We believe the accountancy profession is best positioned to lead sustainability reporting and assurance. Many of the skills and competencies required to effectively use sustainability standards and frameworks are already in today’s professional accountant’s toolkit. Our background and experience with financial and, frequently, non-financial reporting means we are best equipped to lead.
Yet many professional accountants still struggle to see themselves in these roles; to see themselves using their current skills to meet their client’s new sustainability-related needs.
To bridge this gap between intellectually knowing our profession could do this work and seeing ourselves doing the work, the International Panel on Accountancy Education members and other volunteers have developed a series of “stories” to help accountants see how they can lead in this important space in their own work.
Written by Anne-Marie Vitale, IPAE Chair, below is the first in the series. Meet our fictional colleague Alison, the senior manager in the Sustainability Reporting Group at a consumer products company, Klutch. Can you see yourself as Alison?
--Helen Partridge
Head of Accountancy Education, IFAC
It’s Monday. Alison, the senior manager in the Sustainability Reporting Group at a consumer products company, Klutch, is looking at her calendar. She briefly muses over the past several years and the ways in which her role has grown. Alison is responsible for executing Klutch's data collection that underpins its annual corporate environmental, social and governance (ESG) report.
Developing preliminary data collection processes, training operational specialists on gathering data, supporting other functional areas in their roles, and gathering complete, accurate and reliable data are several of her many responsibilities.
Alison’s smartphone background screen flashes her department’s mission statement: provide investment grade material information on sustainability risks and opportunities, which assists users in predicting value, timing, and certainty of Klutch’s future cash flows’.[1]
Alison takes a moment to reflect on her meaningful role - she feels fortunate that she can combine her accountancy skills and her desire to make a difference through effective measurement and reporting on Klutch’s climate impact and its goals to reduce its impact on the environment.
The rapidly evolving standards, industry leading practices, approaches and changing regulations do not deter her. Alison understands her path to success is focusing on what can be controlled and the quality of her work.
She was pleased that the Senior Director of Sustainability, Hahn, allowed her to present on current International Sustainability Standards Board (ISSB) work projects during a recent company all hands meeting. These presentations are a great way to build on her communication skills and stay abreast of industry changes while sharing her knowledge with others that can be useful in performing their job responsibilities.
Alison’s calendar is jam packed.
Before meeting with Sameer, the Director of Internal Audit, to discuss their scoping and testing approach on Klutch’s non-assured externally reported metrics, Alison refreshes herself on Klutch’s prior year sustainability disclosure. As a member of the review team, Alison recalled the need to remind the communications team that the sustainability disclosure should be complete, neutral and an accurate depiction of Klutch’s significant sustainability risks and opportunities.[2] Alison believes reading disclosures with this mindset isn’t significantly different from her previous role as a financial reporting manager. Alison is confident in her ability to gather and present quantitative and qualitative narrative disclosures.
Klutch’s operational energy footprint was 23,491 megawatt hours (MWh), of which 71% was from electricity. Alison remembers the first time she encountered these metrics, wondering what it all meant. Hahn had described that 1 MWh is equivalent to the amount of electricity used by about 330 homes for one hour. This was an “ah ha” moment for Alison.
Alison joins the video call with Sameer. His team plays an important role in testing externally reported metrics that are not subject to third party assurance.
Alison and Sameer congratulate each other. Last week, Helen, the Chief Financial Officer, had agreed to their recommendation to issue the financial statements and ESG information at the same time.
While it makes for a busy time, the approach to issue the financial statements and ESG report at the same time can be much more effective from a project management perspective—using the same framework and timeline for reporting. And Klutch is moving towards providing users with information to understand the connections, dependencies and trade-offs that may apply between sustainability-related financial disclosures and its financial reporting.[3]
Alison’s experience tells her this information complements each other.
Sameer updates Alison on the new job requisitions that will increase his team so more financial related operational audits can be performed and his team can provide increased value to Klutch by conducting an initial evaluation of sustainability risks. Alison agrees that professional accountants have the baseline requirements to fill these roles, including their business acumen and understanding of controls. She jokingly reminds Sameer that “effective internal controls are good for business!”
After a few hours, Alison is back at her desk planning for data gathering that will underpin Klutch’s ESG report. Data accuracy is always top of mind—factual, precise descriptions and clearly defined estimates and approximations and forecasts.[4]
Klutch’s progress in implementing IT general controls and manual controls on the gathering of sustainability-related financial disclosures is going well. Alison reminds herself to send an email to the project team who is leveraging their knowledge of Klutch’s financial statement preparation and reporting to support the accuracy and effectiveness in gathering sustainability-related financial information. An update on the project team’s status will be helpful in managing deadlines.
Alison couldn’t imagine being in charge of data accuracy without the skills she developed as a financial reporting manager. One thing she understands is the importance of using accurate data when preparing information on which external users rely. Alison also understands that staying alert to changes in Klutch’s business is needed to evaluate the impact on data accumulation and accuracy.
Alison opens an email from the Financial Planning and Analysis (FP&A) director, Yoon. Klutch’s planned expansion for the current year includes opening several new office facilities.
Alison affirmatively nods her head to the importance of understanding Klutch’s business and her satisfaction in reaching out early to the FP&A department to inquire about changes in the business.
She makes a note to herself to consider these changes when evaluating the data output accuracy—a change when developing her expectations for the year-over-year data comparisons. Her analytical analysis of the data will assist in evaluating the completeness of the facilities data used in Klutch’s scope 1 emissions. Alison muses to herself, “Let’s see… electricity usage, natural gas, waste and refrigerants are a few of areas where a change is expected.”
Using her ability to apply well-reasoned professional judgment, a skill honed during her early years as the financial reporting manager, Alison considers whether the new facilities will materially impact Klutch’s metrics, which are based on its sustainability risks and opportunities a point for discussion with Hahn for their afternoon call.
After a planning call with Klutch’s external auditors, KD and Company, Alison turns her attention to the data obtained to estimate the impact of all its office facilities, a scope 1 emission. Let’s see, data from meter readings, utility bills and on-site renewables are presented in a report on a disaggregated basis—this is a great start! Alison will follow-up with her team to discuss the process to assess the report’s completeness and accuracy. Klutch’s IT change management controls have historically operated effectively; however, it is a good practice to discuss any possible changes to the report.
Alison now turns to the task of evaluating the assumptions used in estimating the electricity. The electricity bills show usage through December 15. Since Klutch’s year-end is December 31, Alison evaluates whether using an average for October, November and the first 15 days in December to estimate the remaining period is reasonable. It doesn’t make sense to include the summer months. And this is consistent with Klutch’s accrual approach for financial reporting.[5]
Consistent with the prior year, the electricity estimate isn’t considered a significant source of estimation uncertainty, and while prices are increasing, these are verifiable through third party data. This makes sense to Alison—Klutch has never disclosed the electricity accrual as a significant estimate in its financial statements.
Moving onto leased facilities where Klutch occupies a portion of the building—that calculation will require a bit more work. Alison evaluates the Leased Space Allocation report on her screen and notes that the data source is from a third party.
Total square footage of the occupied space hasn’t changed from the prior year and with the expected 10% increase in utility costs, the estimate looks reasonable.
But wait! There is a new landlord, and while the landlord reports the estimate of energy consumption for the building, Alison isn’t sure about the procedures performed by others at Klutch to evaluate the landlord’s reporting methodology. Alison sends a follow-up email to the Facilities Manager to find out more. Alison expects that if the data is reliable, extrapolations to Klutch’s occupied space will continue to be appropriate.
Alison knows she can work through these changes without too much difficulty. She started planning early, her project management responsibilities are aligned with the financial reporting team, and Internal Audit’s work on documenting the end-to-end process from origination of the information source through Klutch’s reported sustainability related information is instrumental in understanding the sources of underlying data. Klutch’s business often changes, and Alison is confident the Sustainability Reporting Group is well positioned to proactively incorporate those changes into its reporting.
After a quick tea break, Alison turns her attention to the priority of the day: whether a new supplier, R. Materials, can be included in Klutch’s scope 3 emissions reporting. A few items she is considering: How comfortable are we that the information provided by R. Materials is complete and accurate? How do we know if R. Materials follows the GHG Corporate Value Chain Accounting and Reporting Standard? If the data is incomplete or not reliable, using the supplier specific method may not be appropriate.[6]
After many hours, Alison is ready to call it a day. She reflects on her two years as the Sustainability Reporting senior manager and her path to this highly rewarding role. Was it only seven years ago she was an aspiring professional accountant?
She reflects upon information and communications technologies (ICT),[7] her related skills, and how her bi-annual self-assessment is linked to her core competencies. Alison shakes her head, even as a professional accountant, there are foundational skills she learned that are applicable to any subject, and she incorporates these into her self-assessments.
- Explaining how ICT supports data analysis and decision making
- Using ICT to analyze data and information
- Analyzing the adequacy of ICT processes and controls
- Applying critical thinking skills to solve problems, inform judgments, make decisions, and reach well-reasoned conclusions[8]
At home, Alison puts down her nighttime reading, Salesforce’s Impact Report. Like Klutch, Salesforce discloses that its legal and financial reporting teams reviewed the report, and that the data can be traced back to internal and external records.[9]
Salesforce also obtains limited assurance from an independent accounting firm on its Schedules of Selected Environmental, Equality, and Social Value Metrics. These metrics include emissions from its operations and value chain, and employees by gender.[10] Alison learns from reading these types of reports and it helps her think about what might be possible at Klutch.
Before turning out the light, Alison reflects on the next several months and the contributions she plans to make to the continuous improvement of gathering, evaluating, and disclosing significant sustainability-related financial information at Klutch. Obtaining third party assurance is only one of the ways; time to schedule a meeting with KD and Company.
Against her better judgment, Alison looks at her email one last time. What’s this? A sustainability team meeting first thing in the morning to discuss a potential change proposed by Kutch’s Chief Operating Officer, Jorge, to move away from single use plastic in its Hair Products business unit. Jorge is seeking input about how this may impact Klutch’s material financial statement and corporate ESG related data and assumptions.
Alison is excited: another opportunity to demonstrate her critical thinking, team with the financial reporting group, and leverage her skills in evaluating and assessing the timing and certainty of Klutch’s Hair Products business unit’s future cash flows over the short, medium, and long-term.
[1] See Technical Readiness Working Group, IFRS Foundation, “General Requirements for Disclosure of Sustainability-related Financial Information Prototype” (November 2021), paragraph 3: “An entity’s general purpose financial reporting shall include a complete, neutral and accurate depiction of an entity’s significant sustainability risks and opportunities to assist users of the general purpose financial reporting in predicting the value, timing and certainty of the entity’s future cash flows, over the short, medium and long term and therefore inform users’ assessment of enterprise value. A complete depiction shall include all material information about significant sustainability-related risks and opportunities.” [emphasis in original]
[2]See Technical Readiness Working Group, IFRS Foundation, “General Requirements for Disclosure of Sustainability-related Financial Information Prototype” (November 2021), paragraph 3: “An entity’s general purpose financial reporting shall include a complete, neutral and accurate depiction of an entity’s significant sustainability risks and opportunities to assist users of the general purpose financial reporting in predicting the value, timing and certainty of the entity’s future cash flows, over the short, medium and long term and therefore inform users’ assessment of enterprise value. A complete depiction shall include all material information about significant sustainability-related risks and opportunities.” [emphasis in original]
[3] See Technical Readiness Working Group, IFRS Foundation, “General Requirements for Disclosure of Sustainability-related Financial Information Prototype” (November 2021), paragraph 21: “A complete set of sustainability-related financial disclosures is provided so that users can understand the connections, dependencies and trade-offs that may apply between sustainability-related financial disclosures and other information in general purpose financial reporting. Some sustainability-related financial information could be positioned in the relevant sections of a general purpose financial report together with information from the financial statements to provide users a complete depiction of the entity’s business. Specific required metrics and targets could be disclosed together with information on governance, strategy and risk management where these metrics and targets support such disclosures.”
[4] See Technical Readiness Working Group, IFRS Foundation, “General Requirements for Disclosure of Sustainability-related Financial Information Prototype” (November 2021), paragraph D19: “Sustainability-related financial disclosures shall be accurate. Information can be accurate without being perfectly precise in all respects. The precision needed and attainable, and factors that make information accurate, depend on the nature of the information and the nature of the matters it addresses. For example, accuracy requires that: (a) factual information is free from material error; (b) descriptions are precise; (c) estimates, approximations and forecasts are clearly identified as such; (d) no material errors have been made in selecting and applying an appropriate process for developing an estimate, approximation or forecast, and the inputs to that process are reasonable and supportable; (e) assertions are reasonable and based on information of sufficient quality and quantity; and (f) information about management’s judgements about the future faithfully reflects both those judgements and the information on which they are based.”
[5] Technical Readiness Working Group, IFRS Foundation, “General Requirements for Disclosure of Sustainability-related Financial Information Prototype” (November 2021), Paragraph 65: “When sustainability-related financial disclosures include financial data and assumptions, such financial data and assumptions shall be consistent with the corresponding financial data and assumptions included in the entity’s financial statements.”
[6] See Greenhouse Gas Protocol, “Technical Guidance for Calculating Scope 3 Emissions, Supplement to the Corporate Value Chain (Scope 3) Accounting & Reporting Standard.” (2013)
[7] International Accounting Education Standards Board, “Glossary of Terms (2021),” ICT definition: “Information and communications technologies (ICT) – Established and emerging technologies, techniques, and processes used to capture, manage, transform, or communicate data and information.”
[8] See International Accounting Education Standards Board, “IES 2, Initial Professional Development – Technical Competence (2021)”.
[9] Salesforce, Inc., FY22 Salesforce Stakeholder Impact Report, Reporting Scope and Methodology
[10] See Salesforce, Inc., FY22 Salesforce Stakeholder Impact Report, Schedules of Selected Environmental, Equality, and Social Value Metrics.
