1. IASB – AMENDMENT TO IFRS 16 (SALE AND LEASEBACK TRANSACTIONS)
On 22nd September, 2022, the International Accounting Standards Board (IASB) issued Lease Liability in a Sale and Leaseback, amending IFRS 16, Leases. Extant IFRS 16 includes requirements on how to account for a sale and leaseback transaction at the date of the transaction but does not delve into specific subsequent measurement requirements. Consequently, when payments include variable lease payments in such a transaction, there is a risk that a modification or change in the leaseback term could result in the seller-lessee recognising a gain on the ROU retained even though no transaction or event would have occurred to give rise to that gain. The latest amendment explains how to account for a sale and leaseback after the transaction date. [https://www.ifrs.org/news-and-events/news/2022/09/iasb-issues-narrow-scope-amendments-to-requirements-for-sale-and-leaseback-transactions/]
On 29th September, 2022, the UK Endorsement Board (UKEB), which endorses new/amended IFRS standards for use by UK Companies, published a research report, Subsequent Measurement of Goodwill: A Hybrid Model, as a part of its contribution to the ongoing international debate on Day 2 goodwill measurement. The report explores the practical implications of a potential transition to a hybrid model for subsequent measurement of goodwill. Under a hybrid model, an annual amortisation charge would be combined with indicator-based impairment testing and disclosures to increase management accountability for acquisitions. [https://assets-eu-01.kc-usercontent.com/99102f2b-dbd8-0186-f681-303b06237bb2/da8976ce-bdf2-4173-839f-29d89c66a1ea/Subsequent%20Measurement%20of%20Goodwill%20-%20A%20Hybrid%20Model.pdf]
On 3rd October, 2022, the International Ethics Standards Board for Accountants (IESBA) released a Staff Alert, The Ukraine Conflict: Key Ethics and Independence Considerations, drawing the attention of professional accountants in business (PAIBs) and professional accountants in public practice (PAPPs), to important provisions in the International Code of Ethics for Professional Accountants. The publication highlights the ethical implications arising from the wide-ranging economic sanctions many jurisdictions have imposed on Russia and certain Russian entities/ individuals and the related ethical responsibilities of PAIBs and PAPPs. It also highlights key ethics considerations for PAPPs on client/ engagement acceptance, audits of financial statements, key independence considerations relating to overdue fees and the Code’s prohibition against assuming management responsibility. [https://www.ifac.org/system/files/publications/files/FINAL-IESBA-Staff-Alert-Ukraine.pdf]
4. FASB – IMPROVEMENTS TO SEGMENT DISCLOSURES
On 6th October, 2022, the Financial Accounting Standards Board (FASB) issued an Exposure Draft (ED) of Proposed Accounting Standards Update – Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures. The ED, inter alia, requires a public entity to disclose a) significant segment expenses that are regularly provided to the CODM and included within each reported measure of segment profit or loss (collectively referred to as the “significant expense principle”) and b) an amount for ‘other segment items’ by reportable segment. The ‘other segment items’ category is the difference between segment revenue less the significant expenses disclosed under the significant expense principle and each reported measure of segment profit or loss. [https://www.fasb.org/document/blob?fileName=Prop%20ASU—Segment%20Reporting%20(Topic%20280)—Improvements%20to%20Reportable%20Segment%20Disclosures.pdf]
On 24th October, 2022, the IASB proposed narrow-scope amendments to IFRS 9, Financial Instruments, covering: a) clarifications to assess whether a financial asset’s contractual cash flows are solely payments of principal and interest (SPPI) and new disclosure requirements for financial instruments not measured at FVTPL; b) derecognition requirements to permit an accounting policy choice to allow an entity to derecognise a financial liability before it delivers cash on the settlement date, subject to meeting specified criteria; and c) adding disclosure requirements in IFRS 7 on the aggregated fair value of equity investments for which the OCI presentation option is applied and changes in fair value recognised in OCI. [https://www.ifrs.org/news-and-events/news/2022/10/iasb-adds-narrow-scope-project-to-work-plan-on-possible-amendments-to-financial-instruments-accounting-standard/]
On 24th October, 2022, the International Auditing and Assurance Standards Board (IAASB) issued an Exposure Draft of Proposed International Standard on Auditing 500 (Revised), Audit Evidence. The proposed changes include: clarifying ISA 500’s purpose and scope; providing a principles-based approach to considering and making judgements about information intended to be used as audit evidence and evaluating whether sufficient appropriate audit evidence has been obtained; modernising the standard to be adaptable to current business and audit environment; and providing a ‘reference framework’ for auditors when making judgements about audit evidence throughout the audit. [https://www.ifac.org/system/files/publications/files/IAASB-Exposure-Draft-ISA-500-Audit-Evidence.pdf]
On 27th October, 2022, the FASB issued an Exposure Draft of Proposed Accounting Standards Update: Business Combinations – Joint Venture Formations (Subtopic 905-60), Recognition and Initial Measurement, to address accounting for contributions made to a joint venture (JV) upon formation in a JVs separate financial statements. Extant USGAAP does not provide related specific authoritative guidance resulting in diversity in practice – some JVs initially measure their net assets at fair value at the formation date, other JVs account for their net assets at the venturers’ carrying amounts. The ED proposes that a JV apply a new basis of accounting upon formation whereby it recognises and initially measures its assets and liabilities at fair value. [https://www.fasb.org/document/blob?fileName=Prop%20ASU—Business%20Combinations—Joint%20Venture%20Formations%20(Subtopic%20805-60)—Recognition%20and%20Initial%20Measurement.pdf]
On 31st October, 2022, the IASB amended IAS 1, Presentation of Financial Statements, to improve information about long-term debt with covenants. IAS 1 requires a company to classify debt as non-current only if the company can avoid settling the debt in the 12 months after the reporting date. However, a company’s ability to do so is often subject to complying with covenants. The amendments to IAS 1 specify that covenants to be complied with after the reporting date do not affect the classification of debt as current or non-current at the reporting date. The amendments require a company to disclose information about these covenants in the notes to the financial statements. The amendments are effective for annual reporting periods beginning on or after 1st January, 2024. [https://www.ifrs.org/news-and-events/news/2022/10/iasb-amends-accounting-standard-to-improve-information-about-long-term-debt-with-covenants/]
1. UK FRC – Thematic Review: Deferred Tax Assets. [21st September, 2022.]
2. THE TASKFORCE ON DISCLOSURES ABOUT EXPECTED CREDIT LOSSES UPDATED GUIDANCE – Recommendations on a Comprehensive Set of IFRS 9 Expected Credit Loss Disclosures. [23rd September, 2022]
3. UK FRC – Lab Report on Structured Digital Reporting, Improving Quality and Usability. [23rd September, 2022.]
4. IESBA – Ethical Leadership in A Digital Era: Applying the IESBA Code to Selected Technology-Related Scenarios. [26th September, 2022.]
5. UK FRC – Thematic Review: Business Combinations. [29th September, 2022.]
6. UK FRC – Annual Review of Corporate Reporting – 2021-22 Report. [27th October, 2022.]
7. IFAC – Quality Management Series: Small Firm Implementation – Instalment One: It is Time to Get Ready for the new Quality Management Standards. [31st October, 2022.]
8. IFRS INTERPRETATIONS COMMITTEE – Compilation of Agenda Decisions – Volume 7. [2nd November, 2022.]
1. All publications are available online as free downloadable material at the respective organisation’s websites.
ENFORCEMENT ACTIONS
1. DEFICIENCIES IN AUDIT FIRM’S QUALITY CONTROL SYSTEM
The case – The matter concerns a Korean Audit Firm’s failure to take the required steps after learning that certain audit procedures may not have been performed and sufficient audit evidence may not have been obtained in connection with an audit. Specifically, after the Component Audit had been completed and the Audit Firm was preparing for a PCAOB inspection, the Firm’s senior personnel learned that the engagement team for the Component Audit may have failed to perform certain planned procedures for accounts receivable and may have failed to obtain sufficient appropriate audit evidence – that significant portions of the engagement team’s documentation related to accounts receivable for the Component Audit consisted primarily of prior-year work papers. The Audit Firm failed to take reasonable steps at the time to determine and demonstrate that sufficient procedures were performed, sufficient evidence was obtained, and appropriate conclusions were reached with respect to relevant assertions for accounts receivable. The Audit Firm thereby violated PCAOB auditing standards. The matter also concerned the Audit Firm’s failure to establish and implement appropriate policies and procedures to provide reasonable assurance that: a) personnel would assemble for retention (‘archive’) a complete and final set of audit documentation in connection with each issuer audit; and (b) archived audit documentation would be protected against improper alteration. In particular, the Audit Firm failed to establish appropriate policies and procedures to address the risk that hard-copy work papers might be improperly added to previously archived audit documentation.
The order – The PCAOB censured the Audit Firm, imposed a civil money penalty of $350,000 and required it to undertake and certify the completion of certain improvements to its quality control system. [Release No. 105-2022-012 dated 16th August, 2022.]
2. AUDIT OF A CRYPTO COMPANY – AUDIT FIRM UNDERTOOK ENGAGEMENT THAT IT COULD NOT REASONABLY EXPECT TO COMPLETE WITH PROFESSIONAL COMPETENCE
The case – The client company (CC) reported in its post-merger financial statements that it held more than eleven different cryptocurrencies, which were significant to its assets and revenue, and that its mission was to provide investors with a diversified exposure to cryptocurrency markets. These cryptocurrencies were purchased or traded using various types of software and hardware-based wallets on various unregulated cryptocurrency trading platforms (cryptocurrency ‘exchanges’). The engagement team’s planning documentation and related communications to the audit committee for the 2017 audit concluded no specialized skills or knowledge were needed, despite being aware that CC’s investment activities in cryptocurrencies, which relied on new technology, required specialized skills. In addition, notwithstanding the engagement team’s identification of significant risks of material misstatement related to the digital nature of cryptocurrency, and its lack of experience in auditing cryptocurrencies, the engagement team unreasonably concluded no specialized IT skills were needed to address those risks. The engagement team also failed to gain a sufficient understanding of CC’s internal control over financial reporting to appropriately plan its audit, including CC’s use of service organizations for cryptocurrency investments.
Specifically, the Firm’s system of quality control did not provide reasonable assurance that: (1) the Firm undertook only those engagements that the Firm could reasonably expect to complete with professional competence, and appropriately considered the risks associated with providing professional services in the particular circumstances; (2) work was assigned to personnel having the degree of technical training and proficiency required in the circumstances; and (3) the work performed by engagement personnel met applicable professional standards, regulatory requirements, and the Firm’s quality standards.
The order – The PCAOB censured the Audit Firm; imposed civil money penalties of $30,000 and $25,000 on the audit firm and the Engagement Quality Review Partner, respectively; and required the audit firm to undertake certain remedial measures, including establishing quality control policies and procedures. [Release No. 105-2022-029 dated 3rd November, 2022.]
1. A DALLAS (US) BASED AUDIT FIRM
Audit area – Critical Audit Matters (CAMs)
Audit deficiency – In an audit reviewed by PCAOB, other than a matter that was communicated in the auditor’s report as a CAM, the firm did not perform procedures to determine whether other matters that were communicated to the audit committee, and that relate to accounts or disclosures that are material to the financial statements, were CAMs. In this instance, the firm was non-compliant with AS 3101, The Auditor’s Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion. This instance of non-compliance does not necessarily mean that other CAMs should have been communicated in the auditor’s report. [Release No. 104-2022-113 dated 8th April, 2022.]
Audit area – Internal Control over Financial Reporting (ICFR)
Audit deficiency – In one audit, the Audit Firm did not include in its ICFR report a disclosure regarding the exclusion of an acquired business from the scope of both management’s assessment and the firm’s audit of ICFR. In this instance, the firm was non-compliant with AS 2201, An Audit of Internal Control Over Financial Reporting That Is Integrated with An Audit of Financial Statements. [Release No. 104-2022-108 dated 8th April, 2022.]
Audit areas – Non-compliance with PCAOB Standards
Audit deficiency- In an audit reviewed by PCAOB, the Audit Firm did not provide a copy of the management representation letter to the audit committee. In this instance, the firm was non – compliant with AS 1301, Communications with Audit Committees, and AS 2805, Management Representations. In another audit reviewed, the Audit Firm did not place the Basis for Opinion section as the second section of its audit report resulting in non-compliance with AS 3101, The Auditor’s Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion. [Release No. 104-2022-106 dated 8th April, 2022.]
Audit areas – Inventory & Audit Documentation
Audit deficiency – The Audit Firm selected for testing various controls that consisted of management’s review of inventory costs (including capitalized overhead), inventory valuation and related account reconciliations. It did not evaluate the review procedures that the control owners performed, including the procedures to identify items for follow up and the procedures to determine whether those items were appropriately resolved.
Also, the Audit Firm did not assemble a complete and final set of audit documentation for retention within 45 days following the report release date. In this instance, the firm was non-compliant with AS 1215, Audit Documentation. [Release No. 104-2022-129 dated 21st April, 2022.]
Audit area – Non-compliance with PCAOB Standards and Rules
Audit deficiencies – The individual who performed the engagement quality review was an employee of the firm who was not a partner or an individual in an equivalent position. In this instance, the firm was non-compliant with AS 1220, Engagement Quality Review
The Audit Firm did not include in the audit report the city and country from which the audit report was issued. In this instance, the firm was non-compliant with AS 3101, The Auditor’s Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion.
The Audit Firm included in its audit report an explanatory paragraph describing substantial doubt about the client’s ability to continue as a going concern but did not place it immediately following the opinion paragraph. In this instance, the firm was non-compliant with AS 2415, Consideration of an Entity’s Ability to Continue as a Going Concern. [Release No. 104-2022-126 dated 21st April, 2022.]
Audit area – Intangible Assets
Audit deficiency – During the year, the client extended the useful lives of its intangible assets from their original lives. The management used a discounted cash flow analysis over the extended lives to evaluate its intangible assets for possible impairment. The firm did not perform sufficient procedures to evaluate the reasonableness of the sales projections as it did not perform procedures, beyond inquiry, to test the reasonableness of extending the useful lives. (AS 2502.26 and .28) In addition, the firm did not sufficiently evaluate the management’s ability to achieve its forecasted sales projections considering the substantial doubt about the client’s ability to continue as a going concern because it limited its procedures to inquiry and comparing the forecasted sales projections to the current year results. [Release No. 104-2022-125 dated 21st April, 2022.]
Audit area – Related Parties
Audit deficiency –The Audit Firm did not perform sufficient procedures to evaluate whether the client had properly identified, accounted for, and disclosed its related party relationships and transactions. Specifically, the firm did not evaluate whether certain transactions (communicated by it to the audit committee as significant unusual transactions) with a company for which (i) a shareholder of the client was a director, and (ii) an immediate family member of the client’s majority shareholders was the CEO were related party transactions that the client should have identified and disclosed and whether such transactions were accounted for appropriately In addition, the Audit Firm did not perform procedures to obtain an understanding of the business purpose (or the lack thereof) of the transactions. [Release No. 104-2022-119 dated 21st April, 2022.]
Audit area – Financial Reporting and Close
Audit deficiency- The Audit Firm identified a risk related to the manual consolidation process. It did not identify and test any controls over the client’s financial statement consolidation process, including controls over journal entries and other adjustments. In addition, it did not perform any procedures to identify and select journal entries and other adjustments for testing. Further, the Audit Firm used the work of the issuer’s internal audit for certain testing of controls over the financial reporting and close process at certain components. It did not assess the competence and objectivity of internal audit to support the extent to which the Audit Firm used its work. [Release No. 104-2022-134 dated 13th May, 2022.]
Audit area – Financial liability
Audit deficiency – The client entered into a licensing arrangement in which the licensee purchased the client’s common shares and warrants. The arrangement also included an option (‘put option’) that required the issuer to repurchase certain of the common shares under specific conditions for cash. The client did not record the put option. The Audit Firm did not identify and appropriately address a departure from IFRS related to the client not recording the put option as a financial liability at the present value of the redemption amount, in conformity with IAS 32, Financial Instruments: Presentation. [Release No. 104-2022-142 dated 26th May, 2022.]
1. SEC charges a bank holding company and its former CEO with Failure to Disclose Related Party Loans
The SEC charged a Maryland based Bank holding Company, and its former CEO and Chairman of the Board with negligently making false and misleading statements about related party loans extended by the bank to his family trusts.
The SEC’s order reports that the company and its former executive stated in press releases, news articles, and meetings with investors that the trust loans were not related party loans and that the company was in compliance with all related party loan requirements. The SEC’s order finds that even though the company’s independent auditor and primary regulator concluded that the trusts were related parties under GAAP and banking regulations, respectively, it again failed to disclose the trust loans as related party loans in its 2017 annual report.
USGAAP (ASC 850) requires companies to disclose in their financial statements material related party transactions. Related parties include management, directors, and their immediate family members, and “other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.” Also, SEC Rule 9-03 of Regulation S-X requires bank holding companies to disclose the aggregate dollar amount of loans exceeding $60,000 made to directors, executive officers or shareholders or to any associates of such persons, as long as the aggregate amount of such loans exceeds 5% of shareholders’ equity. “Associate” includes immediate family members, entities in which such person has at least 10% ownership, and trusts “for which such person serves as trustee or in a similar capacity.”
Without admitting or denying the SEC’s findings, the Company agreed to cease and desist from future violations and to pay disgorgement of $2.6 million, prejudgment interest of $750,493, and a civil penalty of $10 million. [Release No. 2022-146 dated 16th August, 2022 – https://www.sec.gov/litigation/admin/2022/33-11092.pdf]
2. SEC charges a technology-based company with misleading investors by obscuring financial performance
The SEC charged a California-based technology company for misleading investors about its order backlog management practices. The Company’s backlog at the end of each reporting period consisted of unfulfilled orders for software, maintenance, and related professional services. Under USGAAP, revenue is recognised upon transfer of control. The Company recognised revenue upon delivery to customers of license keys to access on-premises or cloud-based software. During F.Y.2019 and 2020, the company controlled the timing of its revenue recognition by placing discretionary holds on selected sales orders, which delayed the delivery of license keys. The company employed discretionary holds when business objectives – including those for “bookings” and revenue – had been achieved, in order not to exceed the company’s revenue guidance. Using discretionary holds, orders were entered into the company’s system, but order booking – and the coincident, automated email delivery of license keys – was suspended until just after quarter-end, at which point the hold was released, the order booked, and revenue subsequently recognised.
The SEC’s order found the company violated antifraud provisions of the Securities Act of 1933 as well as certain reporting provisions of the federal securities laws. Without admitting or denying the findings in the SEC’s order, the Company consented to a cease-and-desist order and to pay $8 million penalty. [Release No. 2022-160 dated 12th September, 2022 – https://www.sec.gov/litigation/admin/2022/33-11099.pdf]
1. Sanctions against a UK-based Audit Firm for failings in audit of related party disclosures
The Case – The FRC imposed sanctions against a UK based Audit Firm and one of its former partners (Respondents) in relation to their statutory audits of the financial statements of a LSE listed high street retailer for F.Ys. 2016 and 2018. The FRC, inter alia, noted serious failings by the Respondents in the conduct of the audit concerning their assessment as to whether the client’s financial statements contained the necessary disclosures to draw attention to the possibility that its financial position may have been affected by its relationship with Delivery Company A.
Key adverse findings include: the Respondents identified related parties as an area of significant risk, but failed to treat with professional scepticism the management’s assertion that Delivery Company A was not a related party of the client; the Respondents should have obtained audit evidence commensurate with the level of risk, but the evidence obtained was insufficient for the Respondents to reach a reasonable conclusion as to the appropriateness of the related parties disclosure; the Respondents failed to evaluate whether the overall presentation of the relationship between the client and Delivery Company A in the financial statements met reporting requirements and in so far as the Respondents did consider these issues, they failed to document their consideration, conclusions, and audit evidence; and even though related parties had been identified as a significant risk, the Respondents also failed adequately to communicate this to those charged with governance before the 2016 financial statements were finalised.
The Sanctions – The FRC imposed financial sanctions of £1,700,000 and £350,000 on the Audit Firm in respect of the 2016 and 2018 audits, respectively and non-financial sanctions that included a declaration that that the Statutory Audit Report for 2016 and 2018 did not satisfy the Relevant Requirements. A financial sanction of £120,000 was imposed on the former partner of the Audit Firm. [https://www.frc.org.uk/news/july-2022/sanctions-against-grant-thornton-uk-llp-and-philip | 18th July, 2022.]
I. KEY RECENT UPDATES
1. IFRS FOUNDATION COMPLETES CONSOLIDATION WITH VALUE REPORTING FOUNDATION
On 1st August, 2022, the IFRS Foundation announced the completion of the consolidation of the Value Reporting Foundation (VRF) into the IFRS Foundation. This follows the commitment made at COP26 to support the International Sustainability Standards Board’s (ISSB) work to develop a comprehensive global baseline of sustainability disclosures.
The VRF’s SASB (Sustainability Accounting Standards Board) Standards serve as a key starting point for developing the IFRS Sustainability Disclosure Standards, while its Integrated Reporting Framework provides connectivity between financial statements and sustainability-related financial disclosures. The ISSB has articulated its encouragement to companies and investors to continue providing full support for and using the SASB Standards. The IFRS Foundation’s IASB and the ISSB now assume joint responsibility for the Integrated Reporting Framework and are working together to agree on how to build on and integrate the Integrated Reporting Framework into their standard-setting projects and requirements. The ISSB and IASB actively encourage the continued adoption of the Integrated Reporting Framework to drive high-quality corporate reporting.
2. IESBA – ETHICS CONSIDERATIONS IN SUSTAINABILITY REPORTING
On 21st October, 2022, the International Ethics Standards Board for Accountants (IESBA) released a Staff Q&A publication, Ethics Considerations in Sustainability Reporting, Including Guidance to Address Concerns about Greenwashing, that highlights the relevance and applicability of the International Code of Ethics for Professional Accountants to ethics-related challenges in the context of sustainability reporting and assurance, especially circumstances involving misleading or false sustainability information (i.e., “greenwashing”). The publication is intended to assist professional accountants, especially those in business, but might also be of interest to other professionals involved in preparing sustainability reports or disclosures.
On 1st November, 2022, the ISSB unanimously confirmed that companies will be required to use climate-related scenario analysis to inform resilience analysis. It also agreed to provide application support to preparers including making use of materials developed by the Task Force for Climate-Related Financial Disclosures (TCFD) to provide guidance to preparers on how to undertake scenario analysis. This decision responds to questions from stakeholders about what is meant by the term ‘climate-related scenario analysis’.
4. CDP TO INCORPORATE ISSB CLIMATE-RELATED DISCLOSURES STANDARD INTO GLOBAL ENVIRONMENTAL DISCLOSURE PLATFORM
On 8th November, 2022, CDP, the not-for-profit which runs the global environmental disclosure platform for corporations, and the IFRS Foundation announced that CDP will incorporate the International Sustainability Standard Board’s (ISSB) IFRS S2, Climate-related Disclosures Standard into its global environmental disclosure platform, in a major step towards delivering a comprehensive global baseline for capital markets through the adoption of ISSB standards. The Standard, currently being finalised, will be incorporated into CDP’s existing questionnaires, which are issued to companies annually on behalf of 680 financial institutions with over $130 trillion in assets.
5. IFAC – REPORT HIGHLIGHTS LACK OF COMPARABILITY IN CORPORATE CLIMATE REPORTING
On 9th November, 2022, the International Federation of Accountants (IFAC) released a report Getting to Net Zero: A Global Review of Corporate Disclosures, that focuses on corporate emissions reduction reporting. The report’s findings strongly support the movement in global policy towards rapidly enhancing the usefulness of disclosures on climate-related targets and transition plans. The report analyses disclosure trends in emissions reduction targets and transition plans of the 40 largest exchange-listed companies in 15 jurisdictions, for a total of 600 companies.
- INTEGRATED REPORTING MATERIAL
1. The Institute of Internal Auditors – Prioritizing ESG: Exploring Internal Audit’s Role as a Critical Collaborator.
2. UK FRC – Lab Report: FRC Statement of Intent on Environmental, Social and Governance Challenges. [30th August, 2022.]
3. UK FRC – Lab Report: Net Zero Disclosures. [11th October 2022.]
Hereinbelow are provided extracts from the 2021 ESG Report of an FTSE 100 company relating to measuring and monitoring the impact of greenhouse gas emissions.
Company: Harbour Energy plc [Y.E. 31st December, 2021 Revenues – $ 3.48 billion]
Energy and GHG emissions – Measuring and monitoring our impact
- The primary sources of GHG emissions across our operations are associated with the combustion of fuels.
- Total Scope 1 and 2 GHG emissions from our operated facilities and drilling operations amounted to 1.6 million tonnes CO2eq. Our operations in the UK were responsible for 1 million tonnes of CO2eq, with the remaining coming from our International operations.
- In terms of GHG per activity, production accounted for 92 per cent of all emissions, with drilling and decommissioning accounting for the remaining 8 per cent. Only 3 per cent of our emissions were as a result of safety, routine and non-routine flaring (accounted for within our production and drilling activities).
- Using IPCC global warming potentials to calculate CO2 equivalency, CO2 made up 94 per cent of our total emissions in 2021. Methane (CH4) made up 4 per cent with Nitrous Oxide (N2O) making up the remaining 2 per cent of our total GHG emissions for the year.
- 2021 Scope 1 GHG emissions were lower than our target as a result of improvements in plant efficiency and lower production, including as a result of the delayed start-up of the Tolmount project in the UK.
- Our equity share of GHG emissions from both our operated and non-operated assets was 1.39 million tonnes of CO2eq in 2021.
Indirect emissions
- Our indirect GHG emissions (Scope 2) account for only a small percentage of our total carbon footprint. In 2021, our indirect emissions (from consumption of purchased electricity, heat or steam) across our own operations was 3.9k tonnes CO2eq, less than 0.3 per cent of our combined Scope 1 and 2 emissions output.
- Our Scope 3 emissions related to employee travel and commuting amounted to 448 tonnes of CO2eq in 2021.
Discharges to air
- In 2021 total flaring amounted to 50k tonnes. This was made up of routine, non-routine flaring (comprising flaring during upset conditions), and safety flaring.
- In 2021 Harbour publicly endorsed the World Bank’s “Zero Routine Flaring by 2030” initiative.
Energy consumption
- In 2021, our operated assets used 22.4 million GJ of energy, with 18.1 million GJ in the form of fuel gas, and 4.3 million GJ in the form of diesel.
- Our energy intensity was 2.1 GJ per tonne of production.
- The share of renewables in our offshore energy consumption was zero during 2021.
Fuel use
- We used 546k tonnes of fuel in 2021. 82 per cent of this comprised fuel gas produced from our offshore facilities. The remainder was made up by diesel use on the drill rigs, vessels, helicopters and fixed wing planes that support our operations.
Emissions reduction
- As part of our journey towards Net Zero, we continually strive to reduce our environmental footprint by improving our operations including through energy efficiency.
- In 2021, we continued these efforts through our Environmental Hopper process. We use this tool to identify, capture and screen improvement opportunities based on feasibility, emissions and costs.
- Throughout the year we implemented projects that are expected to result in annual emissions-reduction savings of 56k tonnes CO2eq. These were primarily as a result of reducing fuel demand on the Judy and Britannia facilities by utilising single train export compression where production rates allow.
Looking ahead, our focus areas include:
- Successfully implementing our sanctioned emissions reduction projects
- Building asset-specific emissions-reduction plans, with a strong focus on flaring and venting
- Continuing baseline methane emissions surveys
This saying perfectly applies to the audit profession, wherein all the actions taken by the auditors are essentially the result of a careful evaluation. For instance, before accepting the appointment, the auditor is required to ensure independence and client and engagement evaluation, before starting the audit he needs to complete the engagement formalities and audit planning, and before issuing the audit report he needs to ensure the performance and documentation of his audit procedures.
