As more countries take the step from voluntary to mandatory sustainability reporting, assurance is playing a vital role in establishing trust around sustainability disclosures. But building trust in an area of reporting that often relies on uncertain information presents difficult challenges for practitioners.
Estimates and forward-looking information, for example, are essential elements of sustainability reporting. Stakeholders and investors use targets, projections and transition plans to inform their decisions – but this information is inherently uncertain and often dependent on professional judgment and future events that may be outside the organisation’s control.
The publication of ISSA 5000 by the International Auditing and Assurance Standards Board in 2024 recognised the vital role that auditors and assurance play in the credibility of sustainability reporting, and is intended reduce the risk of greenwashing.
Practitioners need to consider assumptions, methodology, comparability and transparency
The standard deliberately avoids detailed requirements that are specific to jurisdictions and subjects, to allow it to be used to assess sustainability information prepared under any framework. But applying ISSA 5000 in practice can raise challenging questions for sustainability assurance engagements.
With this in mind, ACCA and CAANZ are publishing a series of reports, based around a case study of a fictional entity, to provide guidance on the application of ISSA 5000 in practice. The latest report in this series, Demystifying the assurance of estimates and forward-looking information in accordance with ISSA 5000, examines difficulties practitioners are likely to experience in the use of estimates and forward-looking information.
While the two are conceptually different, testing them often requires similar assurance procedures. In both cases, practitioners need to carefully consider underlying assumptions, changes in methodology, comparability and transparency of disclosures.
The challenges
The report identifies the challenges for practitioners in assuring sustainability information that depends on estimates and forward-looking information:
- inherent uncertainty – outcomes increasingly depend on future developments that are unknown at the time of reporting
- reliance on assumptions – a high degree of management judgment is involved
- lack of verifiable data
- expectation gap – users may interpret estimates or forward-looking information as predictive or guaranteed, despite their limitations and qualifying statements.
The report underlines a critical point: that assurance overestimates and forward-looking information relates to its preparation and disclosure, and not to whether future outcomes will ultimately be achieved. Assurance does not eliminate inherent uncertainty, it adds, but ‘does provide confidence that information has been prepared in accordance with suitable criteria and that key assumptions and uncertainties are appropriately disclosed and explained’.
Using its fictional company, the report explores how a practitioner would apply their professional judgment to assure an estimate (market-based Scope 2 emissions) and forward-looking information (a net-zero target for Scope 1 and Scope 2 emissions). It emphasises the importance of obtaining ‘sufficient appropriate evidence’ and documenting all procedures, as in any other assurance engagement.
The case study illustrates the distinction between limited and reasonable assurance engagements when addressing estimates and forward-looking information. Limited assurance procedures respond to risk at the disclosure level, while reasonable assurance procedures respond to risks at the assertion level and include testing how management developed the estimate or forward-looking information.
It also explores the issue of significant assumptions, in this case relating to renewable energy sourcing and the achievability of emissions reduction pathways.
The practitioner has a responsibility to be transparent about what assurance means
‘Practitioners should consider whether such assumptions are consistent with external evidence, internally consistent across disclosures, and free from indicators of management bias,’ it says.
The report stresses the importance of communication in sustainability assurance, in order to manage expectations and avoid misleading users. ‘The practitioner has a responsibility to be transparent about what assurance over this type of information means, including its scope and limitations,’ it says. ‘Where uncertainty is fundamental to users’ understanding, practitioners should ensure it is appropriately communicated, including through the “Inherent Limitations” section of the assurance report, where required.’
The report concludes that ‘practitioners need to apply robust planning [and] maintain strong professional scepticism throughout the engagement’. They should ‘allocate sufficient time to understand significant assumptions, assess estimation uncertainty, and evaluate whether disclosures clearly communicate uncertainty and limitations.’ This will help practitioners form a conclusion that ‘enhances confidence in sustainability information without overstating what assurance is intended to provide’.
More information
The report is the second in a series by ACCA and CA ANZ exploring the practical application of ISSA 5000. The first report focused on materiality, and discussed the professional judgment points involved in determining materiality for quantitative and qualitative sustainability disclosures.