Auditing and Assurance Services for Woodside- myassignmenthelp

Question: Discuss about the Auditing and Assurance Services for Woodside and AGL. Answer: Case Scenario The present case discusses about the increasing need for business entities to audit their sustainability reports. It has been depicted in the case presented that large number of countries worldwide such as the US, the UK, the EU, Canada, Japan and New Zealand and Australia are undertaking the auditing of the greenhouse gas reporting (GHG). The development of GHG report is governed under the NGER (National Greenhouse and Energy Reporting Act) of the year 2007 and is regulated by the Clean Energy Regulator. However, there is no mandatory requirement on the Australian companies to audit their GHG reports but some of the entities are voluntarily undertaking the auditing of their GHG reports. The business entities in Australia are required to carry out auditing of their sustainability reports as per the NGER Act and legislations and Australian Auditing and Assurance Standards. Also, business entities in Australia are maintaining that sustainability reports prepared are assured as per the assurance standards. In this context, here is an analysis of the sustainability reports of two energy producing companies of Australia, Woodside Petroleum Limited and AGL Energy Limited. Both the companies are stated to carry out auditing of their sustainability reports as per the NGER Act. GHG Emission Disclosures Content in the Sustainability Reports of Woodside and AGL Woodside annual sustainability reports include a separate section depicting the impact of its energy producing business operations on the climate. The company has clearly stated the information related to its GHG emissions in this section so that end users can easily extract the required information. The current sustainable strategies used by the company for reducing the emission of greenhouse gases are discussed in this section of its sustainability report. The sub-section entitled Improving Our Emissions Performance under this section of the sustainability report has detailed out information relating to its business activities responsible for the emission of greenhouse gases. Also, it has provided the knowledge about the strategies adopted by the company to manage its emissions performance as per the needs and demands of its various stakeholders. It has also disclosed the amount of greenhouse gas emissions in its annual scope 1 and 2 and also by source in its sustainability report. As per the, voluntarily sustainable reporting of IPIECAs Oil and Gas Industry Guidance it has also provided general standard disclosures about its different material aspects in the sustainability report (Woodside Petroleum Ltd., 2016). On the other hand, the sustainability report of AGL is not categorized into different sustainability sections as compared to the Woodside. The structure and content of the report is not as synchronized as Woodside and there is not a logical flow of information. The GHG reporting is undertaken by the company in its sustainability reports in the section energy market revolution. It has made sufficient disclosures relating to its greenhouse gas policy adopted by the company for minimizing the emission of greenhouse gases. The emission of greenhouse gases are segregated as per scope 1, scope 2 and scope 3 (Agl Sustainability Report, 2016). Scope 1 provides the information about the amount of direct GHG emissions while scope 2 provides information about indirect GHG emissions and scope 3 depicts information about the indirect emissions from other operations such as extraction and production of purchase materials and fuels (Tritschler, 2013). There are no voluntarily disclosures undertaken by the company as analyzed from its sustainability report (Agl Sustainability Report, 2016). Both the companies shave effectively followed the legislative requirements of NGER while reporting their GHG emissions as they have provided information about annual scope 1 and scope 2 emissions that is mandatory as per the NGER Act for Australian companies (Zahar, Peel Godden, 2012). Explanation of NGER audit requirements The National Greenhouse and Energy Reporting Regulations (NGER) are responsible for carrying out auditing of the sustainability reports in Australia. However, there are certain eligibility requirements specified by NGER which an auditor must meet for carrying out audit of the sustainability reports. The requirements include that they must comply with the code of conduct, perform their duties independently and maintain assurance. Also, they should be actively involved in the overall process of audit and report their findings to NGER annually and also participate in any of its review or inspection activity. The auditor needs to posses adequate knowledge skills and competency in order to carry out the audit successful. Also, the auditor is responsible for supervising the work of all the team members and document the overall process used in carrying out audit which is subsequently submitted to NGER. It is also essential for the auditor to sign an independence declaration of the overall t eam before starting the audit of a business entity (Auditor Liability, 2018). This is required to ensure that the auditing team carried out their responsibility independently without having nay participation in any of the subject matters of a business entity. Also, it is necessary for an auditor to obtain professional indemnity insurance to gain protection against any type of allegation put forth due to professional negligence. The auditors must promote their continuing professional development by their active participation on the conferences, seminars, courses and other type of training and development programs. This will keep the auditors updated against the current business sustainability issues and thus helps them in taking the audit successfully. Also, the auditor must annually submit a report to NGER for stating the professional development undertaken during the past 12months (Maintaining your registration as an auditor, 2018). Assurance Opinion in Woodside and AGLs Sustainability Reports The sustainability report of Woodside has been externally assured by Ernst Young, (EY). EY has carried out a reasonable assurance of the material issues of Woodside. EY has collected sufficient data from the subject matter for providing reasonable assurance engagement for conforming that all material aspects provide information as per the standard criteria. The subject matter for reasonable assurance includes the information disclosed in the sustainability report about the material issues that are, transparency, regulatory compliance, climate change, incident prevention and response and health and safety performance. The subject matter of limited assurance used by the auditors includes the overall information presented in its sustainability report and the Global Reporting Initiative (GRI) disclosures (Woodside Petroleum Ltd., 2016). The assurance engagement has been done as per the Australian Standard on Assurance Engagements 3000 (International Standard on Assurance Engagements, 20 12). On the contrary, the sustainability report of AGL is audited by Deloitte and it has been assured that the report is developed as per the GRI guidelines and as per the standard criteria. The auditing standards used for developing the report are ASAE 3000 and AA1000 principles. The subject matter of assurance includes selected sustainability indicators such as greenhouse gas emission data and the data relating to its material aspects. The limited assurance matter includes the disclosure provided by the company in its GRI disclosures (Agl Sustainability Report, 2016). Audit Assertions Concerning GHG Reporting The GHG statement presented by a company provides the information related to the emission of greenhouse gases and its nature is similar to that of an income statement developed presenting the financial information. As such, the audit assertions that are used for GHG reporting is completeness of material information provided by a company in its sustainability report. This is because the subject matter of engagement used by the auditors relies on the complete and accurate information provided by the company in its key material aspects in the sustainability report. Also, it is also asserted that the auditors posses necessary competencies and knowledge to carry out the audit as per the assurance standards. It has been assumed that the audit is carried out to the very bets of knowledge of auditors and thus the information presented by a company is reasonable assured as per the assurance standards (Bellassen Stephan, 2015). Case 2 Scenario The given case is about the negligence of auditors while auditing the financial statements. CFW, a distributor and warehousing facility for chemicals and fertilizer was reported to have a higher level of inventory in its audited financial statements during the time of its takeover by Warehousing Ltd. However, it has been identified by Warehousing Ltd that the inventories were stated to be overvalued in its audited financial statements. As such, Warehousing Ltd is planning to sue the auditors for negligence that they had taken while developing the audited financial statements. The following matters were brought before the court in the case that the auditors have not taken all the stocktakes at the end of the year. Also, the inventory of the company has been overvalued by 35% in its Sydney based operations. The auditors have accepted in this regard that it is the managements valuation that did not take into account the considerable obsolescence. Also, it has been established that 50% o f the inventory of the company is held at its Bathurst facility and the inventory does not have any existence. The auditors have accepted in their part that they were under pressure to complete the audit by the management of CFW to complete the audit within one month. However, there is no evidence by Warehousing Ltd that they were aware of the fact that the auditors were aware of the intended use of the accounts. Warehousing Ltd Case as per the Relevant Case Law and Precedents to Sue the Auditors The case of Warehousing Ltd to sue the auditors can be based on the fact that auditors are potentially liable for both criminal and civil offences. Under the criminal offences, the auditors are subjected to legislation under the state as stated in the Companies Act 2006. This would provide enough detail for Warehousing Ltd about their functions and responsibility. Under the Civil offences, the auditors are liable to their duties under the contract law and law of tort. The law has established the principles for the liability of an auditor towards the third party and to the clients. Under the contract law, the auditor is liable to meet all the necessary terms and conditions stated in their engagement letter. Thus, as such, Warehousing Ltd need to prove that the auditors have not obliged with their contractual obligations properly while carrying out their responsibility. The law of tort have also stated that the auditors can be sued for negligence if there is established evidence of the ir breach of care towards a third party who has suffered from some loss (Bar Drobnig, 2004). Therefore, the Warehousing Ltd need to have a solid evidence of the fact that the loss suffered by them was completely due to negligence of auditors. The company can use the auditors for negligence as per the laws and regulations stated for the auditors by the AICPA. AICPA requires that an auditor should communicate with the audit committee on any matters relating to the material weakness identified in the financial reporting process of a company. Therefore, the auditor should report to the audit committee over the material weakness in the financial reporting process as it is the responsibility of an auditor to provide correct, accurate, complete and reliable information to the end-users. As such, with responsibility of the auditors towards the public, that can be held liable to a third party as well (AICPA, 2017). Justification of Warehousing Ltd Legal Action in Reference to the Relevant Cases and Precedents As per the law of Tort, a third party can use the auditors for negligence only when it can be proved that they were aware of the fact in advance that somebody would rely on their work and they had nor meet their trust and faith. Thus, it is essential for the auditor in this case to be aware of the fact that CFW is going to have takeover by Warehousing Ltd in the future context. However, as given in the case scenario the CFW auditors were not aware of the intended use of the accounts by the company for undergoing a successful takeover by providing fraudulent financial information to Warehousing Ltd. In this context, the case of Caparo Industries Plc v Fidelity Plc. has been explained an example. Caparo has made a purchase of shares in the Fidelity Plc. However, Caparo has alleged that the decision of buying the shares were based on fraudulent financial information presented in the audited financial statements that was overvalued. As such, the company have claimed that auditor of Fidel ity Plc, Touch Gross, is responsible for breach of care. In this case, the court has concluded that accounts are prepared for the existing shareholders and the auditors do not have knowledge of the intended use of accounts by the third party. Similarly, in the case of Warehousing Ltd, there is no evidence indicating that the CFW auditors were aware of the intended use of accounts by a third party (Auditor Liability, 2018). Thus, under the law of tort there is duty of care between an auditor and third party only when: The loss suffered is a reasonable foreseeable consequence of the conduct of the defender in the given case There should be a proximity of relationship between the defendant and the pursuer It is fair and reasonable to impose a liability on the defendant Thus, as such a third party can only sue the auditor for negligence when there is close proximity and foreseeable consequence as a result of the auditor actions. However, in the case of Warehousing Ltd there is no evidence indicting foreseeable consequence and close proximity and therefore there is only limited chance of success of the legal action undertaken by Warehousing Ltd. Impact of Written Evidence against the CFW auditors on the Case Decision It has been depicted in the given case that Warehousing Ltd does not have any evidence that indicates that auditors have foreseeable knowledge regarding the intended use of accounts by CFW for undergoing takeover by Warehousing Ltd. As such, there is a limited chance of successful legal action undertaken by Warehousing Ltd against the CFW auditors as per the legislation of law of tort. However, if there is written evidence indicating that auditors possess knowledge reading the intended use of accounts prepared by them for a third party use then they can be successfully sued for negligence . This is because as per law of tort of auditors has came to known that some external party would rely on their work and therefore they should not publish their result on the basis of management valuation. As such, the auditors would be completely responsible for neglecting their duty as their negligence has cause the financial loss to Warehousing Ltd. They should have prepared accurate and reliable financial reports and should not have relied on management valuation and thus would have taken their own time in auditing of financial statements. There is high chance of successful legal action taken against the CFW auditors in the case of presence of written evidence by Warehousing Ltd against them (Bar Drobnig, 2004). References Bar, C. Drobnig, U. (2004). The Interaction of Contract Law and Tort and Property Law in Europe: A Comparative Study. sellier. european law publ. Bellassen, V. Stephan, N. (2015). Accounting for Carbon. Cambridge University Press. International Standard on Assurance Engagements. (2012). Retrieved 31 March, 2018, from https://www.aicpa.org/Research/Standards/AuditAttest/ASB/Documents/Mtg/1207/ISAE%203410-Final%206-6-12.pdf Tritschler, J. (2013). Audit Quality: Association between published reporting errors and audit firm characteristics. Springer Science Business Media. Woodside Petroleum Ltd. (2016). Sustainable Development Report. Retrieved 31 March, 2018, from https://www.woodside.com.au/Investors-Media/announcements/Documents/16.03.2017%202016%20Sustainable%20Development%20Report.pdf Maintaining your registration as an auditor. (2018). Retrieved 31 March, 2018, from https://www.cleanenergyregulator.gov.au/Infohub/Audits/information-for-auditors/maintaining-your-registration-as-an-auditor AICPA. 2017. Audit and Accounting Guide: Gaming 2017. John Wiley Sons. Zahar, A., Peel, J. Godden, L. (2012). Australian Climate Law in Global Context. Cambridge University Press. Agl Sustainability Report. (2016). Retrieved 31 March, 2018, from https://agl2016.sustainability-report.com.au/system/files_force/downloads/agl_csr_2016.pdf Auditor Liability. (2018). 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