ICAS responds to exposure drafts on sustainability and using the work of an external expert
Ann Buttery highlights the main points from ICAS’ responses to the International Ethics Standards Board for Accountants (IESBA’s) most recent exposure drafts on sustainability and using the work of an external expert.
As previously reported in January 2024, IESBA published its ‘Sustainability’ and ‘Using the Work of an External Expert’ exposure drafts, with the goal of mitigating greenwashing and elevating the quality of sustainability information to foster greater trust in sustainability reporting and assurance.
Our key points on both exposure drafts and what this means for our profession are as follows:
Proposed International Ethics Standards for Sustainability Assurance (IESSA) and other revisions to the Code relating to sustainability assurance and reporting
Regulatory Framework
In our response to the IESBA Consultation Paper: Proposed Strategy and Work Plan 2024-2027 in June 2023, we reiterated that IESBA should prioritise focusing on ethics standard setting in relation to sustainability reporting and assurance.
We agree that the public interest would be best served by having the same or equivalent ethics and independence standards apply to all parties providing assurance on sustainability related information. However, we continue to have concerns around how IESBA will be able to expand the scope of the Code to cover assurance providers other than Professional Accountants in Public Practice (PAPPs). It's our opinion that this can only be achieved if assurance providers other than PAPPs are required by respective jurisdictional regulators to adhere to the IESBA Code of Ethics or equivalent standards and for there to be an appropriate sanctions regime for failure to comply. If non-professional accountants (non-PAs) are not required to use the Code by a regulator, we believe it is unlikely they will use it.
Transitional arrangements
The IESBA notes in its Explanatory Memorandum that the International Ethics Standards for Sustainability Assurance (IESSA) should be capable of being understood and applied by all practitioners of sustainability assurance engagements, including those who are not PAs.
We have concerns that this is a large, complicated document. The sheer volume of information may be difficult for users to address. As a result, this may be a barrier to non-PAs entering the market or remaining in the market and it may only be professional accountants (PAs) who are willing to use it. We agree that there should be a strong Code in this area, however, we believe there may be a need for transitional arrangements and that a simpler approach to begin with would be more effective.
There is a need to focus on the key issues now, that people can understand at the outset, and then a longer-term project can be undertaken for the detail as the market matures – the IESSA could be the right document in a few years’ time when there is a stronger market of PAs and non-PAs.
A skeleton document on what needs to be achieved would be a useful resource. This could build on the existing Code requirements for PAPPs, whilst providing guidance for non-PA providers to address stakeholder concerns about greenwashing.
Additional guidance to assist non-PAs
The proposed IESSA will generally be capable of being understood by those who are not PAs, however, there is a need to be mindful of users coming to the IESSA for the first time, with no previous knowledge of the IESBA Code of Ethics. They may need additional signposting within the Code, such as including a guide to the Code, and further explanation may be required to help those who are not familiar with the structure and terminology of the Code.
Level playing field
We note paragraphs 5100.2a and 5100.2b in proposed Part 5 (the ‘IESSA’) and suggest this may not create a level playing field for PAs and non-PAs. This is because Part 4B of the Code is ‘encouraged’ for non-PAs, but it is not contained within Part 5 of the Code. As a result, non-PAs have less obligations than PAs as PAs are required to use Part 4B. To level the playing field, we suggest that there is a need for Part 4B to also be included within Part 5.
Value chain entities
This is a complex area. More work is required by IESBA to arrive at a practicable approach.
View the full response here
Using the work of an external expert
Transitional period
We agree with the IESBA that using the work of an external expert might create threats to a PA’s or Sustainability Assurance Practitioner’s (SAP’s) compliance with the fundamental principles, particularly the principles of integrity, objectivity and professional competence and due care, and we welcome their proposal for a principles-based approach to be adopted.
The IESBA’s Explanatory Memorandum goes on to say: “The proposed new sections 390, 290 and 5390, therefore establish an ethical framework to guide PAs in public practice and in business, and SAPs, respectively, in evaluating whether an external expert has the necessary competence, capabilities and objectivity (CCO) for the PA or SAP to use the expert’s work for the intended purposes."
We agree conceptually with the proposed CCO approach, and we support that the evaluation of external experts in an audit or assurance engagement be performed through the lens of objectivity; however, we feel that the proposed provisions stray into a primary focus on independence rather than objectivity in Sections 390 and 5390.
We have concerns that, at these early stages for sustainability reporting and assurance, where there is going to be an increasing use of experts in other areas, this focus on ‘independence’ might reduce the marketplace of experts available to work with PAs and SAPs because they will be unable (or unwilling) to meet all the ‘independence’ requirements. If there is no legal requirement for them to do so, why would they sign up to providing all the information required in the proposed paragraphs? It would be wiser to focus on professional judgement being appropriately applied to assess objectivity rather than strict adherence to independence rules per se.
In relation to sustainability-related assurance services, there is a need to allow for a transition period from where we currently are to where we want to be in relation to the applicable ethics framework. For now, given the less-mature state of the sustainability assurance market there should be a focus on objectivity rather than focusing on detailed independence requirements that need to be signed off.
Co-ordination between IESBA and the International Auditing and Assurance Standards Board (IAASB)
Ongoing co-ordination and discussions between IESBA and the International Auditing and Assurance Standards Board (IAASB) are essential in making sure that appropriate alignment between International Standard on Sustainability Assurance (ISSA) 5000 and the proposed revisions to the IESBA Code of Ethics for Professional Accountants (including International Independence Standards) is achieved.
Find out more about the ethics resources ICAS provides to support its members here.
