4.6 - Risks in Relation to Climate Change

Question 1

How are audit risks and climate change related?

Answer 1

Audit risks may arise in relation to a company’s own reporting responsibilities, as well as financial reporting issues that may arise in connection with climate change

Question 2

The auditor may consider the implications of climate-related risks when obtaining an understanding of the entity and whether climate-related risks have any influence on: (first 2 factors)

Answer 2

• the entity’s business model (e.g entity’s supply chain)
• industry factors (e.g competitive environment, supplier and customer relationships, and technological developments)

Question 3

The auditor may consider the implications of climate-related risks when obtaining an understanding of the entity and whether climate-related risks have any influence on: (other 2 factors)

Answer 3

• regulatory factors (e.g climate-related laws and regulations)
• other external factors (such as the economic conditions, interest rates and availability of financing, commodity prices and inflation or currency revaluation)

Question 4

Climate change is giving rise to business risks and it is essential that companies…

Answer 4

Appropriately embed climate-related financial risk into their governance and risk management processes. They must assess the risk arising from sustainability impacts and dependencies and formulate appropriate responses to them

Question 6

The auditor may consider the implications of climate-related risks when obtaining an understanding of the entity and whether climate-related risks have any influence on:
(first 2 factors)

Answer 6

• the entity’s business model (e.g supply chain)
• industry factors (e.g competitive environment, customer and supplier relationships, and technological developments)

Question 7

The auditor may consider the implications of climate-related risks when obtaining an understanding of the entity and whether climate-related risks have any influence on:
(other 2 factors)

Answer 7

• regulatory factors (e.g climate-related laws and regulations)
• other external factors (e.g economic conditions, interest rates and availability of financing, commodity prices and inflation or currency revaluation)

Question 8

Climate change is giving rise to business risks and it is essential that companies…

Answer 8

Appropriately embed climate-related financial risk into their governance and risk management process. They must assess the risk arising from sustainability impacts and dependencies and formulate appropriate responses to them

Question 9

Businesses will have an increasing responsibility to…

Answer 9

Report on sustainability impacts and dependencies, any business risks arising and the responses to these risks

Question 10

Auditors have the responsibility to…

Answer 10

Challenge businesses on how they have assessed, concluded and reported in this area

Question 11

What are the two ways to categorise risks the business will face from climate change?

Answer 11

• physical risks
• transition risks