Sustainability Assurance

The AASB discussed the IAASB’s proposed revisions to International Standard on Sustainability Assurance (ISSA) 5000, General Requirements for Sustainability Assurance Engagements. Key issues discussed included:

• a diagram describing the entity’s process to identify sustainability information to be reported;
• communications between the auditor of the financial statements and the sustainability practitioner about sustainability matters;
• testing management’s process for obtaining information from value chain components;
• understanding the entity’s reporting policies at the risk assessment stage; 
• the practitioner’s description of any inherent limitations in the sustainability information reported; and
• describing in the assurance report circumstances when the other information encompasses financial statements that were audited by the sustainability assurance practitioner or their firm.

The AASB also discussed the proposed and potential Canadian amendments to ISSA 5000 for adoption as Canadian Standard on Sustainability Assurance (CSSA) 5000 in Canada. Key issues discussed included:

• new and revised wording on the proposed Canadian amendments concerning relevant ethical requirements, direct engagements, and Canadian Standard on Association 5000, Use of the Practitioner’s Communication or Name; and
• revised direction for the potential Canadian amendment on Indigenous matters in CSSA 5000. 

The AASB will continue to discuss both international and Canadian issues at the December 2024 meeting. 

The AASB discussed the IAASB’s proposed revisions to the International Standard on Sustainability Assurance (ISSA) 5000, General Requirements for Sustainability Assurance Engagements. Key issues discussed included:

• a “tiering of authority” for applying relevant ethical requirements;

• how to identify and assess risks of material misstatement in both limited assurance and reasonable assurance engagements;

• the proposed presumption that criteria that are embodied in law or regulation, or framework criteria that are issued by authorized or recognized bodies that follow a transparent due process, are suitable in absence of indications to the contrary;

• the risk of management override of controls in both reasonable and limited assurance engagements;

• the communication between the sustainability assurance practitioner and the financial statement auditor when a material misstatement exists in other information (e.g., the financial statements) or when the practitioner identifies non-compliance with laws and regulations; and

• the description of the summary of work performed in the limited assurance engagement assurance report.

The IAASB anticipates approving proposed ISSA 5000 at its September 2024 meeting. The AASB will continue to discuss international and Canadian issues as it works toward a planned approval of Canadian Standard on Sustainability Assurance 5000 by the end of 2024.

The AASB discussed the IAASB’s proposed revisions to International Standard on Sustainability Assurance (ISSA) 5000, General Requirements for Sustainability Assurance Engagements. Key issues discussed included proposed changes to the requirements and application material on:

• the quality management standards that are “at least as demanding” as ISQM 1, Quality Management for Firms that Perform Audits or Reviews of Financial Statements, or Other Assurance or Related Services Engagements;
• the understanding of “the entity’s process to identify the sustainability information to be reported”;
• the practitioner’s consideration of materiality for qualitative disclosures;
• using the work of another practitioner;
• performing substantive procedures for disclosures irrespective of risk; and
• the risk identification and assessment in a limited assurance engagement.

The AASB also reviewed feedback on the proposed and potential Canadian amendments in the Exposure Draft of Canadian Standard on Sustainability Assurance (CSSA) 5000, General Requirements for Sustainability Assurance Engagements.

The AASB will continue to discuss international and Canadian issues as it works toward a planned approval of CSSA 5000 by the end of the year.

The AASB reviewed a summary of outreach activities conducted and feedback received to date on the Exposure Draft, “General Requirements for Sustainability Assurance Engagements,” and discussed its response 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.” Key issues discussed included:

• estimates and forward-looking information;
• group engagements; and
• the assurance report, including:
  • disclosing a summary of the work performed for reasonable assurance in the assurance report; and
  • the requirement to disclose the engagement leader’s name.

The response letter to the IAASB was submitted by the comment deadline of December 1, 2023.

The AASB approved the Exposure Draft for a new Canadian Standard on Sustainability Assurance (CSSA) 5000, General Requirements for Sustainability Assurance Engagements. Key issues discussed included the following:

• the significant changes to the proposed ISSA 5000 from the version last discussed by the Board at its June 2023 meeting;
• the proposed Canadian amendments to ISSA 5000 and potential additional Canadian amendments; and
• the questions to include in the Canadian Highlights Summary.

The Exposure Draft for CSSA 5000 was issued on September 21, 2023.

Comments to the AASB on its Exposure Draft are due as follows:

• responses to general questions are due by November 6, 2023, to ensure the AASB receives timely feedback from Canadians on issues relevant to the AASB’s response to the IAASB; and
• responses to all other questions are due by December 31, 2023.

Comments to the IAASB on its questions are due on December 1, 2023.

The AASB discussed issues related to the IAASB’s project to develop International Standard on Sustainability Assurance (ISSA) 5000, General Requirements for Sustainability Assurance Engagements. Key issues discussed included:

• the full proposed ISSA 5000, including illustrative assurance reports and the proposed conforming and consequential amendments arising from ISSA 5000;
• how the IAASB Task Force addressed substantive matters related to proposed ISSA 5000, including:
  • the concepts of sustainability matters, sustainability information, and disclosures and their interoperability within the standard;
  • the concepts of “double materiality”, more than one materiality for the same assurance engagement, and differentiating the concept of materiality applied by the entity (e.g., materiality process), and the practitioner’s consideration or determination of materiality (engagement materiality);
  • the convention for the effective date of proposed ISSA 5000; and
  • the relevant matters for the Explanatory Memorandum to accompany the exposure draft of the proposed ISSA 5000.
• the Canadian issues pertaining to the exposure draft of the proposed Canadian Standard on Sustainability Assurance, such as:
  • the exposure period;
  • any possible Canadian amendments;
  • any questions to include in the Canadian Exposure Draft; and
  • the planned outreach with interested and affected parties.

The IAASB expects to approve an exposure draft at its June 2023 meeting. The AASB expects to approve its Canadian exposure draft in August 2023 with publication expected throughout September 2023.

The AASB held an education session on Sustainability Assurance and received two presentations from external presenters:

• “Sustainability Assurance Challenges”, by Edward Olson, ESG Leader, MNP.
• “Sustainability Reporting Landscape and Readiness for Assurance”, by Naomi Thomas, ESG Senior Manager, PWC.

The AASB also reviewed and discussed example sustainability reports and assurance reports. The discussion provided background knowledge to support the development of its proposed sustainability assurance standard which the AASB is planning to approve for exposure in August 2023 and issue shortly thereafter.

The AASB discussed issues related to the IAASB’s project to develop International Standard on Sustainability Assurance (ISSA) 5000, General Requirements for Sustainability Assurance Engagements. Key issues discussed included:

• the work performed by other practitioners related to the sustainability assurance engagement;
• the preconditions for the acceptance of the engagement including the suitability of criteria and meaningful level of assurance;
• the materiality considerations including qualitative considerations, performance materiality, and aggregation risk;
• the risks of material misstatement, the response to risks, and the difference between limited and reasonable assurance;
• other information; and
• the assurance report.

The AASB reviewed and unanimously approved a Canadian Project Proposal for a sustainability assurance standard, adopted concurrently from the International Standard on Sustainability Assurance (ISSA) 5000, General Requirements for Sustainability Assurance Engagements, as an Other Canadian Standard. Key issues included:

• the project’s scope, public interest considerations, and risk assessment;
• the limited circumstance where the AASB can make amendments to the international standard (i.e., the amendment criteria);
• the relationship of the proposed Canadian Standard on Sustainability Assurance (CSSA) 5000 with other Canadian standards;
• the Board’s influence in drafting the international standard; and
• the project’s timeline, resources, and communications plan.

The AASB discussed issues related to the IAASB’s project. Key issues included:

• how the practitioner should group sustainability information for purposes of materiality, risk assessment, and evaluating misstatements;
• the practitioner’s conclusion in the sustainability assurance report (e.g., a single conclusion for all sustainability information being assured, or multiple conclusions for different topics or indicators disclosed in the sustainability information); and
• the differences in the approach between limited and reasonable sustainability assurance engagements for risk assessment.

The AASB also discussed the Canadian next steps for sustainability assurance. The Board made a directional decision to adopt the IAASB’s proposed overarching standard as an Other Canadian Standard concurrently with the IAASB. In accordance with the AASB’s Due Process Manual, a project proposal will be presented at the AASB’s January 2023 meeting.

The AASB discussed establishing a Sustainability Assurance Committee to inform the Board’s work to support sustainability assurance.

Key issues included:

• whether a committee was needed and whether a standing committee is an appropriate structure;
• the Committee’s responsibilities, including:
  
  • exploring Canadian-specific issues related to sustainability assurance;
  • providing feedback on IAASB agenda materials;
  • supporting the AASB on future Canadian sustainability assurance standard setting; and
  • collaborating with the AcSB, PSAB, and the CSSB;
• the Committee members’ expertise;
• the desired composition of the Committee of primarily sustainability assurance providers (i.e., professional accountants and other professionals); and
• a minimum three-year term of appointment, with an option to renew.

A public call for volunteers for this new Committee will be issued on the AASB’s website in mid-November.

The AASB discussed issues related to the IAASB’s project for developing an overarching standard for assurance on sustainability reporting, and issues related to its development. Key issues included:

• the content of the project proposal;
• the structure for an overarching standard for assurance on sustainability reporting;
• the initial proposals regarding the defined terms for the overarching standard; and
• the approach to developing the requirements for the overarching standard.

The IAASB expects to approve a standard-setting project proposal at its September 2022 meeting.

At its next meeting, the AASB will discuss IAASB issues and next steps for Canadian sustainability assurance standard setting.

The AASB provided input to the IAASB members from Canada on issues related to the IAASB’s research on sustainability/ESG assurance. Key issues discussed included:

• scope of the IAASB’s actions on sustainability/ESG reporting;
• challenges in performing assurance on sustainability/ESG reporting, including urgency and priority; and
• actions the IAASB should take in addressing assurance on sustainability/ESG reporting.

The AASB discussed issues related to the IAASB’s approach to developing a standard for assurance on environmental, social and governance (ESG)/sustainability reporting. The IAASB proposed a phased approach to standard setting that includes:

• an immediate standard-setting action on an overarching ESG/sustainability assurance standard that addresses the conduct of an assurance engagement in its entirety and that leverages in its development existing sustainability/Extended External Reporting standards and guidance, as well as material from the ISAs; and
• future standard-setting actions on specific aspects of ESG/sustainability assurance, types of information (e.g., scenario analysis, forward-looking information), and the integration of ESG/sustainability information in the financial statements.

Key issues discussed included:

• whether the AASB supports the development of an overarching standard on ESG/sustainability assurance as an immediate standard-setting action;
• how to design and frame the overarching standard, including its relationship with International Standard on Assurance Engagements (ISAE) 3000 (Revised), Assurance Engagements Other than Audits or Reviews of Historical Financial Information. The IAASB proposed three options: green-field approach, stand-alone approach, or ISAE 3000+ approach; and
• the critical areas in engagement performance that present challenges to practitioners that the IAASB plans to address as part of the immediate standard-setting action.

The IAASB expects to present an outline of the requirements for an overarching ESG/sustainability assurance standard at its meeting in September 2022.