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Today’s Audit & Accounting Topic – May 20, 2020

Independent assurance inspires confidence in sustainability reports

Sustainability reports explain the impact of an organization’s activities on the economy, environment, and society. During the novel coronavirus (COVID-19) pandemic, stakeholders continue to expect robust, transparent sustainability reports, with a stronger emphasis on the social and economic impacts of the company’s current operations than on environmental matters.

Investors, lenders, and even the public at large may pressure companies to issue these supplemental reports. But the information they provide isn’t based on U.S. Generally Accepted Accounting Principles (GAAP). So, is it worth the time and effort? One way to make your company’s report more meaningful and reliable is to obtain an external audit of it.

What is a sustainability report?

In general, a sustainability report focuses on a company’s values and commitment to operating in a sustainable way. It provides a mechanism for communicating sustainability goals and how the company plans to meet them. The report also guides management when evaluating corporate actions and their impact on the economy, environment, and society.

During the COVID-19 crisis, stakeholders want to know how your company is handling such issues as public health and safety, supply chain disruptions, strategic resilience, and human resources. For example:

  • How is the company treating employees during the crisis?
  • Are workers being laid off or furloughed — or is management implementing executive pay cuts to retain its workforce?
  • What is the company doing to ensure its facilities are safe for workers and customers?
  • Is the company donating to charities and encouraging employees to participate in philanthropic activities during the crisis, such as volunteering at food pantries and donating blood?

Stakeholders want assurance that companies are engaged in responsible corporate governance in their COVID-19 responses. Sustainability reports can showcase good corporate citizenship during these challenging times.

Why do you need an external audit?

There aren’t currently any mandatory attestation requirements for sustainability reporting. That means companies can produce reports without engaging an external auditor to review the document for its accuracy and integrity. However, without independent, external oversight, stakeholders may view sustainability reports with a significant degree of skepticism. That’s where audits come into play.

Many organizations have developed standardized sustainability frameworks, including the:

  • Carbon Disclosure Project (CDP),
  • Dow Jones Sustainability Index (DJSI),
  • Global Initiative for Sustainability Ratings (GISR),
  • Global Reporting Initiative (GRI),
  • International Integrated Reporting Council (IIRC),
  • Sustainability Accounting Standards Board (SASB), and
  • United Nations’ Sustainable Development Goals (SDG).

External auditors can verify whether sustainability reports meet the appropriate standards, and, if not, adjust them accordingly. In addition, numerous attestation standards govern the audit of a sustainability report, including those from the American Institute of Certified Public Accountants, the International Standard on Assurance Engagements, and the International Organization for Standardization.

Need help?

Many companies agree that a sustainability report is an important part of their communications with stakeholders. But there’s little consensus on the approach, topics, or non-GAAP metrics that should appear in sustainability reports. We understand the standards that apply to these supplemental reports and can help you report sustainability matters in a reliable, transparent manner.

© 2020

If you have questions, please reach out to your Topel Forman contact.

 

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