Audit programme

The Board has established an audit programme to provide assurance to Market Participants, regulators and stakeholders that the markets are being operated in accordance with the Market Rules and Standards. 


Market Operator Assurance Audit

Audit Guideline

Version 1.0 September 2023

Introduction


The Interim Environmental Markets Board (Board) has been established to provide independent oversight of the governance framework for the operation of participating environmental markets. 


Building and maintaining trust and confidence in the integrity of these environmental markets depends on being able to demonstrate that: 

  • the markets are delivering outcomes that improve the environment (doing the right things); and 
  • the Market Operators and complying with the Market Rules (doing things right). 


The markets being overseen by the Board are in the early stages of development and operation. The Board has therefore approved and published an initial set of Market Rules for Market Operators, which will be reviewed after the initial Market Rounds to ensure that they are facilitating trades which result in lasting environmental improvements. 


The Board has also established an audit programme to provide assurance to Market Participants, regulators and stakeholders that the markets are being operated in accordance with the Market Rules and Standards. 


The audit programme complements other assurance mechanisms overseen by the Board including establishing a Technical Advisory Group to oversee performance monitoring of the environmental outcomes being delivered on the ground.


This Guidelines sets out how Market Operator Audits will be conducted. 

Purpose of this Guideline


The Audit guideline sets out the requirements of the Board when a Market Operator is required to commission an assurance audit. 


The guideline relates to the Board’s market oversight role to monitor and enforce compliance with the Market Rules. 


The guideline applies to the requirement under Rule 8.2.3 a) that a Market Operator must demonstrate that it has the necessary organisational and technical capacity to operate the Environmental Market in compliance with the Market Rules. 



The guideline is intended to: 

  • Ensure that audits are conducted independently, thoroughly, and consistently 
  • Encourage a culture of continuous improvement by Market Operators 
  • Promote cost-effectiveness by taking a risk-based approach to the scope of audits. 


The guideline also applies to auditors appointed by the Market Operator and requires that all regulatory audits are based on industry standards for non-financial auditing. 

Purpose of an assurance audit


The purpose of an assurance audit is to provide the Board with independent assurance that a Market Operator is complying with the Market Rules. 


To make sure that an audit is independent, a three-party relationship must exist between the Board, the Market Operator, and the approved auditor. 


The Board is the intended recipient of the audit. 


The primary duty of the auditor is to the Board. 

Identifying risk, determining type, frequency and timing of an audit 


The Board will periodically conduct a Market Operator risk assessment to determine: 

  • the need for an audit 
  • priority areas to be included in the scope of an audit 
  • the timing of the audit. 


In the early stages of market development, Market Operator risk assessments will be conducted for a particular Market Operator(s) and may cover one or more markets. 


In conducting a risk assessment, the Board will consider the inherent risks and consequences of a Market Operator’s non-compliance, taking into account a range of factors, including: 

  • the impact of non-compliance on Market Participants 
  • the impact of non-compliance on third parties, including Local Planning Authorities 
  • existing risk-mitigation and the likelihood of non-compliancethe compliance history of the Market Operator 
  • the cost to Market Operators 
  • any other factor considered relevant by the Board. 


To assist in defining the scope of an audit, the Board may request a Market Operator to submit a self-assessment of their most significant compliance risks and management strategies. 


Market Rules identified with low or medium residual risk may be subject of less frequent audits. Rules that pose low risk or medium risk will have no direct legal or financial impact on Market Participants. 


The frequency and timing of an audit is at the sole discretion of the Board. 

Appointment of auditor 

On the request of the Board, a Market Operator must nominate an auditor to undertake the audit scope. 


A nominated auditor must be from a firm that is subject to ISQC(UK) 1 or other equivalent professional requirements. 


The Board will not approve an auditor from a firm that has audited the Market Operator for a continuous period of five years. 


Once the Board has approved the auditor, it will enter a tripartite deed with the Market Operator, and the auditor, to cover the conduct of the audit. 


The terms of the tripartite deed for each audit must be approved in advance by the Board Secretary. 

Approving the audit scope 

In response to its risk assessment, the Board may require, in consultation with the Market Operator, one or more of the following types of audits to be performed: 

  • Baseline audit to provide a baseline assessment of the Market Operator’s compliance with key Market Rules. Where a Market Operator has been operating a market for 12 months or less, a modified version of the baseline audit may be performed. 
  • Thematic audit to provide an extensive assessment of selected Market Rules that are the subject of audits of Multiple Market Operators. 
  • Tailored audit to provide an extensive assessment of selected Market Rules applicable to a specific Market Operator. 


The Audit must be conducted in accordance with an appropriate audit standard 


Identifying the Market Rules to be the subject of an audit 

Before each Audit, the Board, in consultation with the Market Operator, will review and nominate the Market Rules for the Market Operator which will be included in the audit. 


The Board will document this as the minimum audit scope. 


The minimum audit scope will specify: 

  • the Market Rules (generally identified by Rule and sub-rule number) 
  • the audit period 
  • the type of audit 
  • details of the expected time frame for undertaking and completing the audit, and for providing final audit report. 


The Market Operator will provide the minimum scope to the nominated auditor as the basis for the Audit Contract. 

Assessing and reporting on compliance 

Auditors must report on the evidence of compliance with Market Rules relating to data against the following criteria: 

  • Data reliability 
  • Data accuracy 


Auditors must report on the evidence of compliance with Market Rules related to processes and controls against the following criteria: 

  • Adequacy of process control 
  • Effectiveness of process control. 


The approved auditor must submit a proposed traffic light grading system for each criteria to the Board for approval prior to commencement of an audit. 


To assess if compliance is reliable and demonstrable, the auditor may consider the following control areas: 

  • policies / procedures; 
  • skills / training; 
  • systems / maintenance; 
  • monitoring / feedback; 
  • culture / practices. 

Audit Report 

The Market Operator must ensure that its chief executive officer/managing director or a delegated officer authorises the management comments in the audit report. 


The auditor must provide a draft audit report to the Board and the Market Operator simultaneously. 

Responding to the audit 

The Market Operator must ensure that: 

  • its board or a delegated officer considers the audit report as soon as possible after it is received. 
  • it provides the Board with a written statement of response to the audit within 30 business days of receiving the audit report. 


The Market Operator’s statement of response to the draft audit must include: 

  • the actions and timeframe for remedying any non-compliance with the Market Rules. 
  • the response to the auditor’s recommendations 
  • the proposed improvements to the Market Operator’s systems and processes to avoid future non-compliance and the timeframe for completing the improvements. 


The Board will consider the Market Operator’s statement of response to the draft audit at its earliest convenient meeting. 


If the Board is satisfied with the statement of response to the audit, it will advise the Market Operator that the audit report can be finalised. 


If the Board is not satisfied with the statement of response to the audit, it will advise the Market Operator of its reasons, and require an amended statement of response to be submitted to the Board within fifteen (15) working days. 


If an amended statement of response is not submitted within the required timeframe, or the Board is not satisfied with the amended statement of response, the Board will issue a notice requiring the Market Operator to show cause why it should not be suspended from operating the market in accordance with Rule 8.3.1. 


Once the audit report is finalised, the Board will issue a public response to the audit, to be published on the Board website. 

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