Fortune 100 company requires assurance to meet EPA guidelines 

Client background

A leading technology company required an agreed-upon procedures (AUP) report to verify their hydrofluorocarbon (HFC) usage against internal records due to the new Environmental Protection Agency (EPA) regulations on HFC allowances. 

Client need

As a company relying on the ability to provide leading-edge technology, they require the use of extensive research and development (R&D) in operations. Part of this R&D requires the use of hydrofluorocarbons (HFCs), a regulated synthetic compound that has a negative impact on the environment. The use of HFCs now requires allowances from the EPA to use due to their harmful impact on the environment. The client required an AUP report to get an external look at whether their reported values are consistent with what was on internal records.  

Business challenge

In 2020, the American Innovation and Manufacturing (AIM) act was passed. As part of this act, the EPA was given the power to regulate the use of HFCs through a phasedown approach. Through this phasedown approach, the EPA provides HFC allowances for numerous companies each year, with the goal of lowering HFC usage by 85% by 2036. The use of HFCs from this allowance must be recorded and reported to the EPA on a biannual basis to remain compliant with the AIM act. As part of this reporting, the EPA may issue administrative consequences for submitting false or inaccurate reports on the amount of HFCs used. These consequences may include revocation of allowances or a ban on any future allowances. Given the nature of these consequences, the company elected to engage Baker Tilly in conducting an audit of their biannual reports to verify the reporting over the usage of HFCs was sufficient. 

Baker Tilly's solution-driven approach

To ensure thoroughness, accuracy and compliance with relevant standards, the Baker Tilly team executed the assurance engagement in four key phases of work: 

Planning 

During the planning phase, Baker Tilly outlined the objectives and scope of the engagement. The Baker Tilly team also gained the relevant knowledge necessary to undertake the engagement through a review of EPA guidance and regulations. The team collaborated with the client to determine the report process, identify necessary documentation and confirm the agreed-upon procedures to be performed.  

Data collection 

To begin data collection, Baker Tilly obtained the EPA public notice of entities receiving HFC allowances. Then the team mapped the required evidence to the agreed-upon procedures and EPA guidance to determine what should be requested from management. After completing this, the team inquired with the client to obtain all relevant workbooks and files used in the preparation of biannual reports. 

Testing and analysis 

After receiving all relevant documentation, the Baker Tilly team confirmed the amounts reported in the biannual report provided by the client. This included comparing the quantity of HFCs usage, HFCs destroyed and the balance in ending inventory to the internal client records. Baker Tilly also confirmed the beginning balance of HFCs through a confirmation of purchases via invoice.  

In testing the usage and ending balances of HFCs for the period tested, the Baker Tilly team determined there were slight variances between the reported amounts and the amounts per internal records. The team discussed these variances with the client and developed further understanding of some of the nuanced reporting items. Through this discussion with the client, the team was able to ascertain that the reporting done by the company was materially accurate for the period.  

Reporting 

After completing the above testing procedures, Baker Tilly completed an AUP report outlining the services performed, key findings and the EPA guidance followed. Baker Tilly did not express an opinion on management’s assertions due to the nature of the engagement.  

Results achieved

In collaboration with management, Baker Tilly completed the engagement in a timely manner and without exception. Baker Tilly tied all applicable reported values to the underlying documentation. The AUP report confirmed that the company’s HFC reporting was materially accurate, with no material errors found, ensuring compliance with EPA guidelines.