Auditing and Assurance: Power Industry Audit

The Power Industry

• The power industry is a critical sector in the Philippine economy, contributing significantly to the GDP.
• It provides electricity to businesses and households, driving industrial growth and enabling economic development.
• The industry is divided into three major sectors: generation, transmission, and distribution, with a new Supply sector added after the EPIRA Act.

Role of Auditors in the Power Industry

• Auditors play a critical role in ensuring the accuracy, reliability, and transparency of financial information and compliance with legal and regulatory requirements.
• They promote accountability and good governance in the power industry, essential for sustainable economic development.

Nature and Trends of the Power Industry

• The industry faces challenges such as increasing demand for electricity, high electricity prices, and substantial investment needs.
• There is a growing trend towards sustainability, with the United Nations' Sustainable Development Goals (SDGs) and the Philippines' AmBisyon Natin 2040 influencing the industry's direction.

Social Issues in the Power Industry

• The Philippine mining industry, which is related to the power industry, has faced criticism for its negative social impacts, such as displacement of indigenous peoples and human rights abuses.
• Mining activities can disrupt local communities and result in the loss of ancestral lands and cultural heritage.

Special Accounting Considerations in the Power Industry

• Depletion is a significant accounting issue in the power industry, requiring the systematic allocation of mineral resource costs over the life of the mining operation.
• The industry faces unique depletion issues due to the complex nature of estimating mineral reserves, affected by geological uncertainties and changes in mining methods and technologies.

Audit Considerations in the Power Industry

• Auditors must consider regulatory compliance, revenue recognition, significant contracts, capital expenditures, and financial statement disclosures.
• They must also assess the company's cybersecurity measures, including the effectiveness of policies and procedures, and evaluate potential cybersecurity risks.
• The use of specialized experts, such as geodetic engineers, financial valuation specialists, and environmental engineers, is crucial in ensuring accurate assessment of technical aspects and compliance with regulations.### Revised Sustainability Reporting Guidelines
• The Securities and Exchange Commission (SEC) issued a draft Memorandum Circular on the Revised Sustainability Reporting Guidelines for public comment on October 4, 2023.
• The revised guidelines aim to update the current rules on sustainability reporting under SEC Memorandum Circular No. 4, Series of 2019 (MC 4).
• Publicly Listed Companies (PLCs) will be required to submit sustainability reports in two formats: the SR Narrative and the Sustainability Report (SuRe) Form.

Global Advancements in Sustainability Reporting

• The revised guidelines consider the latest global advancements in sustainability reporting frameworks, including:
• IFRS S1 (General Requirements for Disclosure of Sustainability-related Financial Information)
• IFRS S2 (Climate-related Disclosures)

The Way Forward: ESG and Sustainability Reporting

• ESG and sustainability reporting is a necessity, not just a trend.
• There is a need for global standardized reporting mechanisms.
• Organizations should adopt a proactive approach, integrating ESG considerations into their core strategy.

Laws Applicable to Power Companies in the Philippines

Electric Power Industry Reform Act (EPIRA)

• EPIRA is the primary law governing the power industry in the Philippines.
• The law aims to promote:
• Competition
• Efficiency
• Consumer protection
• EPIRA provides guidelines for:
• Restructuring
• Privatization of the power sector
• Establishes the regulatory framework for the industry