Climate change and professional liability risk for auditors

This analysis outlines the comparative legal obligations and potential sources of professional liability for Australian auditors, based on the UK non-profit environmental law organisation, ClientEarth’s publication Risky business – Climate change and professional liability risk for auditors

The four short papers examine the various standards and rules applicable to UK auditors’ duties relating to annual financial accounts, focusing where those corporate disclosures might reasonably be expected to contain climate risk-related information, and how these might translate to Australian circumstances.

Climate-related disclosures

Financial Stability Board’s Task Force on Climate-related Disclosures: Implications for Australian business and corporate reporting (PDF)
Dr John Purcell FCPA, 2017 

The Task Force on Climate-related Financial Disclosures (TCFD) was established in 2015 to develop a set of voluntary, consistent disclosure recommendations for use by companies in providing information to investors, lenders and insurance underwriters about their climate-related financial risks. This paper explores the TFCD’s recommendations and their implications for corporate reporting.

Carbon risk: A contemporary business challenge and the role of bank monitoring

Australia has since 2007 had a comprehensive statutory-based mechanism for ensuring the collection and reporting of energy and emissions information for large emitters of greenhouse gases – the National Greenhouse and Energy Reporting Systems (NGERS). Reporting under NGERS is nevertheless not tied to mainstream disclosures to financial markets, say through annual reporting under the Corporations Act, and it is thus worthwhile to explore what processes and practices may have emerged to fill this gap in information.

This study undertaken by researchers at the University of Queensland examines as one source of information bank loan and renewal announcements premised on accesses to risk-related information arising out of bank relationships. The analysis of 120 bank loan announcements for 81 ASX companies spanning 2009-2015 partitioned for on the basis of NGERS information as high- and low- carbon risk, provides evidence of positive excess loan returns for loan renewals for high carbon risk firms. The results confirm that bank loan renewal are more informative to equity markets than loan initiations, and that the renewals for high-carbon risk firms infers positive news about management of carbon risk exposure.

Research report: Carbon risk: A contemporary business challenge and the role of bank monitoring (PDF)

Law and accounting

CPA Australia presented at the Commonwealth Climate Law Initiative (CCLI) International Legal Symposium held 29 August 2016 in Melbourne.

The keynote address explored the differing legal and accounting explanations for the emergence of non-financial voluntary disclosures, and argued that an aligning of law and accounting around climate risk disclosure could both build disclosure utility and improve related governance potentially negating litigation risk.

Transcript: Climate change risk disclosure – where law and accounting might converge or continue to diverge (PDF)