As the impact of climate change becomes more pronounced and social inequality grows, customers, investors and other stakeholders expect companies to take responsibility. This has led to sustainability reporting as an emerging discipline encompassing the disclosure and communication of an entity’s non-financial aspects - Environmental, Social, and Governance (ESG) performance and their impact on the businesses. Every business has processes, products or services that emit Greenhouse Gases (GHG) either directly or indirectly making decarbonisation as an element of the strategy in every organisation, many corporates are adopting global frameworks to measure their carbon footprint or emissions and to ensure accurate reporting in their GHG statements. The GHG emissions have been categorised into three categories Scope1, 2 and 3. Scope 1 includes direct emissions from owned or controlled sources, Scope 2 focusses on indirect emissions from purchased or acquired electricity, steam, heat and cooling, and Scope 3 includes all other indirect emissions that occur in a company’s value chain. 

A GHG Statement is a quantified statement of an entity's GHG emissions over a particular period. It also includes, where applicable, comparative information and explanatory notes, including a summary of significant quantification and reporting policies. Preparing a GHG statement in a structured format would help communicate the emission performance effectively and transparently. Independent audit of the same would help add credibility and ensure that the data is reliable. This edition of the Accounting and Auditing Update (AAU) contains an article on GHG statements, which provides an overview of the key concepts relating to GHG statements and highlight the key considerations relating to assurance of such statements.

In 2019, the International Auditing and Assurance Standards Board (IAASB) issued revised International Standard on Auditing (ISA) 315, Identifying and Assessing the Risks of Material Misstatement which is applicable for audits of financial statements of all entities for periods beginning on or after 15 December 2021. The revised standard addresses the concerns relating to erstwhile standard by providing a robust risk identification and assessment mechanism and significantly enhancing the auditor’s considerations in relation to an entity’s use of Information Technology (IT) and its impact on the audit. The revised standard also requires an auditor to obtain an understanding of the entity’s control environment and how this forms a foundation for the rest of the entity’s system of internal control. Our article aims to summarise key changes introduced by revised ISA 315 and highlights key considerations with respect to identification and assessment of material misstatement in the financial statements.

As is the case each month, we have also included a regular round-up of some recent regulatory updates in India. 

We would be delighted to receive feedback/suggestions from you on the topics we should cover in the forthcoming editions of the AAU.