You are responsible for the audit of Osprey Co, which has a financial year ended 31 May 2012. The audit engagement partner, Bill Kingfisher, sent you the following email this morning:

To: Audit manager
From: Bill Kingfisher, audit engagement partner, Osprey Co
Regarding: Environmental incident

Hello

Osprey Co’s finance director called me yesterday to explain that unfortunately over the last few weeks, one of its four factories leaked a small amount of toxic chemicals into the atmosphere. The factory’s operations were halted immediately and a decision has been taken to permanently close the site.

Though this is a significant event for the company and will result in relocation and some restructuring of operations, it is not considered to be a threat to its going concern status. Costs of closure of the factory have been estimated to be $1•25 million, which is expected to be material to the financial statements, and a provision has been set up in respect of these costs.

Osprey Co is keen to highlight its previous excellent record on socio-environmental matters. Management is preparing a report to be published with the financial statements which will describe the commitment of the company to socio-environmental matters, and state its target of reducing environmental damage caused by its operations.

The report will contain a selection of targets and key performance indicators to show performance in areas such as energy use, water consumption and employee satisfaction. Our firm may be asked to provide an assurance report on the key performance indicators.

I am asking you to prepare briefing notes for my use in which you:

Discuss the difficulties in measuring and reporting on environmental and social performance.
(4 marks)

Thank you.

Required:

Respond to the partner’s email