What is EER?
The IAASB says:
…EER refers to emerging forms of external reporting by entities that increasingly provide non-financial information that goes beyond the traditional (financial statement) focus on the entity’s financial position, financial performance and impact on its financial resources.
More and more entities are broadening out on what they report in their annual reports. The Statement of Service Performance is the obvious example of this trend. Examples also include sustainability reporting, integrated reporting, corporate social responsibility and environmental, social, and governance disclosures.
Why EER?
Again the IAASB says:
There is an increasing awareness that the future prospects of an entity are impacted by a wider range of factors than those presented in the financial statements, and of the close linkage between wider value creation and the ability of an entity to sustain its operations in the future. Information about these matters is increasingly addressed in EER reporting frameworks, such as those relating to integrated reports and sustainability reports.
These entities want to tell their story that goes beyond the numbers. In a world that increasingly looks to other measures of value and success rather than just a return to shareholders (or GDP at a national level) this kind of reporting can only become more prevalent.
Entities with a charitable or social purpose purpose sector now have to report in terms of Service Performance. The corresponding report in the corporate and for-profit world is Sustainability Reporting. Entities that have been perhaps been perceived as part of ethically or environmentally questionable industries are increasingly keen to show they are “cleaning up their act” and acting in ethical and sustainable ways.
For example?
The NZ fertiliser company Ravensdown have produced these kinds of reports for over 5 years. Their own integrated reporting website contain a variety of reports that cover seemingly every possible indicator of the effectiveness and effect of their operation including their company values, fraud policy, governance structure, how they define and create value (a very broad “six capitals” type analysis), injury frequency rate, their carbon footprint, the fact they pay their staff above the living wage, and much more.
Their main Integrated Report 2023 makes all sorts of bold assertions but there is no sign that there is any independent assurance given on this information. However, the site also includes a Climate Disclosures 2023 report which has been subject to a limited assurance engagement. EY carried out the engagement in terms of ISAE 3000 (NZ) and ISAE 3410 (NZ) (Assurance Engagements on Greenhouse Gas Statements).
What is the ISSA 5000 Audit Standard on Sustainability?
There is already an assurance standard for Greenhouse Gas Statements (ISAE (NZ) 3410). In NZ the XRB is also developing standards for Climate Related Disclosures.
The IAASB has created an assurance standard that can be used for a wide range of reporting. ISSA 5000 is still an exposure draft - but it applies to all sustainability information except for Greenhouse Gas Statements which are covered by ISAE 3410.
This standard is destined to become the big assurance standard for sustainability reporting going forward. It covers both limited and reasonable assurance engagements. It contains elements of compliance engagements, controls testing and service performance testing, but with some twists. For example, the practitioner must define the "Reporting Boundary" - the activities, operations, relationships or resources to be included in the entity's sustainability information. This may be outside of the scope of the entity used for financial information as it may include the impact of the whole supply chain. There may also be an element of auditing forecast information.
What does this mean for auditors?
These entities want the public to be able to rely on this information, so while not many examples are required to be audited (yet), the demand is growing, and this represents something auditors should be prepared for. In fact it represents a huge opportunity.
At present this kind of reporting is mostly being carried out by listed entities and large private companies, but as the public move beyond the “Gee whizz that’s cool” stage into asking questions about whether this is not just “greenwashing” there will inevitably be a move to seek more assurance on these reports.
There is an obvious opening for auditors to help prepare their clients for integrated reporting in the future, addressing questions like:
- How can we create a clear path towards reporting on and auditing sustainability information when it is required for other entities?
- What other types of reporting are actually realistic for us to audit?
- What external experts might we need to find to help us do this work?
- What systems can we help our clients put in place now to enable us to audit this information in future?
- What standards might our clients use that we need to be aware of and familiar with and can we guide them in these choices?
What is Audit Assistant doing to help prepare for this?
In terms of other kinds of reporting, there are a multitude of frameworks, so we will be responding with templates based on user need. For instance, the Sustainability Accounting Standards Board has 77 industry-specific standards are available for download. The Global Reporting Initiative (GRI) has six economic standards, eight environmental standards, and nineteen social standards.
We have now released a template based on ISSA 5000 Standard on Sustainability Assurance (ED). This is a general approach for both reasonable and limited assurance of different kinds of sustainability reporting. If contains many familiar elements from compliance and service performance assurance work. We will shortly be adding in content from the reporting standards IFRS S1 and S2, plus we will be developing related templates for the NZ Climate-related and Greenhouse Gas Disclosures standards NZ SAE 1, NZ CS 1, NZ CS 2 and NZ CS 3, and ISAE 3410 dealing with Assurance Engagements on Greenhouse Gas Statements. To access this content please contact us.