Interoperable sustainability
The IFRS Foundation and the European Financial Reporting Advisory Group (EFRAG) have published guidance material to illustrate the alignment between the International Sustainability Standards Board’s sustainability disclosure standards and the European Sustainability Reporting Standards (ESRS). The guidance shows how a company can apply both sets of corporate sustainability reporting standards, including detailed analysis of the alignment in climate-related disclosures.
ESRS are compulsory in the EU on a phased implementation basis from 1 January 2024, with the bulk of companies coming in scope from 1 January 2025. Many other countries have also made commitments to adopt or adapt the ISSB standards. For multinational companies, this raises the spectre of making reports under two sets of standards and perhaps even the reporting of sustainability GAAP reconciliations.
Sustainability assurance
The Department of Enterprise, Trade and Employment is consulting on one of the member state options in the EU’s corporate sustainability reporting directive. The option under consideration is the introduction of independent sustainability assurance services providers (ie non-auditor assurers such as environmental engineers).
New EU rules require large corporations to address human rights and environmental considerations
The deadline for responding to the consultation is 19 July 2024. The initial plan is to allow only statutory auditors to become sustainability assurers from July 2024, when the legislation comes into effect. The directive allows for non-auditor assurers but only where a full system of education, standards, supervision and monitoring analogous to the requirements for statutory auditors is in place. Putting such a system in place will take time and money, and it is unclear if there will be sufficient demand from non-auditors to make the licensing arrangements financially viable.
CSDDD
The corporate sustainability due diligence directive (CSDDD) has been approved by the European Parliament and the European Council, and member states can now start transposing it into national law. The new rules will ensure that large corporations address human rights and environmental considerations in their businesses and their value chains inside and outside Europe.
IFRS 18 arrives
The International Accounting Standards Board (IASB) has published IFRS 18, Presentation and Disclosure in Financial Statements. The new standard will be effective for periods commencing on or after 1 January 2027
Audit sanctions
One mid-tier and two Big Four firms in the UK have been fined over their audits of London Capital & Finance.
Oliver Clive & Co was criticised for ethical breaches in preparing and auditing the same financial statements for a one-month period, for lack of an adequate overall audit strategy and audit plan, and for failings in other audit areas including loan debtors and related parties. The penalty was £42,000 for the audit firm and £14,000 for the engagement partner.
The audit then transferred to PwC and later to EY, both of which were criticised for multiple audit failings. The firms were fined £4.9m and £4.4m respectively, and £105,000 and £47,250 for the respective engagement partners.
