On 21 September 2026, the Australian Securities and Investments Commission (ASIC) released Report 839 (REP 839). This report details ASIC's observations from reviewing sustainability reports lodged for the financial year ending 31 December 2025. ASIC reviewed 40 of the 312 sustainability reports submitted under the mandatory climate regime and identified eight recurring gaps.

For Group 2 finance and accounting teams currently establishing their reporting frameworks, this report delivers vital insights into first-wave pitfalls and core auditor focus areas. This article breaks down the key gaps and outlines four actionable steps finance teams must take right now to ensure compliance and audit readiness.

Background: ASIC REP 839 and the compliance horizon for Group 2 entities

While first-wave reporting showed progress over voluntary disclosures, ASIC identified marked inconsistencies in how entities applied the AASB S2 standard. With the regulator confirming ongoing surveillance through the 2026–27 financial year, Group 2 entities—now entering or preparing for their first mandatory reporting period—must rapidly shift from raw data collection to building audit-ready, compliant disclosures.

Key findings: 8 recurring gaps in first-wave AASB S2 climate disclosures

ASIC identified eight critical reporting gaps during its review that finance teams must address prior to audit testing:

Connect sustainability report disclosures directly to the financial report:

Finance teams must explicitly articulate how climate-related disclosures reconcile with relevant line items in the primary financial statements. Cross-industry metrics (such as the percentage of assets or activities vulnerable to climate risks or aligned with opportunities) and quantified financial effects must reconcile logically with disclosures in the financial statements.

Prioritise quantitative financial disclosures over qualitative narrative:

When disclosing material financial effects, entities must provide quantitative data wherever possible rather than relying solely on qualitative narrative. If using qualitative descriptions, finance teams must clearly explain the specific reasons why reliable quantitative estimates could not be produced.

Evaluate value chain impacts across past, current, and forecast conditions:

When identifying climate-related risks and opportunities, entities must consider past events, current operational conditions, and forecast future conditions. Assessments must systematically capture both direct and indirect impacts across the entity's broader value chain.

Provide proximate disclosures of critical judgements, assumptions, and uncertainties:

Disclosure of key management judgements, estimation assumptions, and areas of measurement uncertainty must be placed in close proximity to the relevant reported figures. This applies directly when determining climate risk materiality and calculating percentages required under cross-industry metrics.

Align target definitions with statutory mandates, including the Safeguard Mechanism:

Under AASB S2, the definition of 'climate-related targets' extends beyond voluntary commitments to encompass targets mandated by law or regulation. Finance teams must ensure statutory greenhouse gas emissions targets — such as baseline requirements under the Safeguard Mechanism — are formally reported as climate targets.

Prevent material climate information from being obscured by secondary data:

Core financial climate disclosures must remain clear and prominent for financial report users. Entities must ensure material climate-related financial information is not obscured by excessive, non-material sustainability commentary or promotional ESG data.

Comply with strict cross-referencing rules regarding timing and accessibility:

Where climate disclosures cross-reference external sources or other reports, entities must ensure cross-referenced information is accessible on the same terms and published simultaneously with the sustainability report.

Eliminate statutory disclaimers that conflict with the Chapter 2M framework:

Disclaimers must not contradict or undermine the statutory framework and regulatory objectives of Chapter 2M sustainability reporting under the Corporations Act 2001 (Cth). Legal disclaimers or liability-limiting language that confuses or misleads users regarding director oversight and legal obligations must be removed.

AASB S2 audit readiness: 4 action steps for Group 2 finance teams

To address the key gaps highlighted in ASIC REP 839 and prepare effectively for upcoming audit testing, Group 2 finance teams must execute the following four critical action items immediately:

1. Synchronise financial year-end closing schedules with sustainability reporting workflows
   Finance teams must physically realign internal financial closing calendars, board approval milestones, and audit timelines with the sustainability report production schedule. Because Chapter 2M of the Corporations Act 2001 (Cth) mandates simultaneous lodgement and strict cross-referencing accessibility, entities can no longer treat sustainability reporting as a post-financial audit addendum. Operational silos must be eliminated to ensure sustainability disclosures and financial statements are reviewed, approved, and audited in tandem.

2. Audit cross-departmental regulatory mandates to capture all statutory climate targets
   Finance teams must proactively collaborate with legal, compliance, and EHS (Environment, Health and Safety) teams to inventory all statutory climate obligations managed outside finance. Where applicable, statutory greenhouse gas targets—such as baseline compliance requirements under the National Greenhouse and Energy Reporting Act 2007 (Cth) (Safeguard Mechanism)—must be mapped directly into the AASB S2 reporting framework alongside voluntary corporate commitments.

3. Formalise working papers to satisfy section 286A sustainability records rules
   Entities must establish structured, verifiable working paper archives that explicitly document data sources, calculation methodologies, estimation models, and core underlying assumptions. Under section 286A of the Corporations Act 2001 (Cth), reporting entities are legally required to retain written sustainability records for seven years. Finance teams must ensure these records maintain a clear, unbroken audit trail capable of withstanding limited assurance testing by external auditors.

4. Standardise metric calculations and document management judgements on financial impacts
   Finance functions should implement standardised, replicable internal control processes for calculating cross-industry metrics to support clear comparative disclosures in future financial years. Where climate-related financial effects cannot yet be quantified, finance teams must formally document management's specific judgements and the precise measurement uncertainties preventing reliable quantitative estimation, ensuring these reasons are transparently explained within the report.
   
   

Early preparation and robust documentation of your sustainability records represent an entity's best defences against audit failures and regulatory scrutiny. As regulatory expectations and reporting frameworks continue to evolve ahead of upcoming reporting windows, finance professionals should actively monitor further guidance from ASIC and consult regularly with their external auditors to ensure ongoing compliance.

Official sources:

• ASIC — Report 839

• ASIC — ASIC observes improved sustainability reporting and notes areas for further development