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Ed. note: Today’s post is courtesy of Advisory Board member and former PCAOB Chair Dan Goelzer. As third-party assurance of ESG reports grows, many are questioning how financial audit/assurance standards apply – if at all. In the first of this two-part series yesterday, Dan gave background on and status of PCAOB’s attestation standards. In part 2 today, Dan explores the role these standards could play in ESG disclosures – and why.

The Public Company Accounting Oversight Board recently asked for the public’s views on the application and use of the Board’s interim attestation standards.  The Board’s decision to revisit the attestation standards could be an opportunity to make them relevant.  Investor demand for reliable corporate environmental, social, and governance disclosures is increasing rapidly, and many companies are engaging auditors or other experts to provide assurance on their ESG disclosures. A PCAOB attestation standard aimed specifically at U.S. public company ESG disclosures would meet a market need.  Moreover, by adopting a standard tailored to the preparation of opinions on greenhouse gas emissions, the PCAOB could play an important role in a key aspect of the SEC’s climate change proposals. 

ESG — A Role for the PCAOB’s Attestation Standards

While the PCAOB’s standards are not widely used, attestation is by no means a dormant field.  There is a growing demand for third party assurance, including auditor attestation, in connection with voluntary ESG disclosures.  A report issued by the Center for Audit Quality illustrates the point.  S&P 500 and ESG Reporting analyzed S&P 500 company ESG disclosures in 2021. The CAQ found that 95 percent of S&P 500 companies publicly disclosed detailed ESG information.  More than half – 264 companies – obtained some form of third-party assurance over their ESG disclosures.  About six percent of the S&P 500 received assurance from an audit firm, while about 47 percent obtained assurance from some other type of service provider.  The audit firms primarily referenced the AICPA’s attestation standards as the basis for their work, although some referenced International Standard on Assurance Engagements (ISAE) 3000, promulgated by the International Auditing and Assurance Standards Board. None appear to have used the PCAOB’s attestation standards. 

ESG metrics are increasingly important in investor decision-making.  However, since most U.S. public company ESG disclosures are voluntary and outside of SEC filings, there are inevitably questions about their reliability. Accordingly, the demand for ESG attestation is likely to grow. A PCAOB attestation standard that specifically addressed U.S. public company voluntary ESG disclosures, such as those made under the disclosure standards of the new International Sustainability Standards Board (ISSB) could bring increased comparability to ESG assurance and strengthen investor confidence in the credibility of these types of disclosures. It could also make auditor attestations, as opposed to those provided by other types of experts, more attractive.    

ESG is a broad topic, and an ESG-focused PCAOB attestation standard would need to be general enough to encompass assurance on many different types of disclosures. There is however one specific ESG disclosure that it would be useful for the PCAOB to focus on in the near-term: greenhouse gas emissions.

Under the SEC’s climate change disclosure proposals, public companies would be required to disclose their Scope 1 and Scope 2 GHG emissions. Larger companies – accelerated filers – would also be required to include in their SEC filings an attestation report from an independent third party on those disclosures. Certain SEC requirements and disclosures would apply to these attestations. Some companies would also have to disclose their Scope 3 emissions. While attestation would not be required as to Scope 3, if a company voluntarily elected to obtain such an attestation, it would have to meet the same requirements, and make the same disclosures, as apply to Scope 1 and 2 attestations. (Scope 1 emissions those are directly from the company’s operations.  Scope 2 emissions result from the generation of purchased power.  Scope 3 are indirect emissions, e.g., in the company’s supply chain or from customer use of its products.)

The SEC would permit GHG emissions attestation reports to be prepared using any set of standards that are publicly available and that are established by a body that has followed due process procedures – including the PCAOB, AICPA, or IAASB. While this flexibility may be desirable in an evolving area like GHG emissions disclosure, it runs the risk that attestation reports will have varying levels of reliability. It would therefore make sense for the PCAOB to address GHG attestations. The Board could do this either in a GHG-specific attestation standard or in GHG-specific guidance in the context of a general ESG attestation standard. Either way, the SEC might then have an incentive to promote comparability by encouraging or requiring that GHG attestations in SEC filings be based on the PCAOB’s standard. 


The PCAOB’s attestation standards currently play a limited role in fulfilling its mission.  At the same time, there is a growing investor demand for third party assurance over U.S. public company voluntary ESG disclosures.  Further, if the SEC adopts its climate change proposals, one aspect of ESG assurance – GHG emissions – will become mandatory. The PCAOB could make an important contribution to investor protection by using its review of the interim attestation standards as a springboard for the development of a general standard on ESG attestation and a standard, or specific guidance, on GHG emissions attestations.  

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The Editor

Lawrence Heim has been practicing in the field of ESG management for almost 40 years. He began his career as a legal assistant in the Environmental Practice of Vinson & Elkins working for a partner who is nationally recognized and an adjunct professor of environmental law at the University of Texas Law School. He moved into technical environmental consulting with ENSR Consulting & Engineering at the height of environmental regulatory development, working across a range of disciplines. He was one… View Profile