Top three impacts of using different audit firms for financial statement audits and sustainability assurance

ASIC has clarified in their FAQs that:

• Registrable superannuation entities (RSE) are required to appoint the same auditor; and
• Companies, registered schemes or retail CCIVs are not required to appoint the same auditor.

While an entity can choose to have different audit firms appointed for financial reporting audit and sustainability reporting assurance, there are challenges that arise. Like the financial report auditor, the sustainability assurance provider needs to be a registered company auditor, meaning that sustainability consultants are unable to complete the assurance. Each individual auditor must comply independently with their own independence and reporting obligations.

Implications of using different audit firms

While it is permissible to engage separate firms for your financial statement audit and sustainability assurance, this decision comes with risks. These challenges are less significant when there are two auditors within the one firm. In our experience, the three most significant challenges we see with using different firms are:

• Double up of costs
• Efficiency and communication challenges for management and auditors
• Timing challenges creating a risk of missed deadlines

Together, these factors can create operational inefficiencies, higher costs, and reputational risks if not carefully managed. Here’s a deeper dive into each of them.

1. Double up of costs

Additional costs may arise due to increased complexity, duplication of effort, additional meetings being required and the absence of synergistic benefits when performing work to satisfy the requirements. For instance, each auditor is required to:

• Obtain an understanding of the entity’s business, control environment, and risk profile
• Independently review the financial report, sustainability report, and other information to identify material inconsistencies and misstatements, and to ensure connectivity of disclosures between the reports. This will likely result in two separate teams (including specialists as needed) verifying the full annual report for disclosure completeness.

2. Efficiency and communication challenges for management and auditors

Where two audit firms are involved, there are limited opportunities to share knowledge and resources, coordinate efforts, and leverage common specialists. Differences in policies and methodologies introduce complexities. For example, when there are disagreements regarding audit or assurance implications or the approach, additional procedures may be necessary. There is also a need to engage and coordinate with the two separate teams, who can’t freely share information, resulting in questions being asked twice and documents needing to be provided twice. 

There could also be an impact on audit or assurance opinions including a limitation in scope or an adverse opinion if disagreements are unable to be resolved between all parties on a timely basis.

3. Timing and the risk of missed deadlines

The Corporations Act requires the sustainability report, financial report and Directors’ Declaration to be signed within 7 days – often the same day. This creates logistical pressure when two audit firms are involved because both firms will need to access each other’s working papers and usually firms will only share working papers files once work is complete. This risk is reduced where one firm has two different partners because within the one firm access to in process files can easily be facilitated and the sharing of IP is not a concern.

If you are considering appointing a different audit firm for your sustainability report assurance and your financial statement audit, we recommend you talk with your financial statement auditor to understand the implications on their timetable and costs as well as any policies in place around such appointment. 

Benefits of using a single audit firm

Using the same audit firm has the following advantages:

• Synergistic benefits, such as understanding the business, control environment and risk profile
• Streamlined communication and reduced coordination burden for management and auditors
• Access to all working papers, reducing timetabling challenges
• Ability to share expertise across the financial reporting and sustainability reporting teams 
• Likely to result in improved consistency and connectivity between financial and sustainability disclosures.

Recommendations for directors

Directors have a significant role to play in ensuring compliance, so to avoid these challenges and manage risk, we recommend that entities appoint the same auditor for financial reporting audit and sustainability reporting assurance. Beyond operational efficiency, using a single audit firm can enhance governance oversight and reduce reputational risk associated with inconsistent disclosures or missed deadlines. For additional resources around Director obligations over sustainability reporting, the AICD has released a guide for Directors called 'Directors guide to mandatory climate reporting'. For a more detailed guide of the legislative and reporting requirements including suggested steps to prepare a report, refer to our publication, 'Unpacking Australian Sustainability Reporting'.

We’re here to help

To navigate these complexities effectively, we recommend engaging a single audit firm with deep expertise in both financial and sustainability assurance. Grant Thornton sustainability assurance and reporting partners across the country who can support your Board in meeting these evolving requirements. 

Learn more about how our ESG, sustainability and climate advisory services can help you

Visit our ESG, sustainability and climate advisory page

_{* Links to ASIC and AUASB's FAQs}