ISSA 5000 applies to public sector too

The International Auditing and Assurance Standards Board (IAASB) has published a draft of International Standard on Sustainability Assurance (ISSA) 5000, General Requirements for Sustainability Assurance Engagements.

This should be a positive step towards reassuring investors and other stakeholders, including the general public, that an organisation has complied with the relevant sustainability reporting standards and that published information is (materially) complete and accurate.

This is most welcome given that some entities’ sustainability reports, which were not previously covered by external audit opinions, have met with suspicions of greenwashing (see recent AB articles ‘Crackdown on greenwashing’ and ‘Scrubbing out the greenwash’).

ISSA 5000 has been drafted to be widely applicable. It is relevant for disclosures made by any size of organisation under any reporting framework, including IFRS S1 and S2.

Organisations’ sustainability reports can be inside-out, showing the organisation’s impact – hopefully reducing – on the environment; or outside-in, indicating the environment’s impact on the organisation. Stakeholders want assurance about both kinds of report, and ISSA 5000 applies to both.

ISSA 5000 is not solely for professional accountants. The IAASB has recognised that other professions could be involved in assurance engagements relating to sustainability, and ISSA 5000 is relevant to them, provided they comply with ethical and quality management requirements that are equivalent to accountants’ professional obligations.

Qualitative information

The draft ISSA 5000 sets out an approach to carrying out the assurance of sustainability reports that is broadly similar to the approach taken in the audit of financial statements. This makes a lot of sense, but it needs thinking through because sustainability reports are not like financial statements in one obvious, and important, way: they are not expressed only in money terms.

Some important elements are quantitive but not financial, such as reporting on carbon dioxide emissions; and some things may be qualitative, such as reporting on inclusion issues. How will assurance practitioners (in the public or private sector) assess materiality when faced with multi-dimensional sustainability reports? The draft standard provides some guidance but more will be helpful.

It is generally the case that standards are developed primarily for businesses, using business language, and public sector organisations (and their auditors) must interpret them, and adapt them, to fit with their context. The ISSA 5000 exposure draft fits this pattern. It refers, for example, to the ‘firm’ carrying out the assurance engagement and states that this should be interpreted in the public sector to mean the equivalent, which of course might be a statutory body.

The guidance that accompanies ISSA 5000 adds some more public sector elements. It recognises that, whereas the auditors of companies can resign if they are unhappy with their client’s actions, public sector auditors’ legal mandates often mean they are unable to withdraw from an audit on any grounds.

The recognition of these public sector-specific issues within the draft ISSA 5000 is to be welcomed. In the IAASB’s launch of the consultation period, it stressed its wish for the broadest possible consultation responses. Consultation question 24 is: ‘Are there any public sector considerations that need to be addressed in ISSA 5000?’ People working in, or interested in, public sector sustainability reporting should take the opportunity to comment on this question.

The consultation period for ISSA 5000 closes on 1 December 2023, with the IAASB planning to finalise the standard before the end of 2024.