In December 2023, the Institute’s Standard Setting Department responded to the International Auditing and Assurance Standards Board’s (IAASB) Exposure Draft Proposed International Standard on Sustainability Assurance (ISSA) 5000, General Requirements for Sustainability Assurance Engagements (ED-5000). ED-5000 has been developed as an overarching standard in response to the public interest need that supports the consistent performance of quality sustainability assurance engagements.
We support ED-5000 as the global baseline for sustainability assurance. Nonetheless, challenges in implementation may arise from the absence of mandatory jurisdictional requirements for assurance on sustainability information and obligation to adhere to a specific assurance framework. We emphasize that education plays an important role and we appreciate the IAASB’s continued efforts in promoting the values and benefits of sustainability assurance. The IAASB expects to approve the final standard by December 2024.
Public interest responsiveness
We consider there to be a need to provide specific assurance guidance to address different sustainability topics similar to the standalone International Standard on Assurance Engagements (ISAE) 3410 for assuring greenhouse gas (GHG) statements. To effectively manage stakeholders’ expectations, we recommend the IAASB provide a roadmap outlining the development of other sustainability topics in the suite of ISSAs.
Applicability of ED-5000 and the relationship with ISAE 3410
ED-5000 requires practitioners to apply it to all sustainability assurance engagements including GHG disclosures. The IAASB incorporates certain requirements from ISAE 3410 into ED-5000 but there are differences in assessing risks and designing procedures while conforming amendments to ISAE 3410 are not proposed. We recommend that the IAASB set out the differences clearly and provide more context on the reasons for such differences to facilitate practitioners in transitioning from ISAE 3410 to ISSA 5000 for assurance reporting on GHG disclosures.
Ethical requirements and quality management standards
ED-5000 requires the practitioners to comply with the International Code of Ethics for Professional Accountants (including International Independence Standards) (the Code) issued by the International Ethics Standards Board for Accountants (IESBA), and the IAASB’s International Standard on Quality Management (ISQM) 1, or their equivalents. Practical challenges may include a lack of sound understanding of the Code and ISQM 1 enabling non-professional accountant (non-PA) practitioners for assessing their existing systems and policies to ensure compliance with the Code and ISQM 1. We recommend that the IAASB develop promotional materials setting out the pre-conditions and the fundamental premises relating to ethics and quality management standards to ensure consistent application of ISSA 5000 when issued in final.
Limited assurance and reasonable assurance
We recognize the need for additional non-authoritative materials such as case studies to illustrate the extent of different procedures required for limited and reasonable assurance engagements in order to drive consistent application of the standard resulting in high quality work.
Given the prevalence of the common practice of outsourcing the sustainability information preparation to service organizations, feasibility of understanding and assessing the entity’s related internal controls as a prerequisite of a reasonable assurance is questionable. We suggest the IAASB to consider incorporating relevant ISAE 3402 requirements into the proposed ISSA 5000 to provide guidance required for performing reasonable assurance.
Group sustainability information and key audit matters
We support the IAASB’s initiative to develop a separate ISSA addressing sustainability information at the group level with reference to International Standard on Auditing (ISA) 600 (Revised). However, the IAASB should consider how to adapt the requirements in ISA 600 (Revised) which are primarily designed for a financial statements audit being a reasonable assurance engagement for a limited assurance engagement under ISSA 5000. As ED-5000 includes principles in relation to assurance on group sustainability information, we do not consider the development of a separate ISSA in this area to be a top priority currently.
Furthermore, we also do not consider addressing the concept of “key audit matters” for sustainability assurance to be a top priority as its applicability would be limited to reasonable assurance engagements. Due to the complex and multidimensional nature of sustainability information, determining “key assurance matters” in sustainability assurance can be challenging.
Going concern
In ED-5000, the concept of going concern is used to highlight the possible consequences for an entity’s operations that may have an impact on its sustainability disclosures. However, it lacks additional guidance regarding the work expected from the practitioners in this regard. We recommend that the IAASB clarify the expected requirements and provide application material in the final standard.
The full response is available on our website.
This article was contributed by Cherry Yau, Associate Director of the Institute’s Standard Setting Department.
