A CPA’s role as a leading assurance provider
Research shows that of the top global companies that obtain assurance on their ESG information, the majority engage an independent public accounting firm to provide the assurance.14
One force driving this trend is the CPA’s ability to assure both ESG information and financial information. This is rapidly becoming more important as companies move toward presenting ESG information along with financial information and as stakeholders increasingly expect to be able to place the same reliance on ESG information as they do on audited financial information. Research findings suggest that the improvements in ESG reporting quality resulting from assurance are greater when a CPA provides the assurance (compared with nonaccounting assurance providers) and that CPAs are capable of preventing reporting errors for their clients.15
Additionally, CPAs comply with rigorous and widely recognized requirements for independence, firm systems of quality control and subject matter16 competency. Although non-CPA firms may, in some cases, disclose that they adhere to similar ethical standards and requirements, such interpretations of independence may not be grounded in a sufficiently thorough understanding of the relationship between financial and nonfinancial reporting and investment decisions. Regardless of the level and scope of assurance, the independence of the assurance provider is crucial to the integrity of the reported information and to the value of that information to the marketplace.
CPAs are pioneers in the ESG movement
The priority status of ESG reporting, as well as the assurance services that elevate its credibility, are fairly new realities for many executives. For the CPA, however, these concepts are well-established areas of expertise.
Accountants have long been leaders in ESG programs, dating back to 1998 when they assured Royal Dutch Shell’s first ESG report, Profits and Principles — Does There Have to Be a Choice?
CPAs have further demonstrated their role as pioneers in ESG’s evolution through key leadership positions, including serving as active contributors to many of the world’s recognized ESG think tanks and corporate reporting organizations that take a broader perspective on value creation. These organizations include the United Nations Global Compact, World Business Council for Sustainable Development, Global Reporting Initiative, the Financial Stability Board’s Task Force on Climate-related Financial Disclosures and the IFRS® Foundation’s International Sustainability Standards Board.
The results of the profession’s specialized guidance, qualifications and record of leadership provide an ever-strengthening body of knowledge and deep insight into ESG reporting and assurance.
Market differentiators: Standards, experience and expertise
Objectivity, credibility and integrity are the qualities valued most in assurance providers. These core qualities — in addition to independence, professional skepticism and commitment to quality — are what consistently guide the judgment and performance of CPAs, as required by professional standards.
Today, these same qualities also distinguish CPAs as the leading providers of assurance services for ESG information, along with the following differentiators:
An obligation to protect the public interest
Strict adherence to accountancy laws and professional codes of conduct, including maintaining independence
Adherence to continuing professional education, ethics and experience requirements, including attending specialized training
The requirement to maintain a system of quality control
An informed perspective on ESG opportunities and risks
Risk management experience
Deep expertise in attestation techniques and procedures
Proficiency in measuring business performance factors against suitable criteria and in applying best practices to the assurance process
Proven experience incorporating the necessary specialists into assurance engagements to deliver seamless services
Expertise in assisting companies in driving performance improvement by integrating ESG information with other company financial information — CPAs have a significant level of knowledge about the relationship between company strategy, action and disclosures and the decisions of financial statement users, such that assurance from a CPA supports the design and implementation of controls and reporting systems with investors in mind.
Insights into testing the reliability of data and promoting improvements in the quality of the reporting function
Analytical skills in financial and management services
Proven experience responding to changing economic conditions and stakeholder expectations
Experience in reporting on compliance with various established standards and frameworks
Your financial statement auditor can help
As companies expand ESG reporting, they will need to establish new processes to gather internal information across divisions to understand their activities, drive change across their organizations and communicate these efforts to the outside world. Obtaining any level of assurance by practitioners involves the evaluation of processes, systems and data, as appropriate, and then evaluating the evidence obtained and the results of the procedures to form a conclusion in a review engagement or an opinion in an examination engagement.
ESG reporting has historically taken place separately from the preparation of financial statements. However, there is increasing interest by investors and regulators in the disclosure of ESG information, along with financial information (including SEC submissions17 such as proxy statements, annual reports and quarterly reports). As noted earlier, there is growing appreciation of the value in having some or all of the information in said disclosures be subject to external assurance in accordance with attestation standards (such as the AICPA attestation standards) by an independent CPA.
Performing a review or examination engagement of a company’s ESG information is considered a permissible service for the independent public accounting firm providing the company’s financial statement audit, subject to pre-approval from the audit committee. In fact, the knowledge obtained from the financial statement audit may be beneficial in planning and performing the ESG assurance engagement and can help drive efficiencies in the ESG assurance engagement.
Assurance over ESG reporting, specifically when a financial statement auditor performs it, can enhance the ESG information’s reliability because auditors:
understand the companies they audit (holistically across all functions), the industry, market forces and why certain ESG metrics are important financially as well as from a risk perspective.
have extensive experience in gaining an understanding of the company’s business processes and assessing and responding to risk.
have expertise in evaluating the company’s internal systems and processes for collecting, analyzing and reporting information.
have a long history of and experience with independently evaluating information that the company uses in making capital allocation decisions.
These attributes — combined with the ability to engender the highest degree of trust as independent, external experts — position CPAs as the leading providers of ESG services. As a financial statement auditor, the CPA understands the company, its business processes and how it drives value. As such, the auditor of an entity’s financial statements may be well-positioned to provide assurance services on ESG information.
