AUDIT FRAMEWORK FOR ASSURANCE ENGAGEMENTS UNDER THE NATIONAL CARBON OFFSET STANDARDVERSION 1.0

(published March 2018)

1

Contents1 Purpose and intended users of this document......................................................3

2 Guidance for auditors............................................................................................4

2.1 Responsibilities..............................................................................................5

2.1.1 Responsibilities of auditor..........................................................................5

2.1.2 Identifying material discrepancies or misstatements: the Department’s expectations...........................................................................................................6

2.1.3 Responsibilities of audited body.................................................................7

Appendix 1 Choosing an assurance or verification audit for a carbon neutral product or service …………………………………………………………………………………8

Appendix 2 Audit report template..............................................................................9

2

1 Purpose and intended users of this document

The National Carbon Offset Standard (the Standard) provides best-practice guidance on how to measure, reduce, offset, report and audit greenhouse gas emissions for organisations, products & services, events, precincts and buildings. The Standard is maintained by the Australian Government Department of the Environment and Energy (the Department). It is divided into five categories:

• the National Carbon Offset Standard for Organisations (Organisation Standard)

• the National Carbon Offset Standard for Products & Services (Product &

Service Standard)

• the National Carbon Offset Standard for Events (Event Standard)

• the National Carbon Offset Standard for Precincts (Precinct Standard), and

• the National Carbon Offset Standard for Buildings (Building Standard).

Audit requirements differ depending on the category of carbon neutral claim. The Organisation Standard, Event Standard and Precinct Standard all require an assurance-type audit (assurance engagement, as defined in Appendix 1) to be carried out to validate the claim. The Product & Service Standard allows the entity responsible for the carbon neutral claim (responsible entity) to choose an assurance engagement or a verification type audit (verification engagement, as defied in Appendix 1). The Building Standard has separate audit requirements which are set out in the ‘Audit Framework for the National Carbon Offset Standard for Buildings’.

This document provides guidance for auditors carrying out assurance type audits of carbon neutral claims against the Organisation Standard, Product & Service Standard, Event Standard or Precinct Standard. Appendix 1 provides information to help audited bodies to choose between a verification engagement and an assurance engagement for a product or service. Appendix 2 is the report template for assurance type audits against the Standard. There is a standalone MS Word version of this report template available at www.environment.gov.au/carbon-neutral . Auditors carrying out assurance engagements must prepare their report using either the standalone Word version of the template or another format that captures the same information.

An auditor carrying out a verification type audit against the Product & Service Standard cannot use this document. They must refer to the ‘Audit Framework for

3

Verification Engagements under the National Carbon Offset Standard for Products & Services’ available at www.environment.gov.au/carbon-neutral.

2 Guidance for auditorsAudit requirements are set out in section 2.7 of each category of the Standard. Auditors must refer to the relevant standard(s) for full audit requirements. Some elements of the requirements are summarised in Table 1. In case of any inconsistencies, the relevant Standard overrides this information.

Table 1 Elements of assurance type audits against the National Carbon Offset Standard

Element Description

Audit type: Assurance

Minimum level of assurance required:

Limited

Audit standards: ASAE 3000; or

ISO 14064-3; or

Another auditing standard that the auditor must confirm is as rigorous as the above

Required qualifications for auditors:

Auditors must be:

• included on the Register of Greenhouse and Energy Auditors, as established under section 75A of the National Greenhouse and Energy Reporting Act 2007 (NGER Act) and maintained by the Clean Energy Regulator; or

• accredited to the international standard ISO 14065:2013 or a recognised international standard based on ISO 14040.

Audit criteria: Whichever of the following is relevant to the carbon neutral claim:

• National Carbon Offset Standard for Organisations

• National Carbon Offset Standard for Products & Services

• National Carbon Offset Standard for Events

• National Carbon Offset Standard for Precincts

Subject matter: The carbon neutral claim against the Organisation Standard, Product & Service Standard, Event Standard or Precinct Standard, in particular, but not limited to, the carbon account

4

calculations, public report, emissions reduction claims and offsetting arrangements.

In addition, the first audit (of the base year) must assess the adequacy and appropriateness of emissions boundary setting, emissions methodologies and emission factors.

Audited body: The Responsible Entity for the carbon neutral claim, as defined in the Organisation Standard, Product & Service Standard, Event Standard or Precinct Standard.

2.1 Responsibilities2.1.1 Responsibilities of auditor

The auditor’s responsibility is to undertake an assurance type audit of the carbon neutral claim made by the audited body. The auditor must carry out the assurance engagement in accordance with either:

• ASAE 3000 Assurance Engagements other than Audits or Reviews of Historical

Financial Information; or

• ISO 14064-3: Greenhouse gas specification with guidance for the validation and

verification of greenhouse gas assertions; or

• another audit standard that the auditor must confirm is as rigorous as the above

standards.

The audit criteria that must be applied are the requirements set out in the Standard relevant to the audited body’s carbon neutral claim, i.e. the Precinct Standard for a precinct, the Product & Service Standard for a product etc.

The auditor carrying out the assurance engagement must judge whether the carbon neutral claim is free from material misstatement or material discrepancies, based on the audit criteria (i.e. the relevant category of the Standard). Further guidance on the Department’s expectations of what constitutes a material misstatement or discrepancy is at section 2.1.2 below.

The auditor must consider the evidence gathered in the course of carrying out the assurance engagement and provide an assurance conclusion (also known as an assurance statement or audit opinion) about the carbon neutral claim. The conclusion must be either unqualified, qualified, adverse, or a conclusion that the auditor is unable to form an opinion. An unqualified or qualified assurance statement must at minimum be expressed in terms of limited assurance. Some audited bodies may choose to commission a reasonable assurance engagment, which is also acceptable under the terms of the Standard.

5

If the auditor identifies any Corrective Action Requests (CARs) and/or observations in the course of the audit, they must provide these to the responsible entity. The responsible entity should wherever possible be given the opportunity to resolve these prior to the closure of the audit activity. At the conclusion of the audit engagment, the auditor must provide the responsible entity with a list of any unresolved CARs and/or observations. The ‘National Carbon Offset Standard Assurance Audit Report’ template available at www.environment.gov.au/carbon-neutral provides further guidance on CARs and observations.

The auditor must provide the audited body with a written audit report. This report must include the assurance conclusion and, if relevant, the list of unresolved CARS and/or observations. It is optional to also include a list of CARS and observations that were resolved during the course of the audit engagement. The report must be completed using either the National Carbon Offset Standard Assurance Audit Report template or another format that captures the same information.

2.1.2 Identifying material discrepancies or misstatements: the Department’s expectations

As set out in the audit standard ASAE 3000 and ISO 14064-3, the purpose of an assurance type audit is to provide assurance about whether the subject matter—in this case the carbon neutral claim—is free from material misstatement or material discrepancies. Part of the ISO 14064-3 definition of material discrepancies is ‘individual or [aggregated] errors, omissions and misrepresentations [that] could affect the decisions of the intended users.’

The intended users of a National Carbon Offset Standard audit report are the audited body, the Department and members of the public who seek verification of the audited body’s carbon neutral claim. The purpose of the report is to provide assurance to these users that the carbon neutral claim meets the requirements of the Standard or, if relevant, to document that it does not meet these requirements. The Department of the Environment and Energy uses the audit report to decide whether or not to grant initial or ongoing carbon neutral certification in relation to the subject of the audit, with or without requiring further changes to the carbon account and public report.

The Department of the Environment and Energy usually considers any breach of an absolute requirement of the Standard to be a material breach of the Standard. The Department may not grant carbon neutral certification until such breaches have been rectified. These absolute requirements are expressed in the Standard as things that the responsible entity (audited body) must do. In designing and carrying out audit procedures, the Department expects the auditor to be alert to any breach of these ‘musts’. Where the auditor becomes aware of such a breach and judges it to be a material misstatement, the auditor must mark it as a major Corrective Action Request (CAR) that the audited body must correct before the auditor can give an unqualified assurance opinion. There may occasionally be cases where the auditor considers

6

such a breach not to be material. If so it must be marked as a minor CAR for the audited body to correct prior to the following reporting year.

Other elements of the Standard are recommendations, expressed in terms of ‘should’. Where an audited body has not carried out these recommendations, this does not constitute a material misstatement or discrepancy.

The auditor may wish to contact the Department to discuss interpretation of the Standard.

2.1.3 Responsibilities of audited body

The audited body (the entity making the carbon neutral claim under the Standard) is responsible for preparing the carbon neutral claim in accordance with the requirements of the relevant category or categories of the Standard, maintaining appropriate records for auditing, and paying for the audit.

The audit is performed on the basis that the audited body acknowledges and understands that it has a responsibility to provide the auditor with reasonable access to:

All information that management is aware is necessary for the performance of the engagement;

Additional information that may be requested for the purpose of the engagement; and

Persons within the audited body from whom the auditors require co-operation in order to perform the engagement.

7

Appendix 1 Choosing an assurance or verification audit for a carbon neutral product or service

The National Carbon Offset Standard for Products & Services (Product & Service Standard) allows the entity responsible for the carbon neutral claim to choose an assurance type audit or a verification engagement.

Table 2 Definitions of assurance engagement and verification engagement

Assurance engagement definition Verification engagement definitionThe audit team leader uses professional judgment in preparing for and carrying out the audit and provides an independent opinion about the matter being audited.

The audit team leader carries out specified procedures to verify the matter being audited but does not provide any assurance or an audit opinion.

Source: National Greenhouse and Energy (Audit) Determination 2009

Reasons for choosing one audit engagement type over the other may include:

• Using an EPD as the basis of the carbon neutral claim. A verification

engagement under the Product and Service Standard recognises the

verification already undertaken for an EPD, provided that the EPD was verified

against the EN 15804 Standard. (Products and services that do not have an

EPD, or have an EPD not verified against EN15804, can also undergo a

verification type audit but there are more procedures that the auditor must

perform in these cases).

• Having responsibility for a second carbon neutral claim under a different

category of the Standard. In these cases it may be simpler and more cost

effective to commission a single assurance audit for both claims because the

other categories of the standard do not allow verification engagements.

• Other reasons identified by the auditor or audited body.

8

Appendix 2 Audit report template

NATIONAL CARBON OFFSET STANDARD ASSURANCE AUDIT REPORT This template is for use in assurance audits of carbon neutral claims against the National Carbon Offset Standard for Organisations, National Carbon Offset Standard for Products & Services, National Carbon Offset Standard for Events and/or National Carbon Offset Standard for Precincts. It cannot be used for verification audits against the National Carbon Offset Standard for Products and Services or National Carbon Offset Standard for Buildings. Templates for these other types of audit are available at www.environment.gov.au/carbon-neutral.

The assurance audit report should be completed using the standalone Microsoft Word version of this template available at www.environment.gov.au/carbon-neutral, or another format that captures the same information.

This template has been adapted from the National Greenhouse and Energy Reporting audit report in the Clean Energy Regulator’s Audit Determination Handbook. The auditor must complete their report using either this template or another format that captures the same information. Text in square brackets is to be replaced as prompted. Text in blue italics is for guidance and should be deleted.

For carbon neutral claims certified by the Department of the Environment and Energy (the Department), the responsible entity must complete its reporting and offsetting obligations by the reporting deadline agreed with the Department. Audit activities and the audit report must also be completed and submitted to the Department by the responsible entity by this deadline.

9

SECTION 1 Audit Statement and Audit FindingsAudited body

Name of audited body

Name of contact person for audited body

Position title

Contact person phone number

Contact person email address

Audited body’s street address

Audit description

Type of audit [Please select: Limited/Reasonable] Assurance

Type of carbon neutral claim(s) (tick all applicable)

☐ Organisation

☐ Product/service

☐ Precinct

☐ Event

Subject(s) of carbon neutral claim(s) E.g. ‘The Australian Business Operations of Company x’, or ‘The opt-in x service offered by Company y’.

If a carbon neutral claim is certified by the Department, the subject of certification (i.e. subject of the carbon neutral claim) is stated in a schedule at the back of the responsible entity’s licence for the use of the certification trade mark, and must be copied exactly here.

Initial or periodic audit

10

Reporting period covered by audit

Date terms of engagement signed

Date audit report signed

Audited emissions inventory [insert year e.g. FY 2017–18, CY 2017]

Audited Scope 1 emissions (tonnes CO2-e)Audited Scope 2 emissions (tonnes CO2-e)Audited Scope 3 emissions (tonnes CO2-e)Scope 2 emissions reduced through retirement of LGCs (tonnes CO2-e)Total retired offsets (tonnes CO2-e)

Auditor detailsThe Auditor must confirm that they are a suitably qualified auditor, in accordance with the relevant category or categories of the National Carbon Offset Standard. For NGER-registered auditors rotation of auditors is required where four consecutive audits have been carried out by an individual auditor for the audited body.

Name of audit team leader

Organisation

Email

Phone number

Address

Names and contact details of other audit team members if applicable

Lead auditor’s relevant These must include:

11

qualifications, registrations and credentials

NGER registration number; or

Accreditation against ISO 14065:2013; or

Accreditation against recognised international standard based on ISO 14040.

[Insert name of audit organisation] confirms that we are not aware of any actual or perceived conflict of interest in having completed this engagement.

For NGER-registered auditors: [Insert name of lead auditor] confirms that he/she has not carried out more than five previous consecutive audits for [insert audited body name].

Scope of audit[Insert name of audit organisation] has been engaged to undertake an independent assurance audit of the compliance of the carbon neutral claim(s) for [insert subject(s) of carbon neutral claim(s) as in table above] with the National Carbon Offset Standard for [select as appropriate: Organisations/ Products & Services/Events/Precincts].

[Insert name of lead auditor and audit organisation] conducted the audit in accordance with [Select as appropriate: ISO 14064-3/ASAE 3000/[[Insert name of other audit standard]. We confirm that [insert name of other audit standard used] is as rigorous as ISO 14064-3 and ASAE 3000]]. The audit has been planned and performed in accordance with the proposal approved by the participant to enable me/us to provide [Select as appropriate: limited/reasonable note the minimum requirement is limited but in some cases the audited body may request reasonable] assurance regarding the carbon neutral claim(s) for [please insert subject(s) of carbon neutral claim(s) as in table above].

Responsibility of [audited body]’s managementManagement of [audited body] is responsible for preparation of the carbon neutral claim(s) in accordance with the National Carbon Offset Standard for [Please select: Organisations / Products & Services / Events / Precincts] in all material respects. This responsibility includes design, implementation and maintenance of internal controls relevant to the preparation and presentation of the carbon account and public report that is free from material misstatement, whether due to fraud or error. Management of [audited body] is responsible for the interpretation and application of the requirements of the National Carbon Offset Standard for [Please select:

12

Organisations / Products & Services / Events / Precincts]. Emissions quantification is subject to inherent uncertainty because incomplete scientific knowledge has been used to determine emissions factors and the values needed to combine emissions due to different gases.

Our responsibilityOur responsibility is to express an opinion on [audited body]’s carbon neutral claim(s) based on the procedures we have performed and the evidence we have obtained. We have conducted our [Select as appropriate: reasonable/limited] assurance engagement in accordance with the [Select as appropriate: Australian Standard on Assurance Engagements ASAE 3000 Assurance Engagements other than Audits or Reviews of Historical Financial Information / Australian Standard AS ISO 14064.3-2006 Greenhouse gases–Part 3: Specification with guidance for the validation and verification of greenhouse gas assertions / [insert name of other audit standard]], which we confirm is as rigorous as ASAE 3000 and ISO 14064.3].

The [Select as appropriate: Australian Standard on Assurance Engagements ASAE 3000 Assurance Engagements other than Audits or Reviews of Historical Financial Information / Australian Standard AS ISO 14064.3-2006 Greenhouse gases–Part 3: Specification with guidance for the validation and verification of greenhouse gas assertions / [insert name of other audit standard]] requires us to plan and perform this engagement to obtain [reasonable/limited] assurance about whether the carbon neutral [select as appropriate: claim is/claims are] free from [material misstatement / material errors, omissions or misrepresentations]. A [reasonable/limited] assurance engagement involves performing procedures to obtain evidence about the compliance of the carbon neutral claim(s) with the National Carbon Offset Standard for [Please select: Organisations / Products & Services / Events / Precincts]. The nature, timing and extent of procedures selected depend on the assurance practitioner’s judgement, including the assessment of the risks of material misstatement, whether due to fraud or error. In making those risk assessments, We have considered internal controls relevant to [audited body]’s preparation of the carbon neutral claim(s), carbon account and public report. We believe that the assurance evidence we have obtained is sufficient and appropriate to provide a basis for our assurance conclusion.

[Insert name of audit organisation] has not conducted any audit procedures with respect to the internal control environment and data management system of the audited body as a whole. As such, no assurance is provided on any internal control environment and data management system not associated with preparing the carbon neutral claim(s).

13

Summary of procedures undertakenThe procedures we conducted in our [reasonable/limited] assurance engagement included:

[Insert a summary of procedures undertaken. These can include such procedures as:

• interviews conducted to gather evidence

• analysis of procedures the audited body used to gather data

• testing of calculations the audited body performed, and

• identification and testing of assumptions supporting the calculations.]

Use of our [limited/reasonable] assurance engagement reportThis report has been prepared for the use of [audited body], the Department of the Environment and Energy, [and intended users identified in the terms of the engagement] for the sole purpose of reporting on [audited body]’s carbon neutral claim(s) against the National Carbon Offset Standard. Accordingly, we expressly disclaim and do not accept any responsibility or liability to any party other than the Department of the Environment and Energy, [audited body] and [names of intended users] for any consequences of reliance on this report for any purpose.

Inherent limitationsThere are inherent limitations in performing assurance—for example, assurance engagements are based on selective testing of the information being examined—and because of this, it is possible that fraud, error or non-compliance may occur and not be detected. An assurance engagement is not designed to detect all misstatements, as an assurance engagement is not performed continuously throughout the period that is the subject of the engagement and the procedures performed on a test basis. The conclusion expressed in this report has been formed on the above basis.

Additionally, non-financial data may be subject to more inherent limitations than financial data, given its nature and the methods used for determining, calculating and sampling or estimating such data. We specifically note that [audited body] has used estimates or extrapolated underlying information to calculate certain amounts included within the greenhouse and energy information.

[If limited assurance] The procedures performed in a limited assurance engagement vary in nature from, and are narrower in scope than for, a reasonable assurance engagement. As a result, the level of assurance obtained in a limited assurance engagement is substantially lower than that in a reasonable assurance engagement. Accordingly, we do not express a reasonable assurance opinion about

14

whether [audited body]’s carbon neutral [select ass appropriate: claim has/claims have] been prepared, in all material respects, in accordance with the National Carbon Offset Standard.

Audit conclusionChoose one of the following and delete the remaining.

Unqualified conclusion – limited assurance (limited assurance is the minimum level required to support a carbon neutral claim(s) against the National Carbon Offset Standard)

Based on the procedures performed (as described above), nothing has come to our attention that would lead to believe that [the audited body]’s carbon neutral [select as appropriate: claim has / claims have] not been prepared in all material respects in accordance with the National Carbon Offset Standard for [please select: Organisations / Products & Services / Events / Precincts].

Unqualified conclusion – reasonable assurance (select only if the audited body has requested a reasonable assurance audit)

In our opinion, the audited body has prepared its carbon neutral claim(s) in all material aspects in accordance with the National Carbon Offset Standard for [please select: Organisations / Products & Services / Events / Precincts].

Qualified conclusion – limited assurance (limited assurance is the minimum level required to support a carbon neutral claim(s) against the National Carbon Offset Standard)

Based on the procedures performed (as described above), with the exception of the matter(s) referred to in the qualification explanation below, nothing has come to our attention that would lead us to believe that the audited body’s carbon neutral [select as appropriate: claim has/claims have] not been prepared in all material respects in accordance with the National Carbon Offset Standard for [please select: Organisations / Products & Services / Events / Precincts].

Qualified conclusion – reasonable assurance (select only if the audited body has requested a reasonable assurance audit)

In our opinion, except for the matters referred to in the qualification explanation below, the audited body has prepared its carbon neutral claim(s) in all material aspects in accordance with the National Carbon Offset Standard for [please select: Organisations / Products & Services / Events / Precincts].

Adverse opinion

In our opinion, because of the effects of the matter/s referred to in the qualification explanation below, the audited body’s carbon neutral [select as appropriate: claim has / claims have] not been prepared in accordance with the National Carbon Offset Standard.

15

Inability to form an opinion

In our opinion, because of the existence of the limitation/s on the scope of our work, as described in the qualification explanation below, and the effects of such adjustments, if any, as might have been determined to be necessary had the limitation/s not existed, we are unable to and do not express an opinion as to whether the participant’s carbon neutral [select as appropriate: claim is/claims are] in accordance with the National Carbon Offset Standard.

Qualification explanationWhere an unqualified conclusion is provided, this part should be deleted.

Where an auditor provides an adverse, qualified or ‘unable to form an opinion’ audit conclusion, a clear description of the reasons for providing this conclusion and, where possible, a quantification of the effects of the qualification on the participant’s carbon neutral claim(s) should be provided here.

RecommendationsDescriptions of any unresolved Major or Minor Corrective Action Requests (CARs) or observations relating to an adverse or qualified audit opinion can be provided here, with full details to be provided in section 2 of the report. Wherever possible, a participant should be provided with the opportunity to resolve a CAR or observation prior to the closure of the audit activity. Types of CARs are:

Major CAR

A systematic problem, unmet requirement of the National Carbon Offset Standard, total lack of procedure, or evidence of significant number of minor CARs in relation to a single element that represents a material misstatement or material discrepancy relating to the requirements of the relevant category or categories of the National Carbon Offset Standard. A major CAR must be corrected before an unqualified audit opinion can be given. (For further detail refer to section 2.1.2 of ‘Assurance Guidance for Asssurance Audits under the National Carbon Offset Standard’, available at www.environment.gov.au/carbon-neutral).

Minor CAR

A deficiency in management of any element of the carbon neutral claim(s) that, if not corrected, could result in the claim(s) not meeting the requirements of the relevant category of the National Carbon Offset Standard. A minor CAR must be corrected prior to completion of the carbon account and public report for the reporting year following the audit.

16

Observation

An item where clarification or improvement is appropriate.

[Insert a description of recommendations as appropriate. For example include:]

• [The Minor Corrective Action Request/s identified in the qualification paragraph

must be addressed and resolved by the time of the next annual carbon account

and public report in order for the carbon neutral claim(s) to continue to be in

accordance with the National Carbon Offset Standard.]

• [Any recommendations.]

Limitations on useThis Audit Statement has been prepared for the management of the audited body and, if the carbon neutral [select as appropriate: claim is / claims are] to be certified, for review by the Department of the Environment and Energy. It is solely for use in assessing whether a carbon neutral claim has been prepared in accordance with the requirements of the National Carbon Offset Standard. We disclaim any liability for reliance upon this Report by any other party or for any other purpose other than that for which it was prepared.

Confirmation of Audit FindingsInsert the details of the lead auditor with the authority to sign the report.

Name of lead auditor

Position of lead auditor

Signature of lead auditor

Date

17

SECTION 2 Corrective Action Requests and ObservationsIn this section the auditor must provide descriptions of any Corrective Action Requests and observations that were identified but not resolved during the audit activity. It is optional to also provide details of Corrective Action Requests or observations that were resolved. Types of Corrective Action Requests and observations are defined above.

Finding Summary of CAR/ observation

Summary of action taken to address the CAR/ observation(Participant’s response and auditor’s conclusion)

Was the CAR resolved prior to the closure of the audit activity?

Choose an item. Choose an item.

Choose an item. Choose an item.

Choose an item. Choose an item.

Choose an item. Choose an item.

Choose an item. Choose an item.

18

SECTION 3Documents Reviewed This section provides details of all documents reviewed by the Auditor during the audit.

Name or description of document

Document title / filename Author and date prepared, and version if applicable

19