The Switch to Mandatory Requirements
Policymakers and regulators are moving with pace to introduce mandatory sustainability reporting and assurance. Even for companies already reporting on a voluntary basis, the evolution to mandatory sustainability reporting will take time as companies develop governance structures and rigorous processes, systems, and controls related to their sustainability reporting—all to be tested through internal assessment and external assurance. Unbiased estimates, assumptions, and scenario analysis, as well as reliable value chain data, will be important. Preparers must develop new, robust materiality assessments in accordance with reporting requirements.
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What to Expect
Many jurisdictions are electing to implement a phased approach to both reporting and assurance requirements—reflecting the readiness of preparers to apply new sustainability reporting standards, as well as implement information systems and reporting processes. Users of sustainability disclosures should expect, depending on jurisdiction-specific requirements or market practices, that assurance engagements may initially cover only some sustainability topics (e.g., climate change) and will seek to deliver a different level of assurance (i.e., limited assurance) than financial statements audits (i.e., reasonable assurance). Further, engagements may result in modified assurance conclusions.
Meanwhile, assurance practitioners are developing the methodologies to test, analyze, and evaluate new sustainability-related datasets, processes and controls in accordance with a new global International Standard on Sustainability Assurance (ISSA) and global ethics standards.
EXAMPLES
INDEPENDENT PRACTITIONER’S LIMITED ASSURANCE REPORT ON ABC’S SUSTAINABILITY INFORMATION
To the Management of ABC
Limited Assurance Report on the Sustainability Information
Qualified Limited Assurance Conclusion
We have conducted a limited assurance engagement on the Sustainability Report of ABC Company (the Company) for the year ended December 31, 20X1 (the “Sustainability Information”).
Based on the procedures we have performed and the evidence we have obtained, except for the possible effect of the matter described in the Basis for Qualified Conclusion section of our report, nothing has come to our attention that causes us to believe that the accompanying Sustainability Information is not prepared, in all material respects, in accordance with XYZ Law of Jurisdiction X.
Basis for Qualified Conclusion
The Company has disclosed […]. We were unable to obtain sufficient appropriate evidence about […] as at December 31, 20X1 because […]. Consequently, we were unable to determine whether any adjustments to […] were necessary.
We conducted our limited assurance engagement in accordance with International Standard of Sustainability Assurance (ISSA) 5000, General Requirements for Sustainability Assurance Engagements, issued by the International Auditing and Assurance Standards Board.
The procedures in a limited assurance engagement vary in nature and timing from, and are less in extent than for, a reasonable assurance engagement. Consequently, the level of assurance obtained in a limited assurance engagement is substantially lower than the assurance that would have been obtained had a reasonable assurance engagement been performed.
Our responsibilities under this standard are further described in the Practitioner’s Responsibilities section of our report.
We are independent of the Company in accordance with the International Code of Ethics for Professional Accountants (including International Independence Standards) (IESBA Code) issued by the International Ethics Standards Board for Accountants, together with the ethical requirements that are relevant to our assurance engagement of the Sustainability Information in [jurisdiction], and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code.
Our firm applies International Standard on Quality Management 1, Quality Management for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements, and, accordingly, maintains a comprehensive system of quality management, including documented policies and procedures regarding compliance with ethical requirements, professional standards, and applicable legal and regulatory requirements.
We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our qualified conclusion.
Emphasis of Matter
We draw attention to [identify the specific disclosure in the sustainability information], which describes […]. Our conclusion is not modified in respect of this matter.
Responsibilities for the Sustainability Information
Management of the Company is responsible for:
• The preparation of the Sustainability Information in accordance with XYZ Law of Jurisdiction X.
• Designing, implementing and maintaining internal control relevant to the preparation of the Sustainability Information, in accordance with XYZ Law of Jurisdiction X, to enable the preparation of such information that is free from material misstatement, whether due to fraud or error.
Inherent Limitations in Preparing the Sustainability Information
As discussed in [identify the specific disclosure in the sustainability information], [provide a specific description of any significant inherent limitations associated with the measurement or evaluation of the sustainability matters against the applicable criteria].
Practitioner’s Responsibilities
Our objectives are to plan and perform the assurance engagement to obtain limited assurance about whether the sustainability information is free from material misstatement, whether due to fraud or error, and to issue a limited assurance report that includes our conclusion. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence decisions of users taken on the basis of the Sustainability Information.
As part of a limited assurance engagement in accordance with ISSA 5000, we exercise professional judgment and maintain professional skepticism throughout the engagement. We also:
• Perform risk procedures, including obtaining an understanding of internal control relevant to the engagement, to identify disclosures where material misstatements are likely to arise, whether due to fraud or error, but not for the purpose of providing a conclusion on the effectiveness of the entity’s internal control.
• Design and perform procedures responsive to disclosures in the Sustainability Information where material misstatements are likely to arise. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Summary of the Work Performed
A limited assurance engagement involves performing procedures to obtain evidence about the Sustainability Information. The nature, timing and extent of procedures selected depend on professional judgment, including the identification of disclosures where material misstatements are likely to arise, whether due to fraud or error, in the Sustainability Information.
In conducting our limited assurance engagement, we:
[Insert a summary of the nature and extent of procedures performed that, in the practitioner’s judgment, provides additional information that may be relevant to the users’ understanding of the work performed to support the practitioner’s conclusion and the level of assurance obtained.]
• […]
[Signature in the name of the assurance firm, the personal name of the assurance practitioner, or both, as appropriate for the particular jurisdiction]
[Practitioner’s address]
[Date of the limited assurance report]
We have conducted a limited assurance engagement on the Sustainability Report of ABC Company (the Company) for the year ended December 31, 20X1 (the “Sustainability Information”).
Because of the significance of the matter described in the Basis for Adverse Conclusion section of our report, the [sustainability information] does not present fairly the entity’s compliance with XYZ criteria.
We have conducted a limited assurance engagement on the Sustainability Report of ABC Company (the Company) for the year ended December 31, 20X1 (the “Sustainability Information”).
Because of the significance of the matter described in the Basis for Disclaimer of Conclusion section of our report, we have not been able to obtain sufficient appropriate evidence to form a conclusion on the [sustainability information]. Accordingly, we do not express a conclusion on that [sustainability information].
- Examples are from the International Audit and Assurance Standards Board’s (IAASB) Proposed International Standard on Sustainability Assurance 5000, General Requirements for Sustainability Assurance Engagements (ISSA 5000) Exposure Draft.
- Assurance report and qualified limited assurance conclusion from Appendix 3, Illustration 4.
- Adverse limited assurance conclusion and disclaimer of limited assurance conclusion from paragraph A514.
- Examples are subject to change pending the finalization of IAASB’s ISSA 5000.
Notes:
- Examples are from the International Audit and Assurance Standards Board’s (IAASB) Proposed International Standard on Sustainability Assurance 5000, General Requirements for Sustainability Assurance Engagements (ISSA 5000) Exposure Draft.
- Assurance report and qualified limited assurance conclusion from Appendix 3, Illustration 4.
- Adverse limited assurance conclusion and disclaimer of limited assurance conclusion from paragraph A514.
- Examples are subject to change pending the finalization of IAASB’s ISSA 5000.