AICPA teams with GRI, SASB on sustainability assurance

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The American Institute of CPAs has received an increasing number of questions on sustainability assurance engagements and has joined forces with the Global Reporting Initiative on a document to answer some of those questions, while continuing to work with other standard-setters in the environmental, social and governance reporting space.

The document, Frequently Asked Questions on External Assurance of Sustainability Reporting, offers information for U.S. organizations reporting in accordance with GRI standards and CPAs who are performing assurance engagements under AICPA standards.

Among the questions addressed in the FAQ document are: Why do organizations choose to have their sustainability information assured, can an organization engage its financial statement auditor to perform the assurance engagement, and what factors might an organization want to consider when selecting an assurance provider?

Investors are increasingly looking for information about what companies are doing to combat climate change as temperatures set new records not only in California, but as global temperatures continue to rise each year. Standard-setters like GRI and the Sustainability Accounting Standards Board have been coming up with frameworks that companies can use for reporting on such issues. The AICPA has been working to encourage CPAs to provide assurance and attestation services on sustainability reporting as a practice area while the world deals with the climate crisis in addition to the COVID-19 pandemic.

“One of the key differentiators is the fact that CPAs perform assurance engagements in accordance with AICPA professional standards which require them, among other things, to be independent, to maintain a system of quality control and to ensure that their engagement teams have the appropriate competence and capabilities,” said Desire Carroll, AICPA senior manager of public accounting.

The document provides answers to questions the AICPA has been hearing from CPAs about such assurance services. “There are a lot of questions around the basics of what assurance is, and the different levels of service that CPAs can provide,” said Carroll. “Others are around whether the CPA firm that performs this financial statement audit can also perform an assurance engagement. Some of the firms are receiving a lot of questions around are we able to perform assurance engagements for our clients, and can you also perform a financial statement audit, and the answer to that is yes. The CPA firm conducting the financial statement audit can also perform sustainability assurance engagements for the same company, so that is a permissible service.”

Companies have several factors to consider when it comes to getting assurance from a particular CPA firm or an alternative expert.

“You would like the assurance provider to have, obviously, assurance capabilities as well as technical expertise in the underlying subject matter,” said Carrroll. “CPA firms certainly bring that assurance expertise into the controls, data, systems and procedures. Also, under our professional standards, they’re required to have technical expertise in the underlying subject matter. That may involve bringing in a specialist. On a complex topic like financial instruments, they would bring in the necessary expert for a financial statement audit, so there is a similar concept.”

The AICPA believes CPAs can provide more credibility than other kinds of environmental specialists in assuring investors about sustainability information. “CPAs, aside from other providers, are performing these engagements in accordance with various professional standards,” said Carroll. “Other providers may or may not be providing the services in accordance with a particular standard. Our standards require that our practitioners be independent when performing these services.”

Besides the GRI, the AICPA has been working with other environmental, social and governance reporting groups. In July, the AICPA held a virtual event with the Sustainability Accounting Standards Board and the World Business Council for Sustainable Development, as well as the investment firm BlackRock, to discuss investor demand for ESG reporting and assurance. Further guidance is planned around SASB standards.

“We’re putting out this set of FAQs with the GRI, but we are in discussions with SASB to do something similar with them, because we have been receiving questions about those too,” said Carroll.

SASB recently proposed changes in its conceptual framework and rules of procedure and is soliciting comments for the next three months on the exposure drafts.

“These documents were originally published in 2017, and the conceptual framework is a revision of the conceptual framework SASB put out in 2013,” said SASB Standards Board chair Jeffey Hales. “We thought this was a good time to make changes.”

The Center for Audit Quality has also been getting involved with ESG reporting, issuing a report in July on the role of auditors in company-prepared ESG information (see story).

ESG reporting is facing some headwinds in the U.S. despite growing demand from investors for such information. Last month the Securities and Exchange Commission voted to relax some of the disclosures required of companies about their environmental practices under the Regulation S-K rules (see story). Meanwhile, the Department of Labor proposed new rules in June that could discourage ESG investing by requiring employer-provided retirement plans to focus on their fiduciary duties to maximize investment returns rather than any environmental or social goals.

“Private employer-sponsored retirement plans are not vehicles for furthering social goals or policy objectives that are not in the financial interest of the plan,” said Secretary of Labor Eugene Scalia in a statement. “Rather, ERISA plans should be managed with unwavering focus on a single, very important social goal: providing for the retirement security of American workers.”

Hales is taking the SEC and DOL rule changes in stride. “You could probably view the Department of Labor and the SEC as, in their most recent guidance, suggesting that with all the calls for increased disclosure and all the demand for companies to be talking about more things for financial products to be built, they’re just suggesting don’t disclose something just because it’s a sustainability issue,” he said. “I think the flip side is don’t not disclose it just because it’s a sustainability issue. Companies should really be thinking about what are the important considerations in managing their businesses and creating value for the investees. I don’t view either the SEC or the Department of Labor as saying you shouldn’t consider sustainability issues. I just view them as saying don’t disclose it just because people are out talking about sustainability issues. Focus on what’s material to the business, or what’s relevant for value creation over the long term for your pension funds.”

Carroll declined to comment on the developments at the SEC and the Labor Department, but added, “We are monitoring various activities in the market. That’s one of them.” Still she sees significant investor interest in sustainability. CPAs can provide assurance to help combat suspicions of “greenwashing” by companies that are seeking to hype their environmental credentials, or claiming they’re doing something for the environment when they really aren’t. Assurance services from CPAs can provide more credibility for ESG reporting. CPAs can provide assurance about sustainability reporting through both examination and review engagements, although a larger portion of companies are seeking review level engagements, according to Caroll.

“What’s driving this is trying to give the users of this information, whether they’re internal or external to the organization, a greater degree of confidence in the information that’s being reported,” she said. “That’s one of the main drivers. Organizations can also see other benefits like improvements in their internal controls and reporting systems. The biggest driver is providing confidence in the reported information.”

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