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Amalia Spensieri
Sounds good. Thank you everyone for your patience.
Alright. Thank you, guys. So, welcome to today’s session on sustainability assurance. And I think you’ve already gotten a chance to see Johanna. So I’m here joining you guys. Sorry about the delay. I'm Amalia Spensieri. I'm a principal at the AASB working on this project alongside Johanna Field. She's an associate director at the AASB, and we’ll both be presenting these materials to you today.
So as you can see on the first slide, the AASB is currently working on issuing a new standard on sustainability assurance engagements. Today, these engagements are performed under the 3000 umbrella of standards. Before we get into the technical aspects of the standard, we should discuss the two sides of the project.
So the first side being the influencing of the development of the international standard on sustainability assurance, or ISSA 5000, General Requirements for Sustainability Assurance Engagements, and second being the concurrent adoption of ISSA 5000 in Canada as CSSA 5000 with Canadian amendments.
Go to the next slide. Thank you.
The IAASB has developed a new overarching standard for assurance on sustainability reporting — as I mentioned, ISSA 5000.
The project proposal was approved in September of 2022. And in June, on June 28th, they approved the exposure draft for consultation. Comments are due to the IAASB on December 1st.
At their January meeting, the AASB approved a project proposal to adopt 5000 concurrently as another Canadian standard.
The AASB formed the Sustainability Assurance Committee to inform the board's work on sustainability assurance and to provide them with feedback at each stage of their drafting.
So, following those timelines, ED-CSSA 5000 was approved in August by the Canadian board and is now available from our Sustainability page.
Until the final standard is approved and effective, the current 3000 and 3410 standards remain fit for purpose to provide assurance on sustainability.
Let’s go back to the international project ISSA 5000 timelines and exposure draft timelines.
On this slide, we’d just like to point out to you that it took about nine months from this project proposal internationally for the entire standard to be drafted and approved for consultation.
So this timeline is a bit aggressive as compared to typical development timelines, especially since this was an overarching standard.
So they just really wanted to get that standard out to be able to support two objectives:
- First, earlier publication accompanied by comprehensive global outreach strategy.
- And secondly, the advanced consultation period will help ensure the completion of the standard by — in 2024.
So the AASB approved CSSA 5000 in the Canadian Highlight Summary at their August meeting, as I mentioned, and they’re conducting their outreach from September to December to allow views of Canadian respondents to be reflected in the IAASB response letter.
And that said, we’ve already been raising awareness about the standard for a while. Our goal is — the goal internationally — is for approval of the standard in September of 2024 with the AASB’s approval some time thereafter.
So now that we’re clear on project timelines and ED publication, outreach, and response timelines, let’s learn more about the project objectives.
In their project proposal, the IAASB stated that their aim was to develop an overarching standard for assurance on sustainability reporting that is specific to sustainability assurance, reduces fragmentation in the sustainability assurance standards, is implementable by all assurance practitioners, and is responsive to the emergence of mandatory assurance requirements over sustainability reporting in many jurisdictions across the globe and responsive to the increased demand for assurance on sustainability reporting from interested and affected parties.
So to that end, their objectives were first to be responsive to the public interest for a timely standard that supports consistent performance of quality sustainability assurance engagements.
The second being to be suitable across all sustainability topics, information disclosed about those topics, and like the ISAs, the ISAEs and the ISAEs, the ISSAs, are framework neutral.
The third objective is to be implementable by all assurance practitioners, both professional accountants and other service providers.
Regarding suitability–sustainability topics, information disclosed about those topics, and reporting and mechanisms for reporting
ED-5000 has been developed to allow its application to reporting on any sustainability topics or aspects of topics.
Regarding reporting frameworks and entity develop criteria, well, these can be either general purpose or designed to meet the common information needs of intended users as a group or a special purpose designed to meet the information needs of specific users.
As intended users often differ between frameworks, ED-5000 is intended to be suitable for assurance engagements on sustainability information regardless of the intended user.
ED-5000 has been developed to the greater focus on general purpose criteria, but it can also be used if the criteria are applied to a special purpose framework.
Intended users of sustainability information may be concerned with the impacts of sustainability matters on the entity, such as investors or lenders, or the impacts of the entity on sustainability matters, such as policymakers or NGOs or advocacy groups.
ED-5000 has been developed to allow for criteria that provide for either perspective or for both, often referred to as this double materiality lens.
ED-5000 has been developed to allow its application to reporting via any reporting mechanism and to accommodate evolving reporting practices.
Currently, practice and reporting of sustainability information varies widely from inclusion to an integrated report or an annual report, such as within management commentary, or to a standalone report or report on a specific topic.
The only other point I wanted to make on ED-5000 used by all practitioners is that a wide range of skills are required by assurance practitioners to conduct quality sustainability assurance engagements.
So, while audits of financial statements are conducted by professional accountants, sustainability assurance engagements are not only conducted by professional accountants in Canada.
So voluntary, nevertheless, voluntary and mandatory sustainability assurance engagements are being conducted currently by practitioners from different professions, who may or may use ISAE 3000/3410 or standards issued by ISO or AccountAbility’s AA1000 Series of Standards. So this standard here, our assurance standard, is really intended to be used by both professional accountants and non-professional accountants subject to the fundamental premises in the standard regarding relevant ethical requirements and quality management.
Here, you can just see that in developing 5000 they consider the following qualitative standard-setting characteristics. So, they looked at scalability and proportionality, clarity and conciseness, implementability, and relevance.
Go to the next slide. Thanks.
Okay, Johanna. Thank you.
Johanna Field
Thanks, Amalia. So next we’ll discuss the sources that the IAASB drew upon to develop ED-5000 as well as the priority areas where a greater detail and specificity for sustainability assurance were added.
So, the approach to developing an overarching standard for assurance on sustainability information included first identifying relevant requirements and application material from the existing standards that are in use for these types of engagements today — so, ISAE 3000 and ISAE 3410 — and then which requirements or combination of those requirements from those standards to include in the Exposure Draft 5000.
The board also reviewed the EER guidance, which was Extended External Reporting guidance, published a few years ago to identify material that should be included in the exposure draft either as a requirement or as application material.
The board also developed criteria to use as a basis for identifying which international standard on auditing, or ISA, may have concepts that are appropriate for an assurance standard on sustainability information and which requirements and application material to use from those ISAs.
And then for the priority areas, which we’ll talk a little bit more about in a few slides, developing further material to provide more specificity commiserate with an overarching standard.
So here’s those six priority areas for which the IAASB intended to provide more specificity in the requirements and the application material, and I’ll walk through each of these.
The difference in work effort between limited and reasonable assurance, including the sufficiency of evidence
Assurance on sustainability information is developing across jurisdictions at different rates. Some jurisdictions plan to mandate limited assurance initially, with a shift to reasonable assurance over time.
However, not all jurisdictions have begun to perform these assurance engagements. And regulators may not be considering mandating assurance at this stage.
As a result, there will likely be demand for both limited and reasonable assurance engagements, and therefore ED-5000 addresses both. ED-5000 clearly differentiates the requirements and application material that apply only to limited or reasonable assurance engagements.
Among other reasons, the IAASB concluded that addressing limited and reasonable assurance in a single overarching standard is appropriate because practitioners will be performing limited assurance engagements with a view to shifting to reasonable assurance in the future.
And therefore it’s important to be clear about what the work … about how the work performed in a limited assurance engagement overlaps with or can be evolved to a reasonable assurance engagement.
Also, sometimes within a single engagement the practitioner may obtain limited assurance on aspects of the sustainability information and reasonable assurance on other aspects.
And lastly, feedback to the IAASB indicated the importance of clearly distinguishing the work effort between limited assurance and reasonable assurance and to highlight the incremental procedures that would be required to shift from a limited assurance engagement to a reasonable assurance engagement in the future.
Number 2: The suitability of the reporting criteria, including addressing concepts such as double materiality
The sustainability reporting landscape is rapidly evolving with frameworks and other criteria being developed and, in some cases, consolidated.
And mandatory reporting is being introduced in many jurisdictions. ED-5000 has been developed as framework neutral.
So it can be used for assurance of sustainability information prepared using any suitable criteria — whether framework criteria or entity developed or a combination of both.
In developing ED-5000, the IAASB has considered global sustainability recording standards, including looking at ISSV and GRI standards as a basis for understanding whether the IAASB’s proposals are appropriate and can be practically applied.
Thirdly, the scope of the assurance engagement, and scope will be explained in a bit more detail in the coming slides.
Fourth, evidence, including the reliability of information and what comprises sufficient appropriate evidence. In developing their requirements around evidence in ED-5000, the IAASB incorporated key requirements and application material from another current project they have, which is the changes to proposed ISA 500, which is their audit evidence standard.
Because of the principles-based approach in that project, in particular, proposed ISA 500 better accommodates the evolution of information sources used by practitioners and performing assurance engagements.
The fifth priority area was materiality in the context of the assurance engagement, including materiality in the context of qualitative information. And again, we will get into that in a bit more detail in the upcoming Key Concept section.
And lastly, the entity system of internal control and its impact on the ability of the practitioner to obtain sufficient appropriate evidence. So again, this is explained in more detail in the upcoming slides.
Amalia Spensieri
To help you prepare for your first read of ED-5000, we’ll discuss several key concepts in ED-5000.
The first concept we’d like to discuss is the scope of the assurance engagement. The sustainable information reported may comprise of multiple topics, aspects of the topics, and disclosures or may comprise of information focused only on a particular sustainability matter.
The reporting boundary of the sustainability information may be complex — for example, the value chain — or may differ across disclosures.
The applicable criteria may require different reporting boundaries or maybe subject to management bias. The scope of the assurance engagement can likewise vary from all to just a part of the sustainability information reported.
In some cases, the practitioner may be engaged to assure only certain disclosures. And in other cases, the practitioner may be engaged to share all of the sustainability information.
Furthermore, the practitioner may be engaged to only assure sustainability information for particular activities, regions, or operations within the reporting boundary.
The practitioner may have knowledge of the sustainable information outside of the scope of the assurance engagement so that the practitioner can avoid being associated with information that is materially false or misleading and to determine whether the scope of the engagement is appropriate. Proposed ISSA 5000 deals with assurance engagements on sustainability information.
It’s an overarching standard that includes requirements and application material for all of the elements of sustainability assurance engagement.
Accordingly, the practitioner isn’t required to apply ISAE or CSAE 3000 when performing the engagement.
Next, let’s think about your relationship with ISAE 3410. The IAASB noted that need for a clear and straightforward approach regarding the relationship of ED-5000 and 3410.
The IASB concluded that ED-5000 should apply to all assurance engagements on sustainability information except when the practitioners providing a separate conclusion on a GHG statement.
In such case, 3410 applies. The IAASB was… has proposed a conforming amendment to the scope of 3410 to mirror the approach described.
That’s listed in paragraph 2 of the exposure draft. The IAASB was of the view that this straightforward approach helps highlight that 5000 is a global baseline standard for assurance engagements on sustainability information.
Although certain requirements and application material from 3410 have been included in ED-5000, 3410 contains additional guidance and examples specific to a GHG statement and therefore remains the appropriate standard to apply for assurance engagements when a separate conclusion is provided on a GHG statement.
So, questions may arise about the future of 3410 when proposed 5000 is finalized and any decisions about what extent 3410 may become part of the ISSA suite of standards. And this is still being contemplated by the IAASB.
So, in relation to the exposure draft, take a look at question 3 when you have a chance. The question asked specifically, “Is the scope and a flexibility of 5000 clear, including when 3410 should be applied rather than 5000?”
Next key concept is the definitions of sustainability information and sustainability matters. The IAASB recognized that sustainability information is difficult to define, given its different uses and descriptions and different sustainability reporting standards and frameworks.
But in its simplest terms they recognize that sustainability information is information about sustainability matters, recognizing that matters should be reported, are driven by the sustainability reporting framework or the applicable criteria.
So the IAASB concluded the best approach would be to define sustainability matters, which could serve as the foundation for sustainability information. Outreach indicated that environmental, social, and governance matters, although still widely used as a term, may not be consistent with the current environment and evolving views.
Therefore, they brought in the definition to include environmental, social, economic, and cultural matters and also to include a reference to the impacts of an entity’s activities on the environment, society, economy, or culture, or the impacts on the entity. The definition of sustainability matters also includes a reference to the entity’s policies, performance plans, goals, and governance relating to such matters. The IAASB’s view was that governance is related to the actions taken by an entity to address sustainability matters and therefore is really an aspect of the topic being disclosed.
Finally, to remain consistent with the foundational concepts and related terminology in other standards, in the ISSAs, sustainability information is equivalent to subject matter information. And in other end also, sustainability matters are the equivalent of underlying subject matters in other standards.
With respect to the ED questions, question 5 asked, “You support the definition of sustainability information and sustainability matters used in ED-5000, and if not, what suggestions do you have to make it clear?”
The next key concept is topics, aspects of topics, and disclosures. The introductory paragraphs of Exposure Draft 5000 indicate that sustainability information is information about sustainability matters, and an entity’s disclosures about sustainability matters may relate to several different topics — for example, climate, labour practices or biodiversity, or aspects of those topics, such as risks and opportunities, governance metrics, and key performance indicators.
Management of the entity is responsible for determining the topics and aspects of topics to be reported. And we may refer to this as the entity’s materiality process. And the disclosures represent the specific information reported by the entity about that topic.
A good read is Appendix 1 of the exposure draft that explains the relationship between sustainability matters and sustainability information and the related disclosures about the sustainability information.
The next key concept is sustainability information subject to the assurance engagement.
The scope of an assurance engagement on sustainability information, as I mentioned earlier, makes sense to all the sustainability information expected to be reported by the entity or only a part of that information.
In the course of its discussions, the IAASB considered whether separate terms might be useful to clarify the difference between sustainability information reported and the sustainability information subject to the assurance engagement.
But they concluded that separate terms were unnecessary and clarify the introductory paragraphs in the Exposure Draft Standard 5000: When the assurance engagement does not cover the entirety of the sustainability information, the term sustainability information is to be read as the information that is subject to the assurance engagement.
Sustainability information not subject to the assurance engagement that is included in a document or documents containing the sustainability information subject to the assurance engagement and the report thereon is considered other information in ED-5000.
And they only use the references to sustainability information expected to be reported in the preliminary knowledge section of the standard.
The next concept is the suitability and availability of the reporting criteria.
The approach in ISAE 3000 has been used as the basis for developing the requirements in ED-5000 for determining whether the preconditions for an assurance engagement are present.
This includes a requirement for the practitioner to evaluate whether the criteria that the practitioner expects to be applied in the preparation of the sustainability information are suitable for the engagement circumstances and will be available for the intended users. Sustainability reporting frameworks and criteria from other sources are still evolving.
In addition, suitable criteria may not be available for measuring or evaluating all of the sustainability matters that the entity intends to report, or maybe developed outside of a due process applied by a recognized framework, by the entity or by other parties.
In response, ED-5000 includes requirements additional to those contained in 3000 for the practitioner to evaluate whether there are criteria for all of the sustainability information expected to be subject to the assurance engagement and to identify the sources of those criteria.
Even if criteria are applied from a recognized framework that’s following a transparent due process, it may be necessary for the entity to develop additional criteria if the framework criteria do not provide sufficient detail to measure or evaluate the sustainability matters.
So, ED-5000 acknowledges that framework criteria that are embedded in law or regulation or are issued by authorized or recognized bodies that do follow a transparent process are presumed to be suitable in the absence of indications to the contrary. But again, these may need to be supplemented by additional criteria.
Over time, as reporting frameworks become more comprehensive and more frequently required by law or regulation, then these things may be more, as a result, may be more widely accepted.
EIS has posed easy question 10 in relation to this topic that just asks, “Does ED-5000 address the practitioner’s evaluation of the suitability and availability of the criteria? And if not, what do they, what do you propose?”
Risk procedures for a limited assurance engagement is another key concept we’d like to discuss. For a limited assurance engagement, ED-5000 requires the practitioner to design and perform risk procedures that are sufficient to identify disclosures where material misstatements are likely to arise, and thereby provide a basis for designing further procedures to focus on those disclosures. Conversely, in a reasonable assurance engagement, the practitioner’s required to design and perform risk procedures sufficiently to identify and assess risks of material misstatement, whether due to fraud or error, at the assertion level for the disclosures and to design and perform further procedures.
The IAASB discussed the differentiation and work effort between limited and reasonable assurance engagements, including whether the practitioner should also be required to identify and assess the risk of material misstatement at the disclosure level in a limited assurance engagement. But they concluded that ED-5000 should be consistent with 3000, which does not require a risk assessment for limited assurance engagements.
It was noted that 3410 requires the identification and assessment of risk of material misstatement at the GHG statement level for material types of emissions and disclosures.
However, the IAASB was of the view that the approach in 3000 provides an appropriate framework for the practitioner’s consideration of disclosures where material misstatements are likely to arise.
Now, we’d like to discuss the entity’s process to identify reporting topics. The IAASB recognizes that understanding the entity’s process to identify reporting topics, aspects of topics to be reported, and the reporting boundaries is a critical part of reporting under certain frameworks or entity develop criteria.
In such cases, the practitioner’s preliminary knowledge of the engagement circumstances would encompass an understanding of that process.
However, the IAASB also acknowledged that the understanding of the entity’s process to select sustainability matters to be reported may not be relevant for engagements where the reporting topics are specified by the criteria such as under law regulation.
In the context of an overarching standard, the IAASB was careful to avoid imposing requirements on the practitioner that may make it unnecessarily onerous prior to acceptance or continuance. The extent to preliminary knowledge in this case needed would be limited to what is sufficient for acceptance or continuance of the engagement.
This is anchored in the application material, where there’s an anchor to the requirement in the precondition stage to evaluate the scope of the sustainability information expected to be reported, as well as the scope of the assurance engagement, without specifically requiring consideration of the entity’s process to determine reporting topics, aspects of topics, and boundaries.
The IAASB noted in the application material that this process, as I mentioned, is often referred to as the process to identify reporting topics or the entity’s materiality assessment or materiality process.
And it’s different from the practitioner’s determination or the practitioner’s materiality. Although understanding management materiality process may be useful to the practitioner, that process contemplated by the criteria is different from the practitioner’s consideration of materiality. And we’ll discuss that in the subsequent slide. And I’ll just let you know there’s a question in the ED, question 9 that asks whether the ED appropriately addresses the practitioner’s consideration of the entity’s materiality process. And if not, what do they suggest?
Before I pass this on to Johanna, the last concept I’d like to discuss is the concept of double materiality.
Some reporting frameworks require double materiality to be applied and preparing the sustainability information to reflect the intended users’ information needs that will assist in their decision-making.
ED-5000 explains that the information needs of the intended users of sustainability information may relate to the impacts of the sustainability matters on the entity, or the impacts of the entity on the sustainability matters. This may be referred to as double materiality.
The needs of the intended users will not always include both of these perspectives, and so the concept of double materiality is not always relevant to every engagement.
So in evaluating whether the criteria are suitable, ED-5000 requires the practitioner to evaluate whether the criteria exhibit the characteristics of relevance, completeness, reliability, neutrality, and understandability.
I’ll just note here again that question 11 in relation to this topic from the IAASB’s exposure draft asks whether ED-5000 appropriately addresses the notion of double materiality in a framework-neutral way, including how this differs from the practitioner’s consideration or determination of materiality, which we’ll hear about next.
Johanna Field
Thanks, Amalia. And before I go on to the next slide, I just wanted to address the question I saw in the Q&A. “This is a very informative session,” it says. “Would we be able to get a copy of the slides presented?”
And, of course, we can share a version of the slides once we complete the webinar. So, we’ll have that sent out to all participants.
And as you have questions, please just type them in the chat. Or if you’d like to stop us at any point, just raise your hand, then we can always stop as we go through the slides as well.
So, Amalia covered double materiality and the entity’s process to identify reporting topics. Now, I just want to talk about materiality from the practitioner’s perspective.
Materiality considerations are important in planning and performing an assurance engagement on sustainability information and in evaluating whether the sustainability information is free from material misstatement.
The different measurement units make it difficult to determine materiality for the sustainability information as a whole.
It is more challenging to determine materiality when planning at performing an engagement for qualitative disclosures. Also, it’s difficult to assign a number to qualitative disclosures.
However, the IAASB heard on outreach that practitioners do apply the concept of materiality to the evaluation of misstatements identified in qualitative disclosures.
So, the proposal. The proposed ISSA requires the practitioner in planning and performing the engagement to determine materiality for quantitative disclosures and determine performance materiality to deal with aggregation risk. And that’s consistent with what you see in ISAE 3410.
And then you’re required to consider materiality for qualitative disclosures. So, materiality is a matter of professional judgment and is affected by the practitioner’s perception of the information needs of intended users of the sustainability information.
The application material in ED-5000 notes that not all disclosures involve the same materiality considerations. Ordinarily, materiality is considered or determined for different disclosures.
For different disclosures, the same intended users may have different information needs, a different tolerance from the statement, or the disclosures may be expressed using different units of measure. Considering qualitative factors may help the practitioner to identify disclosures that may be more significant to the intended users.
The practitioner’s judgments about materiality and the nature and likelihood of potential misstatements are also relevant to the practitioner’s approach, including the way in which the sustainability information is grouped for planning and performing the engagement.
Next, we’ll talk about understanding the components of internal control. And here, there is a differentiation between limited and reasonable assurance engagements related to the required understanding of the entity system of internal control.
So first, when speaking of the extent of the understanding of the components of internal control, in a reasonable assurance engagement, the practitioner’s required to understand and evaluate that component.
In a limited assurance engagement, the practitioner’s required to understand components but not required to evaluate those components.
Then, when speaking of what the practitioner is required to understand, in all cases, the board believes it’s important to understand the entity’s control environment and the entity’s information system relevant to the sustainability information. With respect to the entity’s risk assessment and monitoring process, the board believes that understanding those processes may go beyond what’s appropriate for a limited assurance engagement. So, understanding those processes is not required for limited assurance. However, understanding the results of the entity’s risk assessment process would be helpful to the practitioner in identifying disclosures where material misstatements are likely to arise no limited assurance engagement. So, that component is just slightly different between limited assurance and reasonable assurance.
Moving on to the control activities component.
In a reasonable assurance engagement, the practitioner’s required to understand the control activities component.
Understanding that component includes understanding those controls that the practitioner intends to test operating effectiveness of to obtain evidence, any related general IT controls, and any other controls that the practitioner judges necessary to identify risks or design for their procedures.
Understanding a control means evaluating the design of the control and determining whether it’s been implemented.
In both limited and reasonable assurance engagements, if the practitioner plans to test the operating effectiveness of a control to obtain evidence, the practitioner is required to understand that control and any related general IT controls. So, question 13 in the exposure draft was included on this topic, and it asks, “Do you agree with the differentiation in the approach in ED-5000 for obtaining an understanding of the entity system of internal control for limited and reasonable assurance engagements? And if not, what suggestions do you have to make that differentiation clearer?”
So now, moving on to using the work of others.
ED-5000 requires that the engagement leader to determine that sufficient and appropriate resources to perform the engagement are assigned or made available to the engagement team in a timely manner and that members of the engagement team and any practitioner’s external experts collectively have the appropriate sustainability competence, competence and capabilities and assurance skills and techniques, and sufficient time to perform the engagement.
Sustainability assurance engagements may be performed on a wide range of sustainability matters that require specialized skills and knowledge beyond those possessed by the engagement leader and other members of the engagement team, which may necessitate the need to use a work of a practitioner’s expert.
Practitioner’s expert may be either a practitioner’s internal expert who is a member of the engagement team or a practitioner’s external expert.
In addition, the sustainability information subject to the assurance engagement may include information for numerous entities within the entities’ organizational boundary or for entities up and down the value chain. In those circumstances, the engagement team may seek to use the work of another practitioner, which may be from the practitioner’s firm, a network firm, or a firm that’s not a network firm.
The more complex the engagement, including its geographical spread and the extent to which information is derived from the entity’s value chain, the more necessary it may be to consider how the work of the practitioner’s experts for another practitioner is to be integrated across the engagement. If the practitioner intends to use the work of a practitioner’s external expert or a firm other than the practitioner’ firm, ED-5000 requires the engagement leader to determine whether the practitioner will be able to be sufficiently and appropriately involved in such work.
Sufficient and appropriate involvement includes being able to direct, supervise, and review the work of the practitioner’ external expert or another practitioner.
So, the diagram on the slide provides a useful visual illustration of the individuals that may be involved in the assurance engagement whether they are a member of the engagement team or not and if there are requirements in ED-5000 that are applicable to the work of such individuals.
There’s two questions in the exposure draft on this. So, question number 14 asks, “When the practitioner decides that it’s necessary to use the work of a firm other than the practitioner’s firm, is it clear about when such firms and the individuals from that firm are considered to be a member of the engagement team?”
And then question 15 is asking, “Are the requirements in ED-5000 for using the work of a practitioner’s external expert or another practitioner clear and capable of consistent implementation? And if not, how could they be made clear?”
Estimates and forward-looking information
Feedback to the IAASB indicated the importance for ED-5000 to address the unique considerations related to estimates and forward-looking information. Such considerations include estimation uncertainty, which may arise due to incomplete knowledge about the measurement of an area, activity, or event. Or the measurement or evaluation of an estimate may depend on the forecast of an outcome of one or more events or conditions; the use of judgment by management of preparing the estimate, including the possibility of management bias; and the use of professional judgment by the practitioner and obtaining sufficient appropriate evidence about the estimates of forward-looking information.
So as explained in ED-5000, regardless of the source or degree of estimation uncertainty or the extent of judgment involved, it is necessary for management to appropriately apply the applicable criteria when developing estimates and forward-looking information and the related disclosures, including selecting and using appropriate methods, assumptions, and data. Therefore, the IAASB concluded that the most appropriate approach was to address estimates and forward-looking information together. And it’s in the Responding to Risks of Material Misstatement section of the exposure draft. And in developing these requirements in the related application material, the IAASB looked to the requirements and application material in their ISA standard 540, which is auditing accounting estimates. And they also noted that this could be a possible topic for a future separate topic-specific ISSA.
So question 16 in the exposure draft asks, “Do you agree with the approach to the requirements in ED-5000 related to estimates and forward-looking information, and if not, what do you propose and why?”
The practitioner’s responsibilities for other information in the context of a sustainability assurance engagement
Amalia and I had noted earlier that other information is information included in a document or documents containing the sustainability information that’s subject to assurance and the assurance report they’re on.
The board obtained feedback about the importance of requiring the practitioner to read the other information and consider whether there are any material inconsistencies between the other information and the sustainability information or the practitioner’s knowledge obtained on the assurance engagement and to remain alert for indications of misstatements in the other information.
So the IAASB concluded that ISA 720, other information, was appropriate as the basis for the relevant requirements and ED-5000 as it reflects the IAASB’s latest thinking on other information. However, the IAASB understands that the market is expecting reasonable assurance on sustainability information to be comparable to audits of financial statements.
And there’s similar expectations about the practitioner’s responsibilities for other information, and that should be reflected in the exposure draft, which it is.
But the board did not consider it appropriate for the practitioner to be required to obtain and consider other information that’s not available until after the date of the assurance report, which is what is required for listed entities in ISA 720.
Given that many sustainability assurance engagements may be narrow in scope, and the other information may therefore be voluminous in relation to the sustainability information within the scope of the assurance engagement, there are limitations as to what is practically achievable and reasonable to expect after the date of the assurance report.
However, the practitioner’s not precluded from reading and considering other information that becomes available after the date of the assurance report and application material has been provided to give guidance in these circumstances.
So, onto reporting requirements.
In the IAASB’s outreach activities, they’ve frequently heard about issues relating to reporting, such as clarifying the level of assurance obtained for users of the assurance report, the scope of the assurance engagement, and the importance of consistency to enable comparability between reports.
They also heard there’s a heightened need for communication by the assurance practitioner in the assurance report to meet the information needs of intended users in a reporting environment that’s still evolving and still maturing, reinforcing the need to allow for long-form reporting.
Overall, the IAASB’s development of assurance reporting requirements was based on the requirements in ISAE 3000 and 3410 but reflects the latest thinking about the form and content of the auditor’s report, including the ordering of the report elements from ISA 700.
700 was used as a guide for the elements of the assurance report to promote consistency and comparability between auditor’s reports on financial statements and assurance reports on sustainability information.
There were also four illustrative reports included with the exposure draft. So, although there are no illustrative reports in ISAE 3000, feedback from outreach indicated that the illustrative reports in the EER guidance are well used. So, the four illustrations they’ve included are a reasonable assurance report, a limited assurance report, a report illustrating both limited and reasonable assurance in one assurance report, so on different aspects, and then a modified assurance report on sustainability information.
And question 21 was included in the exposure draft that asks, “Will the requirements of ED-5000 drive assurance reporting that meets the information needs of users? If not, please describe any additional matters that should be included.”
Effective date and implementation period
In identifying the appropriate convention for the effective date, the IAASB considered that engagements on sustainability information have the following characteristics.
They either cover a period. So, for example, performance against targets over a period.
Or it’s a point in time. So, for example, a strategy or the implementation of a process or control.
They’re attestation engagements; therefore, the suitable period should be that of the sustainability information reported.
And the standard has requirements that covers the entire performance of the engagement, including the planning stages. So the IAASB convention is that the effect of date paragraph uses periods beginning on or after when they include planning in the standard as well.
So accordingly, the exposure draft indicates safe active date would be for assurance engagements on sustainability information recorded for periods beginning on or after, and they did not specify a month or a year yet, or as at a specific date on or after.
The IAASB proposed an implementation period of approximately 18 months after approval, and approval is anticipated in September of 2024. That’s internationally. So, the Canadian AASB’s approval of CSSA 5000 would be after that.
Matters for future standard setting
The IAASB has said that they envision a suite of standards for assurance and sustainability reporting that provide more specificity than this overarching standard.
And that those might be developed over time, but they will explore that further as they look at their future strategy and work plan.
For instance, in December of this year, they plan to finalize their strategy and work plan for 2024 to 2027.
So, in that you’ll see any commitment they make to future standards in this area.
Let’s take a minute to discuss Canadian amendments proposed to ISSA 5000 in order to adopt the standard in Canada as CSSA 5000.
And we’ll also discuss the incremental Canadian exposure draft questions included in our highlights summary publication.
There’s really three categories of Canadian amendments or potential amendments.
So first, amendments related to relevant ethical requirements.
ISSA 5000 makes several references to the International Ethics Standards Board for accountants, International Code of Ethics for Professional Accountants, or the IESBA code.
Practitioners in Canada are generally required to comply with the rules of professional conduct, code of ethics established by professional accounting or other professional bodies whose rules or code may differ from the IESBA code.
The IAASB proposes to replace references to the IESBA code and its fundamental principles with the Canadian equivalent.
And this amendment is consistent with the existing Canadian amendments to other standards and the assurance handbook. So quite similar to what we have in CSAE 3000.
Second, amendments related to direct engagements.
So, the Canadian board thought it may not be clear for Canadian practitioners which standard they should apply for direct engagements on sustainability information.
In response, the AASB proposes to change the scope paragraphs of ISSA 5000 to draw practitioner’s attention to apply CSAE 3001 when performing direct engagements on sustainability information.
In addition, the AASB proposes a Canadian conforming amendment to CSAE 3001 to explain that it covers direct engagements on and sustainability information and that CSSA 5000 covers attestation engagements on sustainability information.
There will be a note or there is a proposed note in there that CSSA 5000 may be useful as guidance for direct engagements on sustainability information.
And then thirdly, there’s a potential additional Canadian amendment related to consultation with Indigenous peoples.
The AASB is looking for views on whether CSSA 5000 should specifically require the practitioner to evaluate the entity’s consultation with Indigenous peoples when evaluating whether the criteria are suitable and will be available to intended users.
This was noted as potential because the board believed it was very important to get input and consult on the matter before making any recommendations.
Given the timing, the AASB did not have the opportunity to get that input before finalizing the exposure draft.
So, the hope is that the current drafting of our exposure draft will help to solicit that input. Please review the highlight summary to see the proposed wording and respond to our Canadian exposure draft to let us know if you support these amendments or not.
There are several exposure draft questions posed in the Canadian highlights summary. The three general questions are listed here on the slide. And these are the ones that will help inform the board of our response to the IAASB.
So, the response deadline for these three general questions is November 6th. And there’s an extended deadline for a response on the Canadian amendments that I just covered. So, response on the questions that refer to the Canadian amendments or potential Canadian amendments is December 31st. So you have more time to consider those changes in Canada.
But for these three general questions, it would be helpful if you gave us feedback by November 6th so we can inform the response to the IAASB.
I see there’s a raised hand. Ritu, can you help us out? I think it’s Colin.
Ritu
Yes, just give me one second.
Amalia Spensieri
While Ritu is doing that, I’ll just point out that the Canadian exposure draft is now available from our project page, and you can either get it right from the project page, or there’s a Documents for Comment — AASB Documents for Comment — where you’ll be able to download that document.
Ritu
Before I actually unmute Colin, Johanna, there’s a question as well to another one about the courses, and I was wondering if you wanted to answer that question before or?
Johanna Field
Okay. Thanks, Ritu. So the question in the chat is, “How will you be handling the certification or authorization of members to provide assurance of this type? Will there be course offerings developed?”
So no, the board does not do certification or authorization of members.
This is quite similar to the current CSAE 3000 where that standard is available to practitioners and non-CPAs alike, and you can apply that standard. There’s some fundamental principles that are written into the standard that say you have to follow a code of ethics and that you have to have quality management in place. So, currently there’s no specific regulation of that. So that’s an open question for sure and the Canadian jurisdiction that I’m sure we’ll hear more about.
I hope that it helps, Jim.
Amalia, is it something to add?
Amalia Spensieri
Yes, I was just going to add that the regulation of who performs the engagement is a provincial matter in Canada. And so I think we write the standards and we, sort of, we are involved in what the scope of the standard maybe, but that’s probably more of a provincial level question that also probably your member bodies would be able to support you with.
Johanna Field
Thanks. And please let us know, Jim, if we didn't completely answer your question. And then, Ritu, if you can unmute Colin?
Ritu
Yes. Colin, go ahead.
Colin
Hello, can you hear me? Okay, perfect. Thank you. If you wouldn't mind just going back to slide 30, the prior slide. Thank you for taking my question. It’s a bit of a longer question.
So, I guess you said that the board is proposing the Indigenous consultation? I’m wondering why there would be a proposal in an exposure draft versus a consultation paper. I’m also kind of curious as to what the board thought the issue or why they would not make this amendment.
Just offhand, I would think that Indigenous consultation would be a Canadian amendment, given our Indigenous rights and stuff in Canada would not be in an international standard. So, I would expect this to be kind of a little straightforward. So, I’m just wondering what the board’s hesitation was, or what the hesitation is with this, and why it’s a potential amendment and not just in the exposure draft as a key amendment.
Johanna Field
Thanks, Colin. I appreciate the question, and I’ll do my best to answer it. So, this potential Canadian amendment was identified quite late in the process of pulling together the exposure draft. And the board just felt that they didn’t have enough information.
They thought it was a very important question to ask and to try and get input and feedback on but at the point of approving and publishing the exposure draft, and keep in mind we’re stuck with a timeline we don’t control.
So the IAASB had already published their response deadline, and there’s some other questions not related to the Canadian amendment where we needed to get this information out in the public so people can comment on the rest of the exposure draft as well, right?
So they were a bit stuck because of timing, because of not having enough time to consult with Indigenous peoples themselves to say.
Did we get the wording right? Is this a good idea? Is there something we missed? Is there something else we should consider? And so that was why it was pitched slightly different than saying, “No, this is for sure what we think the Canadian amendment should be.”
And so that's why it’s couched a little bit differently in the exposure draft. Hopefully that helps.
I don’t see any other questions or hands raised. So I’m going to keep going with the slides. But again as you have questions, please. And I see we’re at one o’clock.
We’ll keep going through the content. If you can stay on, great. There’s only five more slides. And as I said earlier, we will circulate this slide deck.
So, we understand if you have to drop off.
Amalia Spensieri
Okay, so we’re now just going to quickly talk about the events forums and opportunities that you have to share your views with the AASB.
We believe that successful outreach and feedback occur in three steps:
Awareness. So we’re asking you here today to help us generate awareness within your networks about ED-5000 and our outreach activities.
Informing. We hope you’ve learned a little bit about ED-5000 today through our webinar, but you can also read the ED itself.
And discussion. We hope you can provide feedback at any of our upcoming outreach activities either by completing a survey, attending a roundtable, or writing a response letter to the AASB. And all your views will be considered for inclusion in our AASB response to the IAASB’s exposure draft.
So here are the three prominent areas of our avenues for sharing your feedback:
You can attend the AASB’s virtual roundtable discussions, which are occurring on October 16th for English-speaking individuals, on October 18th for French speaking individuals.
You can participate in the Exposure Draft 5000 survey, which I already mentioned earlier. And it’s going to be available from our FASC Connect page, but you can also find it via our sustainability assurance webpage.
Or you can write us a response letter. As Johanna mentioned, the response deadline is bifurcated. So it’s November 6th for general questions on the exposure draft and December 31st. So we’re giving that added period and time we need to discuss the Canadian amendments and potential additional Canadian amendments for adoption in CSSA 5000.
You can visit the AASB sustainability assurance project page for more details on these opportunities, and there you can also register for the upcoming roundtable and link to the FRAS Connect survey from there.
So, please take a chance to reach out to Johanna or I if you would like to connect with the AASB to share your views directly on the exposure draft.
Or maybe you have an opportunity for the AASB to participate in an event that you’re planning within your organization or community to discuss the proposed standard or any of the Canadian proposed conforming amendments or potential additional amendments.
You can connect with the AASB, and you can also help connect us with interested parties, including those that are outside of the accountancy profession.
And then I’ll just show you guys our contacts. So, if you have any questions, please consider reaching out to myself or Johanna. And here’s our email and our contact information, which is also all on the Sustainability Assurance Project page.
So that’s all the content we wanted to present to you today. After this session, this will be turned into an on-demand webinar, and the slides will be included along with the link to the on-demand webinar on the same page where you were led to to register.
Just check chat now, Johanna, to see if there’s any questions.
Johanna Field
Don’t see any right now. I’ll just give another minute. If anyone wants to raise their hand and ask any questions, we’ll stay on for a few more minutes.
Otherwise, thank you for your time and participation today.