Why Pre-Assessment is Key to Climate Assurance Readiness

Australia’s Climate Disclosure Reporting: What You Need to Know for 2025

As of the 1st of January 2025, Australia’s climate disclosure reporting regime has been in place. Leading up to this, much of the focus had, rightly, been placed on the necessary actions needed to meet the new disclosure requirements.  

However, not long after the turn of the new year, an important but less reported development also occurred. The Australian Accounting Standards Board (AASB) finalised the phased assurance timeline for disclosures, confirming the level of assurance required for an organisation’s disclosures in future reporting cycles. 

Financial assurance is an established process through which an independent auditor verifies its disclosures, providing stakeholders confidence that information presented is accurate and compliant, adding credibility to reporting.

Assurance of non-financial metrics such as emissions reporting is also well-established, but not a mandatory requirement for corporate reporting in Australia until now with the introduction of mandatory climate-reporting. 

Key Terms to Know for Climate Assurance Readiness

Pre-assessment (also known as pre-assurance or assurance readiness):

• A “dry run” of assurance procedures to identify weaknesses or gaps in reporting before public assurance.
• Conducted as a confidential exercise, ensuring assurance statements are free from qualified opinions prior to commencing them.
• Typically carried out outside the time pressures of year-end reporting and often performed by advisory practitioners.
• Offers greater strategic value, as it’s not constrained by the same independence requirements as standard assurance.

Limited assurance:

• Provides a lower level of confidence compared to reasonable assurance.
• Involves a less extensive review, typically through inquiries and analytical procedures.
• The auditor concludes that nothing material has come to their attention that would misstate the information.
• Required for Scope 1 and 2 emissions, as well as governance and strategy components of AASB S2 in year 1 of disclosure.
• Expands to all requirements of the standard in year 2.

Reasonable assurance:

• Involves a more thorough examination, including detailed testing of evidence from a significant sample.
• Provides a high level of confidence that the information is free from material misstatement.
• All components of mandatory climate-related disclosures are expected to obtain this level of assurance by the fourth year of disclosure.

Figure 1: Illustrated example of what a proactive assurance readiness workstream may look like.

Optimising Your Timing for Climate Disclosure and Assurance Readiness

It’s critical to consider assurance requirements early in the development of your disclosure processes. In some instances, the methodologies you choose—such as for calculating Scope 3 emissions—may need to follow specific approaches to to meet its limited and then reasonable assurance requirements.  

Many industry leaders aim to meet disclosure reporting requirements a year in advance. By preparing their disclosure actions and undergoing a pre-assessment review, they gain confidence that their disclosures will be ready for assurance with minimal disruption. This proactive approach helps avoid delays caused by issues identified during the assurance process, which could impact the workload during the busy reporting season when adjustments are most challenging to make.

Why More Companies Are Choosing Independent Providers for Pre-Assessment Services

In the past, many companies relied solely on their assurance provider for pre-assessment, assuming it was their only option. However, a growing number of organisations are now opting for separate providers to handle this critical step, particularly for their sustainability reports.

Here's why:

1. A Different Perspective Focused on Value Creation Beyond Compliance

Whilst assurance is focussed on achieving compliance to a specific standard, a pre-assessment exercise can generate recommendations which provide broader benefits in terms of strategic operating advantages.

For example, a client recently shared that their auditor had advised against setting a decarbonisation target, as AASB S2 didn’t explicitly require one. This advice, however, failed to consider the client's broader operating environment, where their largest customers were decarbonising their supply chains and expecting similar commitments from their suppliers to maintain business relationships.

1. Expertise from ESG Practitioners

The above example highlights why engaging with an experienced subject matter expert in sustainability and climate change is likely to yield greater overall benefits from performing this process.

Whilst assurance is typically provided by accountancy firms, there has been an acknowledgement that the sector requires material upskilling to meet the requirements of the new sustainability and climate standards.

1. A Stronger Cost-to-Value Proposition

Whilst engaging with your assurer, it is likely they will be limited in the capacity in which they can advise you due to independence requirements.

Having a strategic partner who can operate in more of an advisory capacity for your assurance readiness will provide the same process, with greater capacity in providing the necessary recommendations to elevate your processes.

In addition to this, an independent advisory partner will typically be able to operate at a lower operating cost due to more flexibility in engagement models, thus providing greater overall value for money.

Take the First Step Towards Assurance Readiness

Preparing for mandatory assurance requirements is critical to ensuring your reporting is accurate, compliant, and strategically positioned.

Exploring all available options can unlock significant value and set you up for success.