Climate considerations in financial statement audits

Generally accepted auditing standards require auditors to identify and assess the risks of material misstatement in the financial statements of the companies they audit in accordance with the financial reporting framework and to design and perform audit procedures responsive to those risks including, when relevant, climate-related risks.

Specifically, within Deloitte’s Audit & Assurance (A&A) practice, Deloitte is committed to supporting net-zero ambitions by planning and performing financial statement audits with a focus on quality, integrity, and objectivity, and in accordance with the relevant laws, regulations, and professional standards. Further, as one of the leading A&A providers, Deloitte has developed best-in-class training and methodologies, which embed climate considerations and keep pace with the relevant accounting, auditing, and assurance professional standards.

To demonstrate Deloitte A&A’s commitment to net-zero ambitions, Deloitte A&A has been monitoring four quality metrics in the audits of select financial statements:

1. Application of audit methodology – this quality metric measures the percentage of Deloitte in-scope engagement teams that performed specific audit procedures to determine whether climate risks were material to the financial statements in accordance with the financial reporting framework.
2. Training – this quality metric measures the percentage of Deloitte engagement team practitioners assigned to the in-scope engagement teams at the manager level and higher who received training related to assessing and responding to climate risks in audit engagements.
3. Communications – this quality metric measures the percentage of Deloitte in-scope engagement teams that discussed the relevance of climate risks to the financial statements and the audit with the audited entity’s management and those charged with governance.
4. Reporting – this quality metric measures the percentage of Deloitte in-scope engagement teams that considered whether climate risks needed to be explicitly mentioned in their audit reports.

Each metric contributes to the overall picture of whether climate-related risks were appropriately considered and responded to during a financial statement audit. Deloitte monitored these metrics for December 2023, March 2024, and June 2024 year-end audits of select companies determined by Deloitte as being among the most significant companies we audit in carbon-intensive industries (e.g., oil and gas, industrial products, and electrical utilities) (referred to as “in-scope engagements”). Consistent with last year, Deloitte achieved 100% for each of the four quality metrics (i.e., all in-scope engagements met the criteria measured in each metric). Deloitte will reassess the list of in-scope engagements periodically to reconsider our monitoring activities around considerations of climate-related risks on financial statement audits.

Climate-related stakeholder engagement and actions

During FY2024, Deloitte continued to engage proactively with key stakeholders, including policymakers whose activities affect business and industry and who may be in positions to establish public policies that support a net-zero transition of economic sectors in line with science and with regard to social impacts. These engagements are described in the Environmental section of the Deloitte Global Impact Report along with Deloitte’s science-based emissions reduction targets.