The Committee of Sponsoring Organizations of the Treadway Commission’s internal control framework can help provide more assurance to investors about sustainability reporting by companies, according to a new paper.
The report, co-written by Institute of Management Accountants president and CEO Jeff Thomson, former Financial Accounting Standards Board chairman Robert Herz, who is now a board member of the Sustainability Accounting Standards Board, and former IMA global board member Brad Monterio, describes how the COSO internal control framework can be applied to sustainability data to help investors make decisions. It also includes case studies on how some organizations are applying the framework to provide more confidence in environmental information.
“It’s very clear that the importance of this type of data has grown in importance for internal business management to better inform investors and other stakeholders as to the value creation capacity and capability of an organization,” said Thomson. “We’re talking about effective and efficient capital markets, the public interest, stronger organizational capability, and a more robust ecosystem of internal management and shareholders.”
Thomson sees a need for more sustainability reporting, in addition to the traditional kinds of financial reporting under U.S. GAAP and International Financial Reporting Standards. The COSO framework can help buttress nonfinancial types of reporting.
“I think most business people around the world would agree that short-term booked financial results don’t tell the whole story of value, and therefore this sustainability nonfinancial data, which tends to often be more qualitative and intangible in nature, becomes very important,” said Thomson. “However, we need to apply the same lens of internal controls to data, whether it’s financial, nonfinancial, qualitative or quantitative. So Bob Herz, Brad Monterio and I took an opportunity to advance thought in this area. We very meticulously went through the COSO internal controls framework, and assert the need for integration of approach. Even though the data might be different in nature, the COSO framework has always indicated that it was meant to provide greater assurance and greater confidence not only in financial data, but nonfinancial data, so we used eight case studies and numerous quotes. It’s just to advance the dialogue, realizing ultimately that a good dose of professional judgment is required in this area.”
Institute of Management Accountants president and CEO Jeff Thomson Courtesy: IMA