Global ethical standards on sustainability reporting and assurance

The International Ethics Standards Board for Accountants (IESBA) recently hosted roundtables in major cities including Paris, Sydney, Singapore and New York.

The roundtables sought stakeholders’ input to developing global ethics and independence standards for sustainability reporting and assurance, as well as for the use of experts. IPA representatives attended the Sydney roundtable.

IESBA views its standards as critical to supporting transparent, relevant and trustworthy sustainability reporting and assurance, along with other global sustainability-related standards of the International Sustainability Standards Board (ISSB) and International Auditing and Assurance Standards Board (IAASB). The proposed IESBA standards are profession-agnostic and apply to all accountants and non-accountants.

Ethics and independence standards

IESBA proposed three possible options for developing standards for sustainability assurance engagements. Each option aims to include the new sustainability-specific ethics and independence provisions into the existing Code* by either:

1. Fully integrating the new provisions into the existing Code for both financial statements and sustainability reporting.
2. Integrating the new provisions into the existing Code as a new Part 5 that deals specifically with sustainability.
3. Develop a separate standalone Code on sustainability assurance engagement only.

IPA participated in the Sydney roundtable and commented that each option has advantages and disadvantages. However, Option B is the most practical of the three options. This is because the new Part 5 would allow practitioners (accountants and non-accountants) providing sustainability assurance to apply the new requirements without affecting existing accountants who do not provide sustainability assurance.

This contrasts with Option A which incorporates sustainability assurance engagements into the existing provisions that also apply to the audit of financial statements. This places an undue burden on existing accountants needing to sift through the ethical requirements, including those for sustainability, even when they do not provide sustainability assurance.

IPA members would be affected by this, as they largely operate in the SME sector and may not have the necessary resources (time and skills) to navigate the already complex Code.

IPA acknowledges Option A might be optimal in achieving the IESBA’s objective of developing a single Code for financial statements and sustainability reporting. However, the existing Code contains concepts that are readily understood by accountants.

To ensure that non-accountants can navigate the revised Code, IESBA would need time to work through the complexity of setting a Code that is understandable by both accountants and non-accountants.

Use of experts

The preparation, presentation and assurance of sustainability information will necessitate the use of experts in the sustainability field. IESBA intends to develop ethics and independence provisions for accountants using the work of experts in all areas (ie not limited to sustainability).

IESBA proposed that where the external expert’s work has a significant influence on the outcome of an audit or other assurance engagement, the accountant evaluates whether the external expert is objective by assessing the expert’s compliance with the relevant independence provisions. This assessment assists the accountant in determining whether the expert’s work is reliable, sufficient and appropriate to use.

The external expert’s objectivity might be impacted if the expert has not met the independent requirements. This means the accountant cannot use the external expert’s work, and instead consider whether to modify the audit/assurance procedures or engage another external expert.

Other considerations

Other matters to consider:

• The ethical and independence challenges or threats of familiarity and competence faced by sustainability assurance practitioners are similar to those for financial statements.
• It is unclear who will have regulatory oversight and enforcement of non-compliance of the Code by non-accountants; currently, accountants are required to apply the Code by the accounting bodies and relevant regulators.
• Guidance and training material for the revised Code, especially for non-accountants to come up to speed with a Code that was originally drafted for accountants.
• ISSB expects to issue the first two sustainability standards (IFRS S1  General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures) by June 2023.
• IAASB expects, in June 2023, to approve an Exposure Draft on the new standard for sustainability assurance, International Standard on Sustainability Assurance (ISSA) 5000, General Requirements for Sustainability Assurance Engagements with the final standard to be completed in 2024.

IPA will continue to engage with IESBA along with other Australian standard-setters and regulatory bodies to ensure the ethical, reporting and assurance requirements are fit for purpose globally and for IPA members. The IPA will also continue to keep members informed about sustainability reporting developments through the Sustainability for Accountants resources page, our Sustainability Discussion Group, and Public Accountant.

*Code refers to the IESBA International Code of Ethics and Professional Accountants (including International Independence Standards)

Daen Soukseun is Senior Consultant, IPA.