In December 2020, the Clean Energy Regulator ran an interactive webinar via Microsoft Teams to help auditors understand and deal with conflict of interest issues. Topics included:
The below questions, asked by participants in the webinar, have been transcribed verbatim.
In a previous Clean Energy Regulator workshop couple years back, the Clean Energy Regulator mentioned that they do not expect an audit firm providing audit services in an ERF sector to also provide consulting services in that same Emissions Reduction Fund sector. With the slide showing the 'safeguard to threat’ – it states that the consulting team member is not be part of the audit team. So, can the Clean Energy Regulator please confirm whether it is ok for the audit firm to provide consulting services in the same ERF sector that they are auditing in – as long as the staff providing consulting services are not part of that individual audit engagement? Does that mean that the consulting staff can still be part of other audits in the same Emissions Reduction Fund sector but just not for that one engagement the staff consulted for?
Ideally auditing and consulting should be completely separate. The Clean Energy Regulator (the agency) accepts that our schemes cannot always provide ideal circumstances. In light of this, there will be grey areas that can cause conflict of interest issues. The complexity of these issues means the agency cannot provide a general response that will address each unique set of circumstances. Considerations include:
Beyond the above explicit restrictions and policy positions, if an auditor both audits and consults in a scheme the agency administers, there is potential for conflicts of interest — including perceived conflicts of interest. In the process of conducting an audit on an audited body under a scheme, an auditor may gain knowledge that could be beneficial to other participants in the scheme that the auditor performs consulting services for. It would be difficult for an auditor to avoid perceptions of such conflicts of interest. Particularly if an auditor is auditing and consulting in the same ERF methodology, or industry sector under the Renewable Energy Target, National Greenhouse and Energy Reporting schemes or the safeguard mechanism.
Auditors must ensure they are aware of any actual or perceived conflicts of interest and deal with them appropriately. If an auditor has any doubts they should consult with the agency on the particular circumstances.
If an audit firm is auditing the greenhouse gas emissions of client A, and the audit firm is also in the business of selling reusable keep cups – and Client A buys the keep cups from the audit firm – is that a perceived COI that will need to be managed - or is it a totally separate issue that does not need safeguards in place?
In essence, this is a circumstance in which an auditor has a business relationship with an audited body outside of the audit process.
Whether the relationship represents an actual or perceived conflict of interest will depend on the importance of the relationship to the auditor. If it is significant, in either a financial or other sense, then there would be a conflict of interest of some kind. It would be like fee dependency, in which an auditor who is financially dependent on the fees from an audited body would most likely have a conflict of interest.
Without naming the organisations, is it possible to give some examples of conflict of interest that the Clean Energy Regulator has encountered?
The agency has become aware of a number of issues in recent years. Some of the key ones:
Certifications like Climate Active and B-Corp are advocated by organisations that have these. Is this a threat to objectivity if these organisations also carry out audits or verifications of these bodies?
Anything that casts doubt over an auditor’s objectivity can be a conflict of interest. Threats to objectivity are not only financial. If an auditor agrees with the social behaviour of an organisation and wants to encourage others to display that behaviour, then there may be doubts over their objectivity when they audit that organisation.
An example of this would be an auditor who supports Climate Active, in which organisations are awarded certification for achieving carbon neutrality. An auditor may encourage organisations to obtain Climate Active certification. If the auditor then audits an organisation that backs Climate Active, their objectivity may be questioned, resulting in a conflict of interest. How much of a risk would depend on:
The agency does not wish to limit any organisation in exercising its environmental conscience. However, auditors need to be aware of the consequences of their behaviours. If a conflict of interest situation results, then the auditor must use their professional judgement and deal with the issue in the same way as they do any such situation.
Can a firm consult and audit in the same space e.g. Emissions Reduction Fund (of course not for the same client)?
Please refer to our response at
Question A above.
Why are experts not part of the engagement team?
I have always thought and also with my training, that external experts are part of the engagement team and need to be included on the engagement plan.
Determining whether somebody is a member of the audit team or an external expert can be tricky. The Standard on Assurance Engagements
ASAE 3000, Assurance Engagements Other than Audits or Reviews of Historical Financial Information (ASAE 3000) is the main auditing standard that applies to all audits conducted under schemes the agency administers. ASAE 3000 (paragraph AUS 12.2(h)) states that the audit team consists of ‘All assurance practitioners and staff performing the engagement, and any individuals engaged by the firm who perform procedures on the engagement. This excludes an assurance practitioner’s external expert engaged by the firm or a network firm.’
Regulation 6.50 of the NGER Regulations states that the ‘professional members of the audit team’ are:
Looking at both ASAE 3000 and regulation 6.50, it would appear possible to have a person contribute to an audit who is not a registered greenhouse and energy auditor and is deemed to be an ‘external expert’ and so not part of the audit team.
However, if an expert is deemed not to be part of the audit team, the team leader is still required to ensure their objectivity. Paragraph 52 of ASAE 3000 details the need for external experts to have objectivity.
Regardless of whether a person who contributes to an audit is deemed to be an audit team member or not, the audit team leader is still responsible for dealing with any conflict of interest issues that concern that individual.
Note: While peer reviewers are not normally considered to be part of the audit team, under regulation 6.50 they would be deemed to be a ‘professional member of the audit team’. As such, the same conflict of interest provisions in the NGER Regulations, and other applicable legislation, that apply to audit team members would also apply to peer reviewers. This is apart from the position detailed in the preceding paragraph.
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The Clean Energy Regulator is a Government body responsible for accelerating carbon abatement for Australia.