The Center for Audit Quality and the American Institute of CPAs released a guide Wednesday to environmental, social and governance reporting and attestation for accountants.
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The CAQ and the AICPA have released the report at a time when investors are paying greater attention to companies’ ESG disclosures amid increasing demand for ESG funds as the risks of climate change increase. The Biden administration has promised to focus on combating the climate crisis. Accountants can play a role in providing assurance that ESG disclosures are accurate. At the same time, the social part of ESG is showing up more in how companies respond to growing calls for diversity, equality and inclusion in hiring and promotions.
“Third-party assurance from an independent accounting firm can enhance the reliability of ESG information reported by companies, in a manner similar to the process that occurs with audits of financial statements and internal control over financial reporting,” said the report.
The roadmap includes advice to help auditors inform their clients on how to provide ESG disclosures, assist clients in weighing whether to seek an attestation report on ESG information, and decide how to report ESG information in a submission to the Securities and Exchange Commission.
ESG reporting has traditionally occurred outside of SEC submissions in areas such as sustainability reports. But there are increasing calls for public companies to incorporate ESG information, including the impact of climate change and diversity and inclusion metrics, within their SEC submissions such as proxy statements, annual reports and quarterly reports. Expectations for ESG reporting are increasing as many investors see the value of having some or all of the ESG information that’s been reported subject to outside attestation by an outside auditing firm.
“ESG is a rapidly evolving area of reporting, and while there is no one-size-fits-all approach, independent auditors have an important role as this reporting continues to take shape,” said Dennis McGowan, senior director of the CAQ’s Professional Practice, in a statement.
The roadmap looks at the history and evolution of ESG reporting, including some of the recent developments in including ESG information within SEC filings, and the current practices of disclosure and attestation. “With growing company interest in disclosing ESG information in SEC submissions, this is a very timely resource for audit practitioners who are being called on to perform assurance engagements over these ESG disclosures,” said AICPA senior manager Desiré Carroll in a statement.
