Sustainability and the ICAS Code of Ethics: Assurance
Ann Buttery, Head of Ethics, ICAS Policy Leadership, highlights the seventh in a series of extracts from ICAS’ new guidance paper ‘Guidance to the ICAS Code of Ethics: Sustainability’ in relation to the assurance of sustainability information being reported.
Sustainability, the CA and The Power of One
Society is changing. There is an ever-growing emphasis on sustainability, and Environmental, Social and Governance (ESG), at government and regulatory level as well as increased societal expectations for organisations to behave responsibly.
Whilst the “E” is clearly important, sustainability is not just about climate change - the importance of societal matters (the “S”) as well as governance and ethical corporate cultures (the “G”) are of equal significance. Organisations need to be thinking about the impact of sustainability/ESG on their organisation and the impact of their organisation on the environment and society.
The accountancy profession has a responsibility to act in the public interest. Ethics is the conscience of organisations, it is at the core of driving behaviours, and is the key to long-term thinking and trust. The golden thread of ethics and The Power of One weaves through sustainability and ESG. There is a need for all CAs to be aware that sustainability/ESG is not a niche topic that they can ignore. Every CA has their part to play in their own sphere of work around ethics and sustainability.
CAs must always ensure their obligations to the five fundamental ethics principles enshrined within the Code of Ethics (the “Code”) are met: integrity; objectivity; professional competence and due care; confidentiality; and professional behaviour. The new guidance to the Code seeks to assist CAs by signposting a number of areas of the Code where provisions could relate to sustainability related matters.
This extract is the seventh of a series from the guidance discussing assurance of sustainability matters being reported. Links to the other extracts are provided below.
Due to the current complexity of the sustainability reporting landscape, and also the means by which such data may be collated by organisations, there could be heightened risk to the integrity of the sustainability related information being provided by organisations. Many organisations are now reporting sustainability related information, but currently this information is not always assured and even if it is assured, the assurance is not always provided by independent professional accountants. The focus of investors and regulators is increasingly now on the important role that assurance can play in ensuring the trustworthiness - the reliability and the robustness - of sustainability information reported. In March 2022, ICAS published a report discussing this current situation: ‘Sustainability: The necessary conditions for the reporting of high quality information’ and then also subsequently published the report ‘Sustainability assurance: Factors to consider’ in May 2022.
As when performing audits, reviews, or other assurance engagements, if a professional accountant in public practice is to undertake assurance on sustainability related subject matters, the professional accountant would be required to be independent. Part 4 of the Code provides the International Independence Standards, although auditors undertaking an audit in the UK are required to comply with the requirements of the Financial Reporting Council’s (FRC’s) Ethical Standard.
As noted in paragraph 400.0 B in Part 4 of the Code:
“If a professional accountant in public practice is conducting an assurance engagement for a non-audit (or review) client, other than an FRC public interest assurance engagement, they shall follow the requirements and application material on other assurance engagements contained in Part 4B of this Code.”
If the professional accountant is the auditor of the entity concerned the professional accountant is already required to comply with the requirements of the FRC’s Ethical Standard or Part 4A of this Code where the FRC’s Ethical Standard is not applicable. In such situations no additional compliance with Part 4B is required. Where the client is a review client, then as the professional accountant is required to comply with the requirements of Part 4A of this Code, no additional compliance with Part 4B is required.”
Part 4B Paragraph 900.1, as amended by proposals in IESBA’s Exposure Draft ‘Proposed Technology-related Revisions to the Code’ to highlight assurance engagements over non-financial information, states:
“This Part applies to assurance engagements other than audit engagements and review engagements.
Examples of such engagements include:
- Assurance on an entity’s key performance indicators.
- Assurance on an entity's compliance with law or regulation.
- Assurance on performance criteria, such as value for money, achieved by a public sector body.
- Assurance on the effectiveness of an entity’s system of internal control.
- Assurance on an entity’s non-financial information, for example, environmental, social and governance disclosures, including greenhouse gas statements.
- An audit of specific elements, accounts or items of a financial statement.”
There is currently no uniform set of standards for sustainability assurance engagements, although the International Auditing and Assurance Standards Board (IAASB) is in the process of developing a project for a proposed International Standard on Sustainability Assurance (ISSA) 5000, ‘General Requirements for Sustainability Assurance Engagements’.
The IAASB’s International Standard on Assurance Engagements (ISAE) 3000 ‘Assurance Engagements Other Than Audits Or Reviews Of Historical Financial Information’ is currently one of the most commonly used standards for sustainability assurance engagements, although this is essentially a general assurance standard and not specific to any particular engagement. Part 4B of the Code is aligned to ISAE 3000. International Standard on Assurance Engagements (UK) (ISAE (UK)) 3000 (July 2020) is available via the FRC website. The IAASB has also published “Non-Authoritative Guidance on Applying ISAE 3000 (Revised) to Sustainability and Other Extended External Reporting (EER) Assurance Engagements.”
IESBA is currently considering whether more rigorous requirements will be needed in this regard. This may include a requirement to use Part A for assurance over certain aspects of sustainability related information.
Professional scepticism is discussed in paragraphs 120.16 A1 and 120.16 A2 of the Code with paragraph 120.16 A1 stating:
“Under auditing, review and other assurance standards, including those issued by the IAASB, professional accountants in public practice are required to exercise professional scepticism when planning and performing audits, reviews and other assurance engagements. Professional scepticism and the fundamental principles that are described in Section 110 are inter-related concepts.”
This holds equally true when assurance is being provided on sustainability related subject matters.
Non-compliance with laws and regulations
Section 360 of the Code - ‘Non-compliance with laws and regulations’ (NOCLAR) - requires auditors or other professional accountants in public practice, who discover, or suspect, non-compliance with laws and regulations to assess the implications of the matter and take the appropriate action.
Find out more
The guidance signposts the following other areas of the Code where provisions could relate to sustainability related matters (please note that these areas are provided by way of example and should not be considered an all-inclusive list):
- Sustainability and the ICAS Code of Ethics
- Preparation and presentation of information – integrity and objectivity
- CAs shall not knowingly be associated with misleading information
- Internal controls
- Inquiring mind
- Reliance on the work of others or on the output of technology
- Financial interests, compensation and incentives
- Professional competence and due care, confidentiality and professional behaviour
- Acting with sufficient expertise
- Non-compliance with laws and regulations (NOCLAR)
- Organisational culture, including responsibilities with regard to values of equality, diversity and inclusion
- Professional appointments
- Pressure to breach the fundamental principles
- Having the strength of character to act appropriately
- Speak Up? Listen Up? Whistleblow?
ICAS ethics resources
Find out more about the ethics resources ICAS provides to support its Members below.