“The public interest responsibilities of being a CA are set to become even greater: CAs will find themselves at the forefront of ensuring the accuracy and reliability of information on climate change and other forms of sustainability.”
— James Barbour Chartered Accountants, Director, Technical Policy
The role of chartered accountants in the sustainable revolution
Organizations today are under the threat of global warming, climate change, social degradation, and economic crisis. Stakeholders, including shareholders, customers, employees, and regulatory authorities, demand transparency and accountability on sustainability and ESG. Today, brand reputation and competition are dependent on the sustainability stance of a company.
This puts the role of chartered accountants (CA) at the forefront of ensuring the accuracy and reliability of information and increases their responsibilities to a greater extent. Even staying up to date with legislation and good practices is part of their daily tasks now. In April 2021, the EU introduced a draft corporate sustainability reporting directive, replacing the previous non-financial reporting directive. By 2024, IFRS S1 and S2 will be implemented as well. The objective of IFRS S1 is for organizations in the EU to disclose information about sustainability, while IFRS S2 focuses more on climate-related risks and opportunities.
Sustainability reporting has become a priority. These reports provide information about environmental, social, and governance performance and are crucial to integrated reporting that provides insights into both the financial and non-financial performance of the organization. The Institute of Chartered Accountants of India has clearly renowned supremacy in accounting and assurance practices, and in 2011, it collaborated with GRI Focal Point of India. CAs will now also be responsible for the administration of sustainability reporting practices of companies along with financial auditing and assurance. According to a recent survey, 50% of sustainability reports in India are externally assured. CAs will have an extended responsibility and a greater role to play, not only in auditing financials but also in assuring and monitoring the sustainability reports of companies.
The auditor’s primary objective is to obtain reasonable assurance about material misstatement in the financial statements to enable them to report whether the financial statements are prepared, in all material respects, in accordance with the applicable financial reporting framework (i.e., in the context of risks of material misstatement related to amounts and disclosures that may be affected depending on the facts and circumstances of the entity). Auditors also need to understand how climate-related risks relate to their responsibilities under professional standards, and applicable law and regulation.
IAASB has introduced the International Standard on Sustainability Assurance 5000 to include assurance of sustainability reporting. The goal is to enhance the trust and confidence of investors, regulators, and other stakeholders in sustainability information through this global sustainability standard.
Chartered accountants will play a significant role in sustainability assurance by leveraging their expertise in financial reporting, auditing, and assurance services. Sustainability assurance refers to the process of independently evaluating and verifying an organization's sustainability performance and reporting, which includes its environmental, social, and governance (ESG) practices.
What can chartered accoutants do?
- Technical expertise: Applying their technical expertise in financial reporting and auditing standards to assess the accuracy and reliability of sustainability information, ensuring it complies with relevant reporting frameworks and standards, such as the Global Reporting Initiative (GRI) or any other upcoming standards like IAASB.
- Independent verification: Providing an independent and objective assessment of an organization's sustainability disclosures. This verification process adds credibility to the information provided by the organization, increasing transparency and trust among stakeholders, including investors, customers, and regulators.
- Risk management: Identifying and mitigating sustainability-related risks. They can evaluate the impact of ESG factors on an organization's financial performance and provide recommendations for risk mitigation and strategic decision-making.
- Reporting frameworks: Assisting organizations in selecting the most appropriate sustainability reporting framework and aligning their reporting with global best practices ensures that the disclosed information is relevant, comparable, and consistent over time.
- Assurance engagements: Conducting assurance engagements tailored specifically to sustainability reporting, such as limited assurance or reasonable assurance engagements. These involve evaluating the processes and controls in place for collecting, measuring, and reporting sustainability data.
- Integration with financial reporting: Integrating sustainability reporting with financial reporting allows stakeholders to understand the financial implications of sustainability initiatives and ESG performance. This integration helps organizations demonstrate the long-term value of their sustainability efforts.
- Stakeholder engagement: Facilitating dialogue between organizations and their stakeholders helps companies better understand the expectations and concerns of investors, customers, employees, and the broader community. This engagement can lead to improved sustainability strategies and reporting.
- Continuous improvement: Supporting organizations in establishing mechanisms for continuous improvement in sustainability reporting and performance. This includes helping companies set meaningful sustainability targets, monitor progress, and adjust strategies as needed.
- Regulatory compliance: As governments and regulatory bodies increasingly focus on ESG disclosure requirements, Chartered Accountants can assist organizations in complying with these regulations and ensuring their reporting aligns with evolving standards.
- Education and training: Contributing to building the capacity of organizations and professionals in the field of sustainability reporting and assurance through training and knowledge sharing.
This new role demands that chartered accountants be well-prepared. The current awareness and knowledge of sustainability require significant upskilling. CAs need comprehensive training on sustainability and ESG-related concepts. Understanding sustainable IT is crucial, especially since IT has a considerable negative contribution to sustainability. CAs must familiarize themselves with IT systems and the data these systems generate to create sustainability reports. Moreover, knowledge of various reporting frameworks like BRSR, GRI, and IAASB is vital. A scarcity of skilled CAs could be a major concern in many countries. CAs must understand the impact of climate risk in various business areas and discern ways to mitigate them.
Chartered accountants can take center stage in sustainability assurance by applying their financial expertise along with new areas of knowledge, conducting independent verification, managing risks, and helping organizations improve their sustainability reporting and performance. They should collaborate closely with Chief Sustainability Officers, Chief Risk Managers, and CIO/CTOs to guide organizations on their sustainability journey and contribute to making the world a better place to live.
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