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Question 1: The expanding role of the auditor
Requirement 3:
Sustainability reports are those reports that business organisations publish to provide
information about their economic, social and environmental effects caused by daily business
activities (Globalreporting.org, 2019). The use of these reports has increased for both public
and private organisations in the past few years. One crucial concept in sustainability reporting
is stakeholders that include anyone currently in business relationship with the organisation or
using its products. Although organisations restrict their reporting to suppliers, investors,
staffs, customers, governments and neighbours having stakes, issues like greenhouse gas
emissions have impact beyond those parties. Another issue is materiality, in which many
sustainability reports explain the process of determination of material aspects generally not in
a quantitative manner.
In Australia, the Global Reporting Initiative (GRI) guidelines have been commonly
used for sustainability reporting. These guidelines are comprehensive with 150 various
disclosures needed for full adherence (Simnett & Huggins, 2015). Some organisations list all
such disclosures along with stating the reason behind omitting any such disclosure. In
addition, there have been a number of sustainability reports that consist of independent
assurance reports. Such reports generally provide adverse assurance on all or parts of the
sustainability reports. Some reports are extremely specific, while others are general in nature
(Amran, Lee & Devi, 2014).
Requirement 4:
Different listed organisations in Australia have adopted sustainability reporting and
there are a number of audit firms that provided assurance services on those reports. Two such
organisations are described briefly as follows:
Rio Tinto:
The audit firm responsible to provide sustainability reporting and assurance report to
Rio Tinto is PwC. For providing the assurance report, PwC has focused on certain risk areas
like greenhouse gas emissions, water management, energy use, safety and others. PwC has
clearly mentioned that it did not find any evidence based on which it could be stated that the
sustainability reporting of Rio Tinto has not been prepared in accordance with the GRI

3AUDITING AND ASSURANCE
guidelines (Riotinto.com, 2019). PwC has applied the ICAEW code of ethics that constitute
of independence and other requirements based on objectivity, integrity, confidentiality,
professional behaviour and professional competence and due care.
Woolworths Group Limited:
Deloitte has provided sustainability assurance report to Woolworths Group Limited
on the application of GRI information and other criteria included in the sustainability report.
The auditor has confirmed that Woolworths has made full compliance with the GRI
disclosures in all material respects by considering risk areas like emissions, energy,
occupational health and safety and others (Woolworthsgroup.com.au, 2019).
Question 2: Auditor independence
Internal Memo
To: The Senior Audit Partner
From: The Audit Manager
Date: 30/03/2019
Subject: Analysis of auditor independence
This memo would provide a detailed overview of the issues related to auditor
independence in different situations.
1. Potential independence threats:
Baxtar Aviation Limited (BAL):
It has been clearly mentioned in “Section 290.156 of APES 110” that before
providing any non-assurance service to an audit client, the auditor needs to ascertain whether
such service would result in independence threat (Apesb.org.au, 2019). Since the biggest
client of Chase and Fearnley is BAL, the possible threats could be self-interest, advocacy and
self-review. The auditor might manipulate the books of accounts of BAL in lieu of lump sum
payment, which would lead to compromise in audit objectivity.
Max Maxim Global Limited (MMG):

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It is evident from the provided information that close relationship between MMG and
Emily Matthews could be observed due to the appointment of the latter in facilitating e-
commerce program of the former. This might result in threat to independence or familiarity,
as Emily might be sympathetic towards the interest of her client.
Granger Freight Services Private Limited (GFR):
In this case, the audit firm owes audit fees of $462,000 from GFR for 2017 and 2018
and 2019 audit is expected to take place in the upcoming two weeks. This outstanding audit
fee could result in self-interest threat owing to unpaid leave for longer timeframe and it could
affect the audit behaviour or judgement.
Wilcox System Solutions (WSS):
Since David and John are old friends, David has been made as the negotiator in the
mediation process and the latter is the audit manager of the audit firm. This could create
familiarity and advocacy threat, since the business of James is promoted by John and there is
close association between the auditor and the audit client.
2. Ways of eliminating threats:
In order to eliminate the above-identified threats for each situation, the following
techniques could be used:
Baxter Aviation Limited (BAL):
In this case, Chase and Fearnley needs to abstain from providing non-assurance
services to the organisation. Besides, a member has to be included in the engagement team so
that the assurance work could be reviewed by the individual, who is not a part of the team
(Tepalagul & Lin, 2015).
Max Maxim Global Limited (MMG):
By taking into consideration the identified aspects, the main safeguard to eliminate
this threat is to cancel the yearly audit of the organisation to Emily Matthews owing to her
familiarity with the audit client.
Granger Freight Services Private Limited (GFR):

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For dealing with this situation, the audit form needs to include a new member in the
engagement team having no connection with the existing team. This would assist in
minimising the threat to a reasonable level.
Wilcox System Solutions (WSS):
In this case, David must not act as the mediator of James and he needs to be removed
from the audit process owing to the old friendship with the CEO of the organisation (Arya &
Glover, 2014).
3. Recommendation:
Baxter Aviation Limited (BAL):
The audit could be accepted, as it is possible to eradicate the threat to independence.
Max Maxim Global Limited (MMG):
Under this situation, the audit should not be accepted owing to severity in audit
independence threat. If the audit wants to be accepted, the audit members should be different
for performing the necessary work.
Granger Freight Services Private Limited (GFR):
Firstly, it is necessary to ascertain whether the outstanding amount could be adjudged
in the form of loan to GFR. However, it is possible to accept the audit owing to the fact that
the threat could be minimised reasonably.
Wilcox System Solutions (WSS):
In this case, the audit program could be accepted, as it is possible to eliminate or
minimise the threat to independence to a desired level.

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References:
Amran, A., Lee, S. P., & Devi, S. S. (2014). The influence of governance structure and
strategic corporate social responsibility toward sustainability reporting
quality. Business Strategy and the Environment, 23(4), 217-235.
Apesb.org.au. (2019). APES 110 Code of Ethics for Professional Accountants. Retrieved 30
March 2019, from
https://www.apesb.org.au/uploads/standards/apesb_standards/standard1.pdf
Arya, A., & Glover, J. (2014). Auditor independence revisited. Journal of accounting,
auditing & finance, 29(2), 188-198.
Globalreporting.org. (2019). Sustainability Reporting. Retrieved 30 March 2019, from
https://www.globalreporting.org/information/sustainability-reporting/Pages/
default.aspx
Riotinto.com. (2019). Retrieved 30 March 2019, from
http://www.riotinto.com/documents/RT_2018_annual_report.pdf
Simnett, R., & Huggins, A. L. (2015). Integrated reporting and assurance: where can research
add value?. Sustainability Accounting, Management and Policy Journal, 6(1), 29-53.
Tepalagul, N., & Lin, L. (2015). Auditor independence and audit quality: A literature
review. Journal of Accounting, Auditing & Finance, 30(1), 101-121.
Woolworthsgroup.com.au. (2019). Retrieved 30 March 2019, from
https://www.woolworthsgroup.com.au/icms_docs/195398_2018-sustainability-
report.pdf