At the end of September, the Committee of European Auditing Oversight Bodies (CEAOB) released guidelines on limited assurance on sustainability reporting. In accordance with CSRD, CEAOB adopted
“non-binding guidelines to set out the procedures to be performed [by practitioners] when expressing an assurance opinion on sustainability reporting, pending the adoption by the European Commission of an assurance standard covering the same subject matter… In the absence of relevant international assurance standard(s) covering fully the CSRD requirements for limited assurance on sustainability reporting finalised at the date of publication of the guidelines, this document is intended to provide high level assistance to facilitate a common understanding of some of the key aspects of the limited assurance engagement requirements introduced by the CSRD.”
The Committee makes clear that these temporary and voluntary guidelines “do not override or replace national pronouncements that might be in force at national level in EU Member States. As such, the guidelines do not constitute a standard and should be read in conjunction with any national rules applicable to assurance on sustainability reporting.”
CEAOB states that the objective of the assurance engagement is to “obtain limited assurance that the information reported by the entity is free from material misstatement(s).”
This may be different from what you expect in an audit setting. CEAOB defines “misstatement” and clarifies “materiality” (which in this context, is up to the auditor to assess) as follows:
“A misstatement is a difference between a disclosure provided (or omitted) and the appropriate disclosure required by the reporting framework (here the ESRS, and the taxonomy reference framework)…
Practitioners may determine that misstatements in the disclosures, individually or in aggregate, are not material, if, according to the practitioners’ professional judgement, these misstatements would reasonably be expected not to influence the decisions taken by the intended users of the sustainability statements.
The materiality of misstatement(s) in disclosures, which is to be taken into consideration during the limited assurance engagement, is linked but is not the same as the ‘double materiality’ to be used by the entity in the preparation of the sustainability statements in accordance with the ESRS, to determine the matters to be reported on. Materiality is relevant for both quantitative and qualitative disclosures, considering the potential influence of the misstatement(s) on the intended users of the information.”
An importance nuance here is that materiality is cast not in terms of investors specifically, but “intended users of the sustainability statements.” CSRD defines that term very broadly. Companies, therefore, should seriously consider publishing a definitive statement of who the company views as “intended users of the sustainability statements” – a concept I’ve written about before. This would eliminate differences in opinions/disagreements with assurance providers about the reference point for a material misstatement.
As one example of looking for material misstatements, CEAOB recommends that the assurance provider “read the financial statements and the management report with a view to identifying material inconsistencies with the sustainability statements”.
If you are subject to CSRD and its assurance mandate, this document is a “must-read,” especially if you are not intimately familiar with audit/assurance standards.
Our members can learn more ESG/sustainability auditing here.
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