Guidance for sustainability attestation engagements

As interest from investors grows, the demand for information on companies’ sustainability practices is expected to increase.

For example, in 2017 Exxon Mobil shareholders in a nonbinding resolution called for the energy company to disclose the impact that global climate change guidelines will have on its business — and New York State Attorney General Eric Schneiderman revealed an investigation into information the company provided investors about the risks global warming posed to its operations, according to published reports.

In this environment where sustainability reporting is becoming more common for businesses, opportunities for CPAs to provide assurance on such reports are growing.

CPAs who wish to perform such services can use the resources available in the new AICPA Guide Attestation Engagements on Sustainability Information (Including Greenhouse Gas Emissions Information), which is available at aicpastore.com. The guide supersedes AICPA Statement of Position 13-1, Attest Engagements on Greenhouse Gas Emissions Information. The content of that SOP has been updated for the clarified attestation standards and included in the guide.

This guide applies when the reporting entity is holding the subject matter out as sustainability information or makes an assertion that it is sustainability information. Examples of ways in which the reporting entity might hold out the subject matter as sustainability information include the following:

• Labeling the report containing the subject matter as a sustainability report, corporate social responsibility report, or environmental, social, and governance report, or a similar title.
• Labeling the presentation of information as a greenhouse gas (GHG) emissions schedule or statement.
• Submitting the presentation in response to a third-party requirement for the submission of sustainability information (for example, to sustainability rating bodies).
• Labeling sections of a broader report, such as in a report submitted to a securities regulator (for example, in the “Management Discussion and Analysis” section of an SEC Form 10-K), as sustainability, corporate social responsibility, or environmental, social, and governance information.
• Labeling the subject matter appearing on the entity’s website as sustainability, corporate social responsibility, or environmental, social, and governance information, or a similar title.
• Citing a sustainability framework, including standards, regulations, and entity-specific criteria for sustainability information, as criteria for the preparation or presentation of the subject matter.

Given the varied nature of the subject matter, the practitioner may need to exercise judgment in ascertaining whether the guide applies to the engagement.

Here are four short excerpts from the guide:

INTRODUCTION TO SUSTAINABILITY INFORMATION

The following are examples of subject matter that might be addressed in an entity’s sustainability information:

Economic

• Direct economic value generated and distributed, including to stakeholders other than shareholders.
• Financial implication and other risks or opportunities related to climate change, availability of resources, relationship with the workforce, and other environmental, social, and governance factors.
• Defined benefit plan obligations, and funding of such.
• Government-provided financial assistance.
• Market presence.
• Procurement practices, including with respect to supply chain compliance with the entity’s policies and applicable laws and regulations.

Environmental

• Materials used, including future availability and dependability of sources of supply.
• Energy consumption, sources, and intensity.
• Water consumption, including future availability and dependability of source of supply.
• Biodiversity, including impact of sources of supply on Habitat.
• GHG emissions.
• Waste.
• Environmental compliance.
• Product stewardship.

Social

• Occupational health and safety.
• Training and education of employees.
• Nondiscrimination, diversity, and equal opportunity employment.
• Equal remuneration based on the work performed, regardless of sex, race, national origin, religious belief, or sexual preference.
• Freedom of association and collective bargaining.
• Labor practices and grievance mechanisms.
• Child labor.
• Forced or compulsory labor.
• Labor management relations.
• Anticorruption.
• Customer health and safety.
• Product safety.
• Product and service labeling.
• Supply chain matters (for example, occupational health and safety, human rights, and labor practices of suppliers).

Governance

• Governance structure and composition.
• Role of highest governance body in various activities of the entity.
• Management and oversight of sustainability policies, practices, risks.

Sustainability information may be quantitative or qualitative in nature (for example, narrative or qualitative measures) and may be presented in various ways, including in a sustainability report, within an entity’s annual report, as part of an integrated report, in a schedule or statement of GHG emissions information (referred to as a schedule of GHG emissions information throughout the remainder of this guide), or as a presentation of one or more sustainability indicators or sustainability metrics. At the date of publication of this guide, there is growing interest in sustainability reporting and other emerging types of external reporting (such as integrated reporting). Accordingly, the manner in which sustainability information is presented is evolving and new ways of reporting such information, including the creation of new standards and frameworks, are likely to emerge.

Various reporting frameworks or standards exist for sustainability information that provide criteria for what information is to be reported (for example, as to what information is to be included in a sustainability report or a schedule of GHG emission information); such frameworks or standards also may include criteria for how to measure the sustainability information. However, in the absence of measurement criteria in a specific reporting framework, entities may use such reporting framework or standard, together with other criteria.

As indicated in paragraph 1.05, sustainability information can comprise many types of information, not all of which may be in the field of the engagement partner’s expertise. Accordingly, examination and review engagements on sustainability information may include significant use of specialists (for example, engineers or scientists). As a result, evidence might be obtained through the use of one or more practitioner’s specialists (which may be a practitioner’s internal specialist or a practitioner’s external specialist). Factors that might be considered by the engagement partner in determining whether to accept the engagement include the extent to which one or more practitioner’s specialists might be needed in the performance of the examination or review engagement and whether the practitioner has or can obtain a sufficient understanding of the subject matter to be able to understand and evaluate the specialist’s work as it relates to obtaining evidence for the examination or review engagement.

MEASUREMENT UNCERTAINTY

A characteristic of certain sustainability information is that it cannot be measured with high accuracy. The degree of measurement uncertainty associated with such measurements could affect the risks of material misstatement of the subject matter, including the susceptibility of the subject matter to unintentional or intentional management bias. The extent of measurement uncertainty also may affect sustainability information users’ ability to understand, use, and compare such information over time and between entities.

In planning the engagement, relevant considerations include the following:

a. Whether measurement uncertainty — the range of values that could reasonably be attributed to the reported point value — may be high in relation to any of the quantitative sustainability information subject to the attestation engagement, for purposes of:

i. Identifying risks of material misstatement in an examination engagement or

ii. Placing an increased focus in areas of increased risk in a review engagement

b. Whether management intends to include disclosures related to the reported point values with high measurement uncertainty, including disclosures about the source(s) of measurement uncertainty and a quantified expression of the measurement uncertainty, such as the range of values that could reasonably be attributed to the subject matter.

MATERIALITY IN PLANNING AND PERFORMING AN ENGAGEMENT

When the engagement is for an entire sustainability report, relevant materiality considerations may include:

• Obtaining an understanding of the process the entity’s management undertook to identify what is material to the entity for sustainability reporting purposes;
• Identification of the sustainability information that is most significant to the users of the report (material information); and
• Determination of a threshold of materiality of misstatements for that information.

It is likely that the sustainability information considered most significant to users of the report will cover several different topics or indicators, in which case a materiality of misstatement threshold would be assessed for each such topic or indicator. Relevant factors to consider in identifying the sustainability information most significant to users of the report may include:

• Management’s view on the materiality of the information;
• The materiality determination process that the entity undertakes to determine what information to include in the report; and
• The practitioner’s understanding of the intended users.

When the engagement is to include only specified indicators, materiality is assessed for each such indicator. For example, if separate GHG emissions information is presented for Scopes 2 and 3 emissions, the practitioner might choose a materiality level based on the total of a particular scope, and perhaps select closer to the bottom of the range for the amount of Scope 2 emissions versus assessing materiality as a little higher in the range for Scope 3 emissions.

The types of misstatements that could occur in sustainability information include the following:

• Misstatement of quantified information (for example, understatement or overstatement of GHG emissions; omissions of activity for a period of time or a location; omission of the unit of measurement; or if the measurement uncertainty is high, the quantified extent of the measurement uncertainty).
• Misstatement of narrative (for example, not balanced or incomplete information, or inaccurate statement).
• Omitted disclosure (for example, lack of disclosure called for by the criteria or lack of a disclosure about a material event affecting the sustainability information).
• Insufficient description of the criteria (for example, for measurement of a particular indicator, the methodologies applied, measurement methods, assumptions, estimates, and factors used in making the measurement or evaluation might not be disclosed).

FORMING AN OPINION OR CONCLUSION

Aspects of sustainability information that should be considered by the practitioner in forming an opinion or conclusion on the sustainability information include the following:

a. The overall presentation, structure, and content of the sustainability information.

b. Consistency of criteria and measurement method(s) used from the prior period.

c. The completeness of the sustainability information for the intended purpose.

d. Whether the disclosures are informative of matters that affect the use, understanding, and interpretation of the sustainability information in the context of its intended purpose.

Other considerations in forming the opinion or conclusion include matters such as the following:

• Whether a change in the entity’s organizational boundary has occurred and whether the entity is using a consistent approach to determining its reporting boundary for preparation of the sustainability information (for example, if the organizational or reporting boundary has changed from the prior year, such as a change from reporting on the organization’s domestic entities to reporting on the consolidated organization, regardless of whether comparative information is presented, whether such change is appropriately disclosed and the sustainability information is appropriately labeled with the organizational boundary in the practitioner’s identification of the entity).
• The adequacy of disclosures (for example, for material matters, the measurement criteria used in the current period and whether it is comparable with that used in the prior period if prior-period sustainability information is presented; the source and extent of inherent uncertainties related to such information).
• Whether sustainability information is being reported publicly for the first time with comparative information and, if so, whether the process employed in the prior year in measuring and accumulating such comparative information was consistent or sufficiently rigorous to enable reporting of comparative information.
• If diagrams, graphs, or other visual representations of data are presented, whether such presentation is reflective of the actual quantitative information or possibly may be misleading.
• The consistency of narrative disclosures to tables or graphics.
• Whether errors were identified and corrected in the current period that may be indicative of errors in prior-period information that is included for comparative purposes.

About the author

Ken Tysiac is a JofA editorial director. To comment on this article or to suggest an idea for another article, contact him at Kenneth.Tysiac@aicpa-cima.com or 919-402-2112.

AICPA resources

Articles

• “CFOs and Sustainability — A Growing Relationship,” CPA Insider, Aug. 14, 2017
• “How Young CPAs Can Help Save the World,” CPA Insider, March 27, 2017
• “ASB Interpretation Permits Auditor Reporting on Sustainability Financial Statements,” JofA, Oct. 27, 2015
• “Changing Market Needs Lead to New Assurance Opportunities for Auditors,” JofA, Oct. 20, 2015

Publication

• Attestation Engagements on Sustainability Information Guide (Including Greenhouse Gas Emissions Information) (#AAGSUST17P, paperback; #AAGSUST17E, ebook; #AAGSUSTO, online access)

CPE self-study

• MBAexpress: Business Benefits of Sustainability (#BLIMBA2, online access; #GT-MBABBS, group pricing)

For more information or to make a purchase, go to aicpastore.com or call the Institute at 888-777-7077.

Webpage

AICPA Sustainability Reporting and Assurance page, aicpa.org/sustainability