July 1, 2020
Published: Journal of Accountancy
The increasing attention paid to company disclosures on environmental, social, and governance (ESG) information in the current environment means auditors have a growing role to play related to these disclosures.
A new Center for Audit Quality (CAQ) report, The Role of Auditors in Company-Prepared ESG Information: Present and Future, addresses how public company auditors can serve in engagements to enhance the reliability of ESG information. The CAQ is affiliated with the AICPA.
Third-party assurance from a public company audit firm can enhance the reliability of ESG information that companies present to investors and other stakeholders. Although SEC and PCAOB rules do not require an auditor to attest to ESG information, trust and confidence in that information is increased when the information is assured.
Many companies understand that, as evidenced by a 2019 survey conducted by The Conference Board showing that 37 of 57 large U.S. and European companies participating in the survey said they obtain assurance on at least some of their publicly reported sustainability information.
The coronavirus pandemic has accelerated the focus on ESG information, as investors are increasingly seeking information on employee health and work environments, according to the CAQ.
Public companies can engage auditors to provide reasonable assurance on ESG information based on examination procedures or limited assurance based on review procedures.
“Auditors bring the independence, expertise, and experience necessary to enhance the reliability of ESG reporting as this information plays a heightened role in investment strategies,” CAQ Executive Director Julie Bell Lindsay said in a news release. “Auditors have long played a role in the reliability of traditional financial information, and they can do the same with ESG information.”
The CAQ report describes key questions board members should consider when discussing ESG reporting with management and investors, and it urges investors to consider how companies’ ESG information was developed, whether it is standardized, and whether it is reliable.