This week the International Auditing and Assurance Standards Board (IAASB) considered a near-complete draft proposed standard for assurance on sustainability reporting. The current project timeline indicates an Exposure Draft in September 2023 and final approval of the proposed International Standard on Sustainability Assurance (ISSA) 5000 by December 2024 – just in time for the first reporting cycle for EU listed companies and other large EU Public Interest Entities (PIEs).
So, what does this mean for sustainability reporters, and for independent assurance practitioners?
Enterprises in scope of the EU Corporate Sustainability Reporting Directive (CSRD) starting from FY2024 will be applying European Sustainability Reporting Standards (ESRS) from the European Financial Reporting Advisory Group (EFRAG), currently in draft. The independent assurance practitioners will also be applying the ISSA 5000 sustainability assurance standard, currently in draft, and yet to be endorsed by the European Commission as stipulated in the CSRD. Then there is the International Ethics Standards Board for Accountants (IESBA) nascent project to develop independence and ethics standards relevant to assurance on sustainability reporting by all sustainability assurance practitioners (Professional Accountants are already bound to comply with international or national Codes of Ethics).
This just-about-in-time approach is not familiar territory for standard setters, reporters or practitioners – yet the urgent need to provide comprehensive and reliable sustainability information is driving a collective effort to get this done. A steady hand will be required to navigate over the next few years until the standards, and their application, settles down.
Preparing for assurance
The proposed ISSA 5000 standard is described as an ‘overarching’ standard: the IAASB envisages that a suite of standards will likely need to be developed over time – to provide more specificity. The proposed overarching standard will cover the entire engagement from acceptance to reporting; will apply to assurance on sustainability information reported under different reporting frameworks; and is implementable by all assurance practitioners.
In planning their Sustainability Reporting procedures, reporters should be aware of the options in selecting an independent sustainability assurance practitioner, and the approach their assurance practitioner will apply. Key topics to be considered include:
Independent Sustainability Assurance Practitioners – The CSRD allows Member States to authorise independent assurance services providers (who are accredited in accordance with Regulation (EC) 765/2008 on accreditation and market surveillance) other than statutory auditors or audit firms to carry out assurance of sustainability reporting. Member states are required to ensure that consistent requirements are set out for all persons and firms, including statutory auditors and audit firms, who are allowed to provide the opinion on the assurance of sustainability reporting – providing a level playing field.
Member States are at various stages of consultation leading to transposing the directive into national law – there is no indication whether this option will be taken in Ireland or elsewhere in the Union. Member States that do take the option will need to ensure that appropriate accreditation and surveillance is in place, and assurance providers will need to demonstrate professional competence and capability to carry out the sustainability assurance engagement. This is a topic for another article, but preparers should take this into account when planning their sustainability reporting and assurance process.
Evidence – Assurance practitioners must evaluate the relevance and reliability of information intended to be used as evidence. This also includes determining whether the evidence needed to support the disclosures can be expected to be obtained. Reporters need to consider factors such as document retention policies including electronic information systems. Where evidence is needed from organisations not controlled by the entity, such as value chain actors, the entity will need to consider whether it has contractual arrangements for access to the relevant persons or information, or whether these organisations may provide independent assurance reports on controls, measurements or evaluations of the underlying subject matter.
Documentation – Similar to other assurance standards, sustainability assurance practitioners must maintain documentation to support their conclusions on the sustainability disclosures that is sufficient and appropriate to enable a practitioner experienced in sustainability assurance, having no previous connection with the assurance engagement, to understand the nature, timing and extent of the procedures performed; the results and evidence obtained; and significant matters, judgements and conclusions. This may include evidence obtained from work performed by a Management’s Expert or others outside of the reporting entity. The practitioner must evaluate the competence, capabilities and objectivity of the persons providing such evidence, and the authenticity of the documentation. Any doubts would lead to additional risk assessment and assurance procedures, and possibly a different overall conclusion to the engagement.
Risks of Material Misstatement – The assurance practitioner must perform risk procedures to identify disclosures where material misstatements are likely to arise, and potentially update this risk assessment based on information obtained during the engagement. (Reasonable assurance engagements will require a more robust risk assessment process). This involves understanding the entity’s control environment and internal controls relevant to sustainability disclosures, including information systems and the entity’s own risk assessment process. Based on these assessments, the practitioner will design the nature, timing and extent of assurance procedures to support their conclusion on the sustainability disclosures.
Preparing for assurance on the Sustainability Report is not a task to be taken lightly.
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