Professional accountants fall out of favour on ESG assurance

It comes as global ESG disclosure and assurance rates hit new highs.

Businessman, accounting, calculating, analyzing, charting and graphing income with a modern laptop computer. And strategy ideas

There has been a drop-off in the number of accounting companies retained to carry out assurance of ESG information, according to a study by three major accounting associations released this week.

Professional accountants conducted 57 percent of sustainability and ESG assurance engagements in 2021, the latest year available, compared to 63 percent in 2019. The remaining engagements were provided by non-accountancy service providers (OSPs) such as consultancy firms, often with narrower scopes focusing on greenhouse gas or other environmental metrics.

When companies do opt for assurance by a professional accountant, they stick with statutory auditors 70 percent of the time.

The findings are based on a study of 1,350 company disclosures – sourced from six of the world’s largest economies and 15 other markets – by the International Federation of Accountants (IFAC), the American Institute of Certified Public Accountants (AICPA) and the Chartered Institute of Management Accountants (CIMA).

Susan Coffey, AICPA and CIMA’s CEO of public accounting, said: “Our profession’s role in providing that assurance is crucial. CPAs have unquestioned competence and professional judgment, and operate within a robust system built with public protection in mind.

“We should be the clear choice for instilling trust and value in ESG data around the world.”

Analysis by the trio found that 95 percent of assurance provided by accounting firms applied the ISAE 3000, the most current ESG assurance standard produced by IFAC, compared with only 38 percent of OSPs.

A new standard dedicated to sustainability assurance, ISAE 5000, is due in 2024.

Both disclosure and assurance rates have soared in recent years, according to the study. In 2021, 95 percent of large companies reported on ESG matters, up from 9 percent in 2019. Meanwhile, 64 percent of companies obtained assurance over at least some ESG information in 2021, compared to 51 percent in 2019.

Another key finding is the significant fragmentation of approaches, noted IFAC CEO Kevin Dancey. Eighty-six percent of reporting companies in the study used multiple standards and frameworks.

“This patchwork system does not support consistent, comparable and reliable reporting. Importantly, it also does not provide the necessary foundation for globally consistent, high-quality sustainability assurance,” said Dancey.

The three accounting bodies have in recent months pushed for alignment between three parallel initiatives by the International Sustainability Standards Board, the US Securities and Exchange Commission and the European Financial Reporting Advisory Group to develop ESG reporting standards for companies.

Assurance is expected to feature in all of these regimes to varying degrees, and media reports have profiled internal initiatives to strengthen sustainability and climate-related competencies among staff at each of the Big Four accounting firms.

It comes as the UK’s Financial Reporting Council announced plans to assess accounting firms against best practices on integrating climate reporting and ESG into annual reports.