AICPA, CalCPA want more clarity on California climate rules

The American Institute of CPAs and the California Society of CPAs sent a joint comment letter to the California Air Resources Board asking for changes in the state's climate risk disclosure rules.

With the SEC apparently reversing course on the proposed climate disclosure rule from the Biden administration by pausing litigation over it while facing multiple lawsuits, California's climate disclosure laws are among the few in the U.S. mandating companies report on greenhouse gas emissions and climate-related financial risks.

In December, the California Air Resources Board solicited feedback to help shape regulations for the state's upcoming Climate Corporate Data Accountability Act and Climate-Related Financial Risk Act. The AICPA and CalCPA responded to CARB's questions in the information solicitation and pointed out areas where more clarity would be needed to ensure CPAs can effectively support a practical and efficient climate disclosure framework.

"Transparency and accountability in sustainability reporting and assurance are crucial for building stakeholder trust and meeting market and public expectations," said the comment letter. "To strengthen confidence in reported information, we encourage legislators and regulators to incorporate recognized sustainability reporting and assurance standards, which already outline different levels of assurance, and establish uniform requirements for assurance practitioners."

The AICPA and CalCPA suggested CARB to consider:

• Providing clear guidance implementation and compliance in the first year. "CARB should update its rulemaking timeline, clarify how it will address statutory deadlines if rulemaking is delayed, and provide implementation guidance on reporting and clarity on assurance requirements for the first reporting cycle," said the letter.
• Broadening acceptable reporting standards. Allow climate-related disclosures introduced by the International Financial Reporting Standards Foundation to be accepted as recognized reporting standards under the California rules, both for simplicity and to ensure consistency and comparability among entities. The IFRS Foundation oversees the International Sustainability Standards Board, which has issued standards on climate-related disclosures and sustainability reporting.
• Aligning assurance standards with recognized terminology. "The use of non-standard terms can create confusion for practitioners, preparers and report users, making it harder to apply standards correctly," said the comment letter. "AICPA assurance standards guide CPAs in assurance engagements, which are subject to ongoing monitoring and quality control."
• Setting rigorous minimum qualifications for assurance practitioners. Qualifications for independence, competency, ethics, oversight and quality management should be at least as rigorous as those followed by CPAs when assuring financial and nonfinancial information, the AICPA and CalCPA recommended.
  

The two organizations formed a climate-disclosure working group after California's legislation was enacted in 2023 to review implementation and compliance issues. Along with informing the comment letter to CARB, several of the issues and recommendations addressed by that working group are discussed in a joint paper from the AICPA and the Center for Audit Quality.