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Audit & Accounting Alert - October 2020 (Issue 9)
 

 

AT-A-GLANCE The coronavirus pandemic has brought into vivid focus that monetary results reported by companies in their financial statements are not the only factors influencing future value and ongoing success. Nonfinancial environmental, social and governmental (ESG) issues can impact operations in sometimes sudden and unexpected ways. In order to make informed decisions, company executives, investors and regulators need the means to evaluate the potentially significant ramifications from these internal and external forces. Recognizing the rising demand for information and measurement in the ESG arena, the World Economic Forum has compiled a broad-based set of recommended metrics and disclosures for companies to include in future reports. These metrics are described in this issue, along with an IFRS Foundation consultation exploring a process for establishing related standards. 
Our Worldwide Update is again split into two sections. The first covers COVID-19 news from organizations across the globe, while the second covers other news   


Gerald Herter - Editor

Major Milestone in ESG Reporting


World Economic Forum unveils broadly supported set of metrics and disclosures
 
This publication has followed the development of environmental, social and governmental (ESG) financial reporting criteria over the past decade. The January 2020 issue highlighted the history and progress of organizations and governmental bodies in their pursuit of the elusive goal of identifying and quantifying non-financial sustainability measures. More recently, the August 2020 issue reported the increasing urgency in this effort, arising from the new dynamics presented by the pandemic. The need for a universal framework and set of standards was emphasized.
 
As if prophetically, on September 22, 2020, the World Economic Forum (WEF) announced the release of a comprehensive set of metrics and disclosures for reporting ESG by companies. Development of the metrics and disclosures was led by members of the Big Four accounting firms, working together with a broad international coalition of representatives from the corporate, investor, regulatory, and nongovernmental community. A key factor was the involvement and cooperation of the five organizations most active in the ESG arena: the Carbon Disclosure Project (CDP), the Climate Disclosure Standards Board CDSB), the Global Reporting Initiative (GRI), the International Integrated Reporting Council (IIRC) and the Sustainability Accounting Standards Board (SASB).
 
The WEF metrics expand the three ESG factors into four pillars which are considered to reflect “universality across industries and business models:” 1) principles of governance, 2) planet, 3) people and 4) prosperity. As the report states: “The inclusion of prosperity as the fourth pillar takes this project’s work beyond simply “ESG”, highlighting the importance of prosperous societies and the role of businesses in fuelling economic growth, innovation and shared wealth.”
 
The WEF’s International Business Council presented the finalized set of metrics and disclosures in a white paper titled Measuring Stakeholder Capitalism, Towards Common Metrics and Consistent Reporting of Sustainable Value Creation. The findings are classified by the four pillars into 21 generally more established and quantifiable core metrics, and 34 less well-established expanded metrics. The white paper asks companies to report on as many of the metrics that are material and applicable to them, or explain why not. The ultimate hope, as expressed in a joint statement by the five organizations named above, is that the metrics and disclosures “form the natural building blocks of a single, coherent, global ESG reporting system.”
 
The detailed core metrics are laid out by the following themes within each pillar:
  1. Principles of Governance – governing purpose, quality of governing body, stakeholder engagement, ethical behavior, and risk and opportunity oversight.
  2. Planet – climate change, nature loss, and freshwater availability. Three additional themes, along with resource availability, fell into the expanded metrics: air pollution, water pollution and solid waste.
  3. People – dignity and equality, health and well-being, and skills for the future.
  1. Prosperity – employment and wealth generation, innovation of better products and services, and community and social viability.
To show the quantitative nature of the metrics, an example is taken from the Planet pillar. The first metric under the Climate Change theme is Greenhouse gas (GHG) emissions. The description for reporting is “For all relevant greenhouse gases (e.g. carbon dioxide, methane, nitrous oxide, F‑gases etc.), report in metric tonnes of carbon dioxide equivalent (tCO2e) GHG Protocol Scope 1 and Scope 2 emissions. Estimate and report material upstream and downstream (GHG Protocol Scope 3) emissions where appropriate.” The GHG Protocol is a widely used international tool for calculating greenhouse gas emissions. Scope 1 emissions are direct from owned or controlled sources, while Scope 2 emissions are indirect from purchased energy, and Scope 3 emissions are others that occur somewhere in the company’s value chain.
 
The white paper acknowledges that the coverage of the metrics is not comprehensive, nor meant to downplay more far-reaching reporting in use. For instance, Morgan Stanley has a well-established Institute for Sustainable Investing. In an article from July 2020 titled Climate Transition in a Portfolio Context:
What Matters and What to Measure, key climate metrics recommended in addition to carbon emissions are carbon intensity, emissions reduction target, carbon earnings at risk, and climate change revenues.
 
In a related development, on September 30, 2020, the International Financial Reporting Standards (IFRS) Foundation published Consultation Paper on Sustainability Reporting, to gauge the current state of sustainability reporting, whether the time is right for oversight, and how a proposed Sustainability Standards Board (SSB) established by the Foundation might function in conjunction with the International Accounting Standards Board (IASB). As stated by Erkki Liikanen, Chair of the IFRS Foundation Trustees: “Calls for standardisation and comparability of reporting on sustainability and climate-change issues continue to grow as these matters become increasingly important to capital markets. We therefore seek to assess whether there is demand for global sustainability standards and whether the IFRS Foundation should play a role in developing such standards.” The proposal has received support from leaders of the International Federation of Accountants (IFAC) and AICPA. The consultation is open for comments until December 31, 2020.
 
 
Further details can be found at Measuring Stakeholder Capitalism: Top Global Companies Take Action on Universal ESG Reporting   and IFRS Foundation Trustees consult on global approach to sustainability reporting and on possible Foundation role.
(https://www.weforum.org/press/2020/09/measuring-stakeholder-capitalism-top-global-companies-take-action-on-universal-esg-reporting) and (https://www.ifrs.org/news-and-events/2020/09/ifrs-foundation-trustees-consult-on-global-approach-to-sustainability-reporting/).
 
Covid-19 related actions and activities by audit and accounting organizations throughout the world.

 
IASB
International Accounting Standards Board (www.ifrs.org)
  1. Coronavirus Information and resources – link – https://www.ifrs.org/news-and-events/2020/03/the-coronavirus-and-the-foundations-work/

IFAC
International Federation of Accountants (www.ifac.org)
  1. COVID-19 Resources from IFAC's Network – link https://www.ifac.org/knowledge-gateway/series/COVID-19-resources-ifacs-network

ACCA
Association of Chartered Certified Accountants (www.accaglobal.com)
  1. Coronavirus Information and resources – link - https://www.accaglobal.com/us/en/cam/coronavirus.html

CIMA
Chartered Institute of Management Accountants (www.cimaglobal.com)
  1. Update on the Coronavirus and Impact for Association Activities – link - https://www.cimaglobal.com/Members/Update-on-Coronavirus/

IIRC
International Integrated Reporting Council
(www.theiirc.org)

No new developments

WORLD ECONOMIC FORUM
(www.weforum.org)
  1. The COVID Action Platform – link - https://www.weforum.org/platforms/covid-action-platform -  focuses on three priorities: 1. Galvanize the global business community for collective action. 2. Protect people’s livelihoods and facilitate business continuity. 3. Mobilize cooperation and business support for the COVID-19 response.

Africa, Europe, India and the Middle East (AEIME)

FRC– Financial Reporting Council of the UK(www.frc.org.uk)
  1. FRC guidance for companies and auditors during COVID-19 crisis – link - https://www.frc.org.uk/about-the-frc/COVID-19.

ICAEW- Institute of Chartered Accountants in England and Wales(https://www.icaew.com/)
  1. Coronavirus – updates – link - https://www.icaew.com/insights/coronavirus.

EFRAG– European Financial Reporting Advisory Group(www.efrag.org)

No new developments

Americas, Asia, Australia & New Zealand (AAANZ)

AICPA American Institute of Certified Public Accountants(www.aicpa.org)
  1. AICPA Coronavirus (COVID-19) Resource Center – link - https://www.aicpa.org/news/aicpa-coronavirus-resource-center.html
FASB Financial Accounting Standards Board (www.fasb.org)
  1. FASB Response to COVID-19 – link - https://www.fasb.org/COVID19
GASB– Governmental Accounting Standards Board(www.gasb.org)
  1. GASB Response to COVID-19 – link -  https://www.gasb.org/COVID19
COSOThe Committee of Sponsoring Organizations of the Treadway Commission(www.coso.org)

No new developments

PCAOB– Public Company Accounting Oversight Board(www.pcaob.org)                                
  1.  PCAOB Response to COVID-19 – link -  https://pcaobus.org/Pages/response-to-COVID-19.aspx

SASB– Sustainability Accounting Standards Board(www.sasb.org)                               

No new developments

SEC– Securities and Exchange Commission(www.sec.gov)                      
  1. SEC Coronavirus (COVID-19) Response – link - https://www.sec.gov/sec-coronavirus-covid-19-response

CAANZ– Charted Accountants Australia New Zealand (https://www.charteredaccountantsanz.com/)
  1. Financial Reporting and Audit Guide: Financial reporting and audit issues stemming from COVID-19 – link - https://www.charteredaccountantsanz.com/tools-and-resources/client-service-essentials/reporting/financial-reporting-and-audit-guide-financial-reporting-and-audit-issues-stemming-from-covid19     
Periodic roundup of recent and upcoming actions and activities by audit and accounting organizations throughout the world.
 

IASB
International Accounting Standards Board (www.ifrs.org)
 
  1. Consultation Paper on Sustainability Reporting, published on September 30, 2020. See article in this issue for details.

IFAC
International Federation of Accountants (www.ifac.org)
  1. International Auditing and Assurance Standards Board (IAASB) - Staff Audit Practice Alert - The Consideration of Climate-Related Risks in an Audit of Financial Statement, issued October 1, 2020, “assists auditors in understanding what already exists in the International Standards on Auditing (ISA) today and how it relates to auditors’ considerations of climate-related risks in an audit of financial statements.”
  2. International Auditing and Assurance Standards Board - Fraud and Going Concern in an Audit of Financial Statements: Exploring the Differences Between Public Perceptions About the Role of the Auditor and the Auditor’s Responsibilities in a Financial Statement Audit, Discussion Paper published September 15, 2020, “seeking perspectives from all of its stakeholders across the financial reporting ecosystem on whether the International Standards on Auditing (ISAs) related to fraud and going concern need to be updated to reflect the rapidly evolving external reporting landscape, and, if so, in what areas.” Comment period ends January 12, 2021.
  3. Enhancing Corporate Reporting: The Way Forward, roadmap published September 11, 2020, calling for the IASB to establish an International Sustainability Standards Board. See article in this issue for further developments.
ACCA
Association of Chartered Certified Accountants (www.accaglobal.com)

No new developments

CIMA
Chartered Institute of Management Accountants (www.cimaglobal.com)

No new developments

IIRC
International Integrated Reporting Council
(www.theiirc.org)
  1. Open Letter to Erik Thedéen, Chair of the Sustainable Finance Task Force of the International Organization of Securities Commissions (IOSCO), co-published on September 30, 2020, together with CDP, CDSB, GRI and SASB, calling on the IOSCO to support and facilitate the sustainability reporting process as described in the first article in this issue.
WORLD ECONOMIC FORUM
(www.weforum.org)
  1. Measuring Stakeholder Capitalism, Towards Common Metrics and Consistent Reporting of Sustainable Value Creation, white paper published September 22, 2020. See article in this issue for details.  
Africa, Europe, India and the Middle East (AEIME)

FRC– Financial Reporting Council of the UK(www.frc.org.uk)
  1. IFRS 15 - Revenue from Contacts with Customers & IFRS 16 - Leases, Thematic Reviews, issued on September 24, 2020, following the first year of application, describing improvements required in financial reporting in these areas.  

ICAEW- Institute of Chartered Accountants in England and Wales(https://www.icaew.com/)

No New Developments

EFRAG– European Financial Reporting Advisory Group(www.efrag.org)

No New Developments

Americas, Asia, Australia & New Zealand (AAANZ)

AICPA American Institute of Certified Public Accountants(www.aicpa.org)
  1. Auditing Standards Board (ASB) – Exposure Draft - Statement on Standards for Attestation Engagements (SSAE) No. 21, Direct Examination Engagements, issued September 30, 2020, “enables practitioners to perform an examination engagement in which the practitioner obtains reasonable assurance by measuring or evaluating underlying subject matter against criteria and expressing an opinion that conveys the results of that measurement or evaluation.” Effective for reports dated on or after June 15, 2022.
  2. Center for Audit Quality (CAQ) - The Role of Auditors in Non-GAAP Financial Measures and Key Performance Indicators: Present and Future, published September 29, 2020, to “provide an overview of what non-GAAP financial measures and KPIs are, how they are used, and how the auditor could play a greater role in this information. We also present key questions audit committee members can ask as they discuss this information with management and auditors, as well as questions investors may want to consider as they use non-GAAP financial measures and KPIs to make decisions.”
  3. Professional Ethics Executive Committee – Exposure Draft - Proposed interpretation - Staff Augmentation Arrangements, issued September 8, 2020, presents a significant change to the original interpretation “that would address independence requirements related to “staff augmentation” arrangements in which a CPA firm loans staff to a client.” Comment period ends December 8, 2020.
FASB Financial Accounting Standards Board (www.fasb.org)
  1. Presentation and Disclosures by Not-for-Profit Entities for Contributed Nonfinancial Assets, ASU No. 2020-07, issued September 17, 2020, “to improve generally accepted accounting principles (GAAP) by increasing the transparency of contributed nonfinancial assets for not-for-profit (NFP) entities through enhancements to presentation and disclosure. The amendments in this Update address certain stakeholders’ concerns about the lack of transparency about the measurement of contributed nonfinancial assets recognized by NFPs, as well as the amount of those contributions used in an NFP’s programs and other activities.”  Effective generally for annual periods beginning after June 15, 2021. Early adoption is permitted.
  2. Exposure Draft - Franchisors—Revenue from Contracts with Customers (Subtopic 952-606) Practical Expedient, issued September 21, 2020, “would introduce a new practical expedient that would simplify the application of the guidance about identifying performance obligations. The practical expedient would permit franchisors that are not public business entities to account for pre-opening services provided to a franchisee as a single separate performance obligation if the services are consistent with those included in a predefined list within the guidance and they meet certain other conditions.” Comment period ends November 5, 2020.

GASB– Governmental Accounting Standards Board(www.gasb.org)

No New Developments

COSOThe Committee of Sponsoring Organizations of the Treadway Commission(www.coso.org)

No New Developments

PCAOB– Public Company Accounting Oversight Board(www.pcaob.org)                                

No New Developments

SASB– Sustainability Accounting Standards Board(www.sasb.org)                               
  1. Open Letter to Erik Thedéen, Chair of the Sustainable Finance Task Force of the International Organization of Securities Commissions (IOSCO), co-published on September 30, 2020, together with CDP, CDSB, GRI and IIRC, calling on the IOSCO to support and facilitate the sustainability reporting process as described in the first article in this issue.
SEC– Securities and Exchange Commission(www.sec.gov)                      

No New Developments


ADDITIONAL
A&A NEWS


Report finds accountants and bookkeepers “on brink of change”

(https://www.accountancyage.com/2020/09/29/report-finds-accountants-and-bookkeepers-on-brink-of-change/)

Should U.S. Broaden Mandate on Auditor Rotation?

(https://www.cpapracticeadvisor.com/accounting-audit/news/21155718/should-us-broaden-mandate-on-auditor-rotation)

Bots are game changers for accounting firms

(https://bit.ly/35fB8fq)

Why reporting can be a force for social good – and where to start

(https://www.weforum.org/agenda/2020/09/systemic-change-reporting-progress/)

Let’s end the debate: Automation will never replace accountants 

(https://www.accountingtoday.com/opinion/lets-end-the-debate-automation-will-never-replace-accountants)

Accounting Today's complete coverage of the coronavirus impact

(https://bit.ly/3hwrf0I)

Accountancy Age's Resource on UK regulations on accountancy during coronavirus

(https://bit.ly/2DZso3i)
 
California CPA Society Coronavirus Resources and Information
(
https://bit.ly/3iI8AAs)

Accountingweb's Coronavirus Content Series
(https://www.accountingweb.com/content/coronavirus-content-series)

Accountancy Daily Corona Virus Resources
(https://www.accountancydaily.co/coronavirus-0)

China Briefing's Coronavirus Insights for Your Business in China
(https://www.china-briefing.com/landing/coronavirus-updates)

 
 Audit & Accounting Alert is a publication of Integra International intended to highlight emerging issues in the profession.  The goal is to give Integra members an awareness of developments impacting the practice of Audit & Accounting enabling them to stay on the forefront of industry trends.This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice.  Please refer to your advisors forspecific advice.


Editor Gerald E. Herter 
email:  gerry.herter@integra-international.net
     
Integra International is registered in London at 1st Floor Sackville House, 143-149 Fenchurch Street, London, EC3M 6BN, United Kingdom
 
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