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Extended External Reporting (EER) Assurance

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Presentation by the International Auditing and Assurance Standards Board/

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Extended External Reporting (EER) Assurance

  1. 1. Extended External Reporting (EER) Assurance Webinar 10 June 2020 Presented by: Lyn Provost Chair of EER taskforce Public member IAASB
  2. 2. What We Will Cover Today • What is Extended External Reporting? • How Assurance Serves the Public Interest • How the Characteristics of EER Reporting Have Potential to Limit the Value of EER Assurance to the Public Interest • The Purpose of the IAASB’s EER Guidance • Using the Guidance • Next Steps • Discussion and Questions Page 2
  3. 3. What is Extended External Reporting? • Covers many different forms of reporting by entities about their financial and/or non-financial performance or impact relating to matters such as: – Economic value – The environment – Society – The entity’s governance • Addresses non-financial matters of increasing importance to decision-making by investors and other users Page 3 Example EER Reporting and Frameworks Used Greenhouse Gas Emissions WBCSD/WRI GHG Protocol Integrated Reporting IIRC Integrated Reporting Framework Intellectual Capital WICI Intangibles Reporting Framework Management Commentary IASB Management Commentary Practice Statement Public Sector Service Performance Statements Law, Regulation or Standards Sustainability CDSB Framework, GRI Standards, SASB Standards, TCFD Framework The IAASB standard for all of the above is ISAE 3000 (Revised); for Greenhouse Gas Emissions, the additional IAASB standard is ISAE 3410
  4. 4. Assurance: Serving the Public Interest • As EER reporting becomes more important to stakeholder decision-making, assurance also becomes more important to enhance credibility and trust in EER reporting • Four key factors (see model in Supplement A) play a role in serving the public interest in high quality EER reports: – A sound reporting framework – Strong governance – Consistency with wider sources of information – Independent external assurance Page 4
  5. 5. How EER Assurance Engagements provide Public Interest Protections The basis for the assurance conclusion includes meeting requirements to: • Determine whether engagement has a ‘rational purpose’, considering intended users’ needs; • Apply appropriate competence and capabilities and exercise professional skepticism and professional judgment; • Design and perform procedures to obtain sufficient appropriate evidence that is persuasive; • Consider potential misstatements, and how they could occur, in designing and performing procedures; • Consider whether misstatements could be material, throughout the engagement; and • Reach an assurance conclusion at the agreed level of assurance, based on the evidence Page 5
  6. 6. Potential to Limit Value of EER Assurance to the Public Interest • Circumstances commonly encountered in the elements of EER reporting are: – Not so extensively found in financial statement reporting – Therefore not so extensively, found in financial statement audits – May present practical challenges, which have the potential to limit the value of EER assurance in serving the public interest • Starting with a description of the element of EER reporting we will look at the differences between financial statement reporting and EER reporting for each element in turn… Page 6
  7. 7. Understanding the elements of EER reporting Page 7 Framework for reporting (Criteria) Basis for preparing the subject matter information Needs to result in information that is: • relevant to user decision-making • complete, without omission of relevant information • reliable, giving consistent results • unbiased, presenting it ‘as it is’ • understandable Underlying subject matter (USM) What users want information about Information needs to: • aid decision-making, and • be reliable Subject matter information (SMI) It is the EER report content being assured Used to make decisions about an entity’s performance, value, impacts, and ability to sustain itself Results from applying criteria to the underlying subject matter Needs to: • aid user decisions • be prepared using suitable criteria • be free of material misstatement. System of Internal Control, including Process to Prepare Subject Matter Information Strength of governance can affect the quality of the subject matter information, and trust users have in the EER report
  8. 8. Element: Underlying Subject Matter Page 8 Financial statement reporting Circumstances in EER reporting Circumstances result in challenges for EER assurance in addressing the public interest More uniform in nature; quantifiable; largely relating to more certain historical performance; less common use of entity-developed criteria to measure the underlying subject matter Diverse, varied characteristics; less quantifiable, or complex or subjective to measure or evaluate; greater uncertainty, may more often relate to future events or conditions; and use of entity-developed criteria more common • Affects precision and certainty of measurement or evaluation • Opportunity for bias in reporting • Judgment more difficult; greater need for professional skepticism • Need for greater subject matter competence or use of practitioner’s experts • Clear communication needed in assurance report so users understand
  9. 9. Element: Framework for Reporting (Criteria) Page 9 Financial statement reporting Circumstances in EER reporting Circumstances result in challenges for EER assurance in addressing the public interest Generally well-developed, established aligned frameworks – e.g. IFRS Numerous and diverse frameworks that are not aligned; often high-level principles only, needing further development by the entity • Criteria may be: o Selected from multiple frameworks o Developed by the entity o Subject to greater preparer choice in selection or development, and opportunity for bias, undue emphasis or omission o More difficult to make available to users • Require greater practitioner competence to exercise judgment and professional skepticism
  10. 10. Element: Subject Matter Information Page 10 Financial statement reporting Circumstances in EER reporting Circumstances result in challenges for EER assurance in addressing the public interest Usually subject to regulatory requirements, and reported primarily in quantitative terms Often voluntarily prepared, without the rigor of regulatory requirements; often qualitative, subjective, or future-oriented • Greater opportunity for choice of what is reported and assured; may not reflect what the entity uses for its own decision-making • Difficult to determine whether there is material misstatement, especially when information is: o Expressed qualitatively o Future-oriented o Without a common basis for assessing the aggregate impact of misstatements • Difficult to identify what is ‘other information’, so users understand what has, and has not, been assured • Challenges in communicating in assurance report so users understand the confidence they may have in the EER report
  11. 11. Element: System of Internal Control Page 11 Financial statement reporting Circumstances in EER reporting Circumstances result in challenges for EER assurance in addressing the public interest Usually more developed than for EER reporting May be less well developed than systems in place for financial reporting in the early stages of an entity’s reporting, and in the absence of a strong regulatory environment • May not: o Provide a consistent basis for preparation of the subject matter information o Prevent or detect and correct misstatements o Be integrated into the entity’s decision- making in running its business • Preparers may seek advice from practitioners, which could result in a self- review threat
  12. 12. Purpose of the IAASB’s EER Guidance Page 12 To promote consistent high-quality application of ISAE 3000 (Revised) to: – Enhance trust in assurance reports – Engender greater user confidence and trust in reliability of EER reports – Strengthen the influence of EER assurance on the quality of EER reporting
  13. 13. Questions or comments Please send any questions or comments and we will address them now Page 13
  14. 14. The Guidance: Serving the Public Interest Page 14 To promote consistent high-quality application of ISAE 3000 (Revised): each chapter of the Guidance seeks to address particular aspects of the performance of an EER assurance engagement where practitioners commonly encounter the practical challenges in applying ISAE 3000 (Revised)
  15. 15. Using the Guidance: Form and Structure • An introduction explains scope, purpose, intended audience, authority and how the Guidance may be used • Diagram 1 in the introduction: – Gives an overview of the performance of an EER assurance engagement under ISAE 3000 (Revised) (‘the Standard’) – Indicates the requirements of the Standard addressed by each chapter • Throughout the guidance: – Short, simple examples illustrate practical application of the Guidance – Diagrams are included when they may assist in visualizing the nature or relationships of concepts Page 15
  16. 16. Using the Guidance: Form and Structure (cont.) Page 16 Twelve chapters: • 2 address behavioural attributes required throughout an EER assurance engagement • 8 address key stages in the performance of an EER assurance engagement (acceptance to reporting) • 2 address common types of EER information (qualitative and future- oriented Each chapter sets out: • What is covered • Why it is covered – i.e. the circumstances that give rise to practical challenges • How the practitioner might address those challenges
  17. 17. Relationships Between Stages of the Engagement, Standard Requirements and the Guidance Quality Control (31-36) Ethical Requirements (20) Competence (31(b)-(c), 32 (a), 39, 52(a), 53) Professional Judgment and Professional Skepticism (37-38) Conduct of Assurance Engagement Acceptance and Continuance Planning (40, 42-43) Procedures to Obtain Sufficient AppropriateEvidence Forming the Assurance Conclusion Preparing the Assurance Report, and Other Communications Understanding the Engagement Circumstances and the Likelihood or Risks of Material Misstatement Design Performance Other (14-19) (21-30) (41, 44 (a), 45, 46 L/R, 47 L/R) (48 L/R (a)) (48 L/R (b), 49, 50-51) (52 -63) (44 (b), 64-66) (67-70, 71-77, 78) Documentation (79-83) Ch 3 Determining Preconditions and Agreeing the Scope… Ch 7 Using Assertions Ch 8 ObtainingEvidence Ch 11 AddressingQualitative EERInformation and Ch 12 Addressing Future-OrientedEERInformation Ch 10 Preparingthe AssuranceReport Ch 1 ApplyingAppropriateCompetence andCapabilities Ch 4 Determiningthe Suitabilityand Availabilityof Criteria Ch 6 Considering the Entity’s Process to IdentifyReportingTopics Ch 5 Consideringthe System of Internal Control Ch 9 Considering the Materialityof Misstatements Ch 2 ExercisingProfessional SkepticismandProfessional Judgment Page 17
  18. 18. Using the Guidance: What is Covered in the Chapters Page 18 Chapter 3: Determining Preconditions and Agreeing the Scope of the EER Assurance Engagement • Determining the presence of preconditions • Whether the scope of the assurance engagement (i.e. what is to be assured) meets the preconditions • Work effort that may be needed to determine the preconditions • Independence considerations when the practitioner performs ‘readiness assessments’ or similar engagements pre-acceptance • Response when the preconditions are not present Chapter 1: Applying Appropriate Competence and Capabilities • Assigning a team with appropriate assurance competence and subject matter expertise • Competence and responsibilities of the engagement partner, including for: • Managing the combined competence of a multi- disciplinary engagement team • Appropriate direction, supervision and review Chapter 2: Exercising Professional Skepticism and Professional Judgment • Attributes and behaviors needed to exercise professional skepticism • Possible: • Impediments to its exercise, and • Factors increasing the need for the exercise of professional skepticism • How competence in exercising professional judgment may be acquired
  19. 19. Using the Guidance: What is Covered in the Chapters? Page 19 Chapter 6: Considering the Entity’s Process to Identify Reporting Topics • Considering the entity’s process to identify its material reporting topics, and the purpose and intended users of the report • Disclosure of the entity’s process to identify reporting topics Chapter 4: Determining the Suitability and Availability of Criteria • What it means for criteria to be suitable • How the practitioner’s work may be affected by the way criteria are developed • Whether the criteria will be available to intended users • Changes to criteria over time that may hinder comparability from period to period • Consequences when criteria are not suitable or available Chapter 5: Considering the System of Internal Control • Understanding whether the entity’s system of internal control provides a reasonable basis for the subject matter information • Considerations when the entity’s reporting process and controls are developing • Considerations data or information is obtained for EER reporting from a source external to the entity
  20. 20. Using the Guidance: What is Covered in the Chapters? Page 20 Chapter 9: Considering the Materiality of Misstatements • The practitioner’s responsibilities when misstatements are identified • Accumulating and evaluating the materiality of misstatements • Implications of misstatements due to fraud • Measurement or evaluation uncertainty and materiality considerations Chapter 7: Using Assertions • Using assertions as a tool to consider how different types of potential misstatements may occur • Categories of assertions that may be used • Using assertions to assist the practitioner in designing assurance procedures to obtain evidence Chapter 8: Obtaining Evidence • Determining how much evidence is enough in limited and reasonable assurance engagements • Considerations for the practitioner when: • Determining what evidence is needed and available • Designing and performing procedures • When evaluating the evidence obtained • Addressing aggregation risk when designing and performing assurance procedures
  21. 21. Using the Guidance: What is Covered in the Chapters? Page 21 Chapter 12: Addressing Future- Oriented EER Information In the context of Future-Oriented EER information, to address: • Determining the suitability of criteria • Obtaining evidence • Evaluating misstatements, and • Communicating in the assurance report Chapter 10: Preparing the Assurance Report • Communicating effectively in the assurance report so that users can understand: • What has been assured • How the subject matter information has been prepared • The degree of confidence they may have in the subject matter information Chapter 11: Addressing Qualitative EER Information In the context of Qualitative EER information: • Determining the suitability of criteria • Obtaining evidence • Evaluating misstatements • Communicating in the assurance report; and • Considering ‘other information’ presented alongside qualitative EER information
  22. 22. Supplement A and Supplement B to the Guidance Supplement A Section I Four Key Factor Model for Credibility and Trust in Relation to EER Reports: provides a framework useful to all stakeholders in understanding the four key factors that play a role in serving the public interest in high quality EER reports Section II Background and Contextual Information: contains information that practitioners may find useful as background and context to the Guidance Supplement B Provides additional examples to illustrate concepts discussed in the Guidance in the context of: • More complex engagement circumstances • A range of reporting frameworks Page 22 The Guidance can be used by a practitioner as a standalone resource without reference to the Supplements
  23. 23. Next Steps • Public consultation on the draft non-authoritative Guidance: – Published March 2020 – 120 day consultation period, with responses due in by 13 July 2020 – Comments also welcome on Supplement A and Supplement B • Analysis of responses and finalisation for approval in December 2020 Page 23 August 2016 IAASB issues discussion paper October 2017 IAASB approves EER Assurance Project February 2019 Consultation paper published following phase 1 March 2020 Consultation on draft Guidance and phase 1 feedback published Late 2020 Final Guidance approved
  24. 24. Some Potential Questions for Discussion 1. What do you find most useful about the draft EER Guidance? 2. Which chapters, sections or examples are especially helpful? 3. Which chapters, sections or examples are less useful and why? What could be done to enhance them? 4. Do the structure and flow of the Guidance work effectively in a way that is easy to follow when performing EER engagements? If not, how could it be improved? 5. Is Supplement A useful as background and contextual information? 6. Are the Supplement B examples useful? If not, how could they be enhanced? 7. How will you use the guidance? Page 24
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