Yesterday I wrote about how one French pension is putting pressure on their financial auditors. Here in the US, non-financial ESG/sustainability auditors – at least those auditing in certain environmental regulatory compliance contexts may soon have to make big changes in their audit practices. Our friend Chris McClure from Crowe posted a reminder last week that companies subject to EPA’s rules on hydroflouorocarbon (HFC) reduction under The American Innovation and Manufacturing (AIM) Act must file a third party audit by May 31, 2024. This is notable because under the regulation (40 CFR 84.33):
An auditor must meet the following requirements:
(1) The auditor must be a certified public accountant, or firm of such accountants, that is independent of the regulated person. Such an auditor must comply with the requirements for professional conduct, including the independence requirements, and the quality control requirements in 40 CFR 1090.1800(b)(1)(ii), as well as applicable rules of state boards of public accountancy. Such an auditor must also meet the requirements to perform an attestation engagement in 40 CFR 1090.1800(b)(1)(ii).
(2) The auditor must meet the independence requirements in paragraph (f) of this section.
The regulation goes into detail about independence and reporting requirements. EPA also provided a guide specifically for CPAs performing these audits, which states:
“The EPA has determined that attestation engagements, specifically agreed-upon procedures (AUP) engagements, performed in accordance with the AICPA Attestation Standards, specifically AT-C section 215 Agreed-Upon Procedures Engagements, by an independent certified public accountant (CPA), meet the audit requirement established in the Hydrofluorocarbon (HFC) Allocation Framework Rule…”
This isn’t the only EPA regulation mandating the use of CPAs. The regulations referenced in the AIM rule are attestation requirements under the Agency’s Fuels, Additives and Regulated Blendstock regulations for motor fuels. Piling on, non-financial ESG, sustainability and CSR auditors looking to conduct assurance engagements under SEC’s climate rule (once it is settled) will have to align with/adopt financial audit standards as I blogged about earlier. These firms face difficult choices if they want to stay in the game – at least in the US.
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