ASIC Sustainability Reporting Observations 2026: What Australian Businesses Must Know When Choosing an Auditor

Australia's mandatory climate-related financial disclosure regime entered a pivotal new phase in 2026, with the Australian Securities and Investments Commission (ASIC) publishing detailed observations on the first wave of sustainability reports lodged by Group 1 entities. For Australian businesses — whether preparing their own reports or seeking assurance services — understanding what ASIC found, and what it expects next, is essential for choosing an auditor equipped to navigate this rapidly evolving landscape.

Understanding ASIC's 2026 Sustainability Reporting Observations

Following the commencement of mandatory climate-related financial disclosures under the Corporations Act 2001 and AASB S2, ASIC reviewed a sample of 40 sustainability reports and a broader cohort of 312 lodged reports from Group 1 entities by late 2026. The regulator's findings were published in media release 26-222MR and set the tone for what ASIC expects from both preparers and their assurance providers going forward.

ASIC's overall assessment was cautiously positive: mandatory reporting had produced greater transparency and more meaningful engagement with climate risks compared to voluntary disclosures. However, the regulator identified several critical areas requiring improvement — areas that directly affect the quality of assurance work an auditor must perform.

Key Findings from ASIC's Review

ASIC's observations covered five main themes that businesses and their auditors must address in the 2026–27 reporting cycle.

Disclaimers and Reporting Integrity

ASIC found that some entities were using disclaimers that conflicted with the objectives of Chapter 2M of the Corporations Act 2001. Such disclaimers risk misleading users about the reliability of disclosed information and are prohibited. Auditors providing assurance over sustainability reports must flag and require the removal of any such language before issuing their assurance conclusion.

Risk Identification and Forward-Looking Information

The regulator emphasised that "reasonable and supportable" information for climate risk identification must encompass past events, current conditions, and future forecasts. Entities that limited their risk assessments to historical data were found to be non-compliant. Auditors must now evaluate whether management's risk identification process is sufficiently forward-looking and evidence-based.

Transparency of Judgments and Assumptions

ASIC identified a widespread failure to provide clear, proximate disclosure of the assumptions and measurement uncertainties underpinning sustainability reports. This is particularly significant for assurance providers: under ASSA 5000 and ASSA 5010, auditors must assess whether the entity's disclosures of key judgments are adequate for users to understand the basis of reported figures.

Climate-Related Targets

Entities were reminded that "climate-related targets" under AASB S2 include those mandated by law or regulation — such as obligations under the Safeguard Mechanism — not just voluntary commitments. Auditors must verify that all legally mandated targets are captured and disclosed, not just aspirational goals.

Cross-Referencing to External Reports

ASIC found that some entities were cross-referencing to external or third-party reports in ways that did not comply with specific disclosure requirements. Auditors must scrutinise any cross-references to ensure they meet the standards set out in AASB S2 and do not obscure material financial information.

What These Findings Mean for Choosing an Auditor

ASIC's observations have direct implications for how Australian businesses should evaluate and select their assurance providers. Not all auditors have the same capability to perform sustainability assurance, and the regulator's findings highlight the specific competencies that matter.

• ASSA 5000 and ASSA 5010 expertise — Your auditor must be familiar with Australia's sustainability assurance standards, which govern both limited and reasonable assurance engagements over climate-related disclosures.
• Climate science literacy — Assurance providers must be able to evaluate the reasonableness of climate scenario analyses, transition risk assessments, and physical risk disclosures — not just financial figures.
• Independence from sustainability consultants — ASIC continues to monitor independence obligations. Auditors who also provide sustainability consulting to the same client face heightened scrutiny.
• Experience with AASB S2 and AASB S1 — Auditors must understand the full suite of Australian Sustainability Reporting Standards, including the general requirements under AASB S1.
• Engagement with rigorous assurance methodologies — ASIC is actively engaging with the six largest audit firms to understand their assurance methodologies. Businesses using smaller firms should confirm their auditor has developed equivalent rigour.

Common Mistakes Businesses Make When Seeking Sustainability Assurance

Many Australian businesses are approaching sustainability assurance for the first time in 2026–27, and several common mistakes can undermine the quality of the engagement.

• Treating assurance as a tick-box exercise — Sustainability assurance is substantive. Auditors are required to evaluate the design and effectiveness of the entity's processes for identifying and measuring climate risks, not merely check that disclosures exist.
• Engaging an auditor without sustainability expertise — Financial audit expertise does not automatically translate to sustainability assurance capability. Businesses should ask prospective auditors specifically about their ASSA 5000 engagements and team qualifications.
• Leaving assurance to the last minute — Sustainability assurance requires significant lead time. Auditors need access to underlying data, models, and management's assumptions well before the lodgement deadline.
• Failing to align financial and sustainability reporting — ASIC expects consistency between financial statements and sustainability reports. Auditors must check for contradictions between the two, and businesses should ensure their finance and sustainability teams are working in concert.
• Ignoring the Safeguard Mechanism — Businesses subject to the Safeguard Mechanism must disclose their obligations as climate-related targets. Failing to do so is a compliance breach that a competent auditor will identify.

Australian Regulatory Context: ASIC, AASB, and the Assurance Standards

Australia's sustainability assurance framework is governed by a combination of legislative requirements and professional standards. Understanding this framework is essential for businesses selecting an auditor.

The mandatory climate-related financial disclosure regime commenced under the Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Act 2024, which inserted new sustainability reporting obligations into the Corporations Act 2001. Group 1 entities — large listed companies and financial institutions — were required to lodge their first sustainability reports for financial years beginning on or after 1 January 2025.

The Australian Accounting Standards Board (AASB) issued AASB S1 (General Requirements for Disclosure of Sustainability-related Financial Information) and AASB S2 (Climate-related Disclosures), which are closely aligned with the IFRS Sustainability Disclosure Standards. The Auditing and Assurance Standards Board (AUASB) issued ASSA 5000 and ASSA 5010, which govern how auditors must conduct assurance work over sustainability reports.

ASIC's audit surveillance program for 2026–27 involves the review of 25 audit files, including listed and unlisted companies, registrable superannuation entities, and managed investment schemes. The regulator has made clear that sustainability assurance quality is now a core focus alongside traditional financial audit quality.

Questions to Ask When Choosing an Auditor for Sustainability Assurance

Before engaging an auditor for sustainability assurance in 2026–27, Australian businesses should ask the following questions to assess capability and fit.

• How many ASSA 5000 or ASSA 5010 engagements has your firm completed? — Experience matters. Firms that have completed multiple engagements will have refined methodologies and encountered the practical challenges that arise in this work.
• What qualifications do your sustainability assurance team members hold? — Look for professionals with credentials in both auditing and sustainability, such as CA or CPA designation combined with climate or ESG qualifications.
• How do you assess the reasonableness of climate scenario analyses? — This is a technically demanding area. Auditors should be able to explain their approach to evaluating management's assumptions about transition and physical risks.
• How do you manage independence when your firm also provides sustainability consulting? — ASIC is monitoring this closely. Auditors should have clear policies and be transparent about any non-audit services provided to the same client.
• What is your approach to evaluating cross-references to external reports? — Given ASIC's findings, auditors must have a clear methodology for assessing whether cross-references comply with AASB S2 requirements.
• How do you coordinate with the financial statement audit team? — Consistency between financial and sustainability reports is a key ASIC expectation. Auditors should explain how they ensure alignment across both engagements.

How MyMoney® Can Help

Navigating Australia's sustainability assurance landscape requires an auditor with the right expertise, independence, and methodology. MyMoney® connects Australian businesses with qualified, experienced auditors who understand the full scope of ASIC's expectations for 2026–27 and beyond.

Whether you are a Group 1 entity preparing for your second sustainability report or a Group 2 entity planning ahead for your upcoming obligations, finding the right assurance provider is critical. Post a Brief on MyMoney® to receive tailored proposals from auditors with demonstrated sustainability assurance expertise. You can also Browse Auditors on MyMoney® to compare credentials, experience, and approach before making your decision.

The quality of your sustainability assurance engagement will shape how ASIC, investors, and other stakeholders view your reporting. Choosing the right auditor is not just a compliance decision — it is a strategic one.