ACCA Strategic Professional · Advanced Audit and Assurance (International) · Other current issues
Okoro & Partners audits the financial statements of Delta Energy plc and has also been asked to provide assurance on its sustainability report. Delta's financial statements include significant coal-fired assets, and the sustainability report states that the company plans to close the plants within eight years. The auditor has found no mention of this in the financial statements. Which response is most appropriate in the financial statement audit?
The auditor should consider whether the planned closure should affect impairment, useful lives, provisions and disclosures in the financial statements, and evaluate any inconsistency as other information under ISA 720 (Revised). The matter is not limited to the separate assurance engagement, and the auditor cannot instruct removal of content.
- AConsider whether climate-related risks and the closure plan should affect asset impairment, useful lives and disclosures, and evaluate any inconsistency as part of other information under ISA 720 (Revised)Correct
- BDisregard the sustainability report since ISA 720 (Revised) applies only to financial data within the annual report
- CRequire the closure plan to be removed from the sustainability report before issuing the audit opinion
- DTreat the matter as relevant only to the separate assurance engagement and not to the audit
Explanation
Climate-related matters can affect impairment, useful lives, provisions and disclosures under IFRS. If the sustainability information is included in the annual report it is other information, and ISA 720 (Revised) requires the auditor to read it and consider material inconsistencies with the financial statements and the auditor's knowledge. The audit and assurance engagements are linked, so the matter cannot be confined to one.
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