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Environmental Audit Case Study

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The environment is one of the important issues that the auditor must consider when assessing the risk of financial misstatement.

The significance of environmental matters to the financial statements and the related risks normally depends on the nature of a company’s business. Certain industries, by their nature, tend to be more exposed to significant environmental risk. It is less likely to be dependent on the size of a company; small businesses are, in general, as likely to cause environmental damage as large businesses. An auditor needs to decide whether environmental issues are significant to the financial statements. The auditor’s procedures typically include obtaining an understanding of the company by applying analytical procedures …show more content…

Based on the auditor’s understanding of the company ’s objectives and strategies, the auditor makes an assessment of the related business risks that may result in material misstatement of the financial statements.

Internal control is one of the principal elements in the management of risk and a sound system of internal control depends on a thorough and regular evaluation of the nature and extent of the risks to which a company is exposed. Environmental matters may be a significant source of risk. Where this is the case, an internal control system would not be effective unless it covered items giving rise to environmental risk.

Where environmental issues are a significant risk to the reliability of the financial statements, it is possible that the auditor will decide to evaluate the design and implementation of environmental controls. If the auditor intends to rely on the controls based on the evaluation of them, the auditor obtains evidence of the design and operating effectiveness of related …show more content…

If the auditor becomes aware of any misstatements or inconsistencies, the auditor should seek to resolve them. If the auditor is unable to resolve the problem, this may necessitate a qualified opinion on the financial statements, and/or reference to an ‘other matter’ in the auditor’s report, drawing attention to a potential misstatement or inconsistency in the other information. It is important to distinguish between information included in documents contained within the annual accounts and other information released separately without the auditor’s knowledge. If a company produces an environmental report, or a corporate responsibility report containing environmental information, that does not form part of its annual report containing the audited financial statements, the auditor is not required to read it. However, if, prior to its release, the auditor becomes aware of the separate report, the auditor will often regard the

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