Sustainability assurance
Companies producing sustainability information as part of their annual report will eventually need to have that information audited/assured. The proposed International Standard on Sustainability Assurance (ISSA) 5000 has been issued and is currently open for comment.
The Irish Auditing and Accounting Supervisory Authority (IAASA) held an information session on the standard in September and a recording is available.
Sustainability standards
The European Financial Reporting Advisory Group (Efrag), the independent body responsible for the development of the European Sustainability Reporting Standards (ESRS), is working on sectoral sustainability reporting standards, initially in the following sectors:
- agriculture, farming and fishing
- food and beverage services
- mining, coal and quarrying
- motor vehicles
- oil and gas
- power production and energy utilities
- road transport
- textiles, accessories, footwear and jewellery.
Efrag is seeking a wide range of external participants to provide its sustainability reporting writing teams with comments in its development of draft sector-specific standards. Anyone interested in contributing towards this work can register their interest.
Recognition of qualifications
The UK’s Financial Reporting Council (FRC) and New Zealand’s Financial Markets Authority (FMA) have signed a first-of-its-kind agreement to recognise audit qualifications in both the UK and New Zealand so that auditors can more easily work between both countries.
The memorandum of understanding on reciprocal arrangements will provide a process for auditors who have obtained professional audit qualifications in either the UK or New Zealand to apply for recognition of their qualification and audit rights in the other nation.
The agreement follows detailed analysis by both the FRC and FMA to ensure that the approved qualifications offer assurance of professional competence equivalent to that afforded by a recognised professional qualification.
Where applicable, applicants are required to complete aptitude tests or a period of adaptation. Under the new agreement, New Zealand auditors are required to complete up to three years’ retraining – referred to as an ‘adaption period’. At the end of that period, the candidate will also have to complete an aptitude test, which should include UK law and tax.
The FRC has proposed a change to FRS 102 to include disclosure of supply chain finance arrangements
IAASA observations
Every year IAASA produces an Observations paper of matters that it has identified during its inspection of the financial statements of public interest entities. The 2023 edition is now available.
The areas identified include macroeconomic impacts on IFRS 7 and IFRS 9, Financial Instruments, disclosures; fair value measurement and disclosures; IFRS 8, Operating Segments; transparency directive regulations; alternative performance measures; IAS 36, Impairment of Assets; the European single electronic format; and amendments to IFRS Standards.
External confirmations
The FRC has published revised ISA (UK) 505, External Confirmations, and the IAASA is expected to issue an Irish version shortly. The revised standard deals with matters such as electronic external confirmations and negative confirmation requests.
Supply chain finance
Supply chain finance can be useful when a bank or finance house agrees to pay a company’s creditors based either on standard contractual terms or early (say, to avail of an early payment discount), with the company paying the finance house at a later date. These arrangements usually provide the entity with extended payment terms, or the entity’s suppliers with early payment terms, compared to the related invoice payment due date. Supplier finance arrangements are often referred to as supply chain finance, payables finance or reverse factoring arrangements.
The FRC has proposed a change to FRS 102 to include disclosure of such arrangements with effect from 1 January 2025. This amendment aligns the FRS 102 disclosures with IFRS.
Russian entities have deployed various sanction circumvention techniques
Sanction circumvention
The European Commission has noted that, faced with unprecedented restrictive measures and sanctions, Russian entities have deployed various circumvention techniques. In response, the Commission has published a guidance note to help identify, assess and understand the possible risks of sanctions circumvention, and how to detect it. This guidance note aims to provide a general overview of what EU operators need to do when conducting due diligence in their work, as required by EU law.
The document discusses the use of third countries, ownership changes, customers with poor internal control systems on identification of the end user, and transit countries or routes. It also looks at risk factors such as business rationale, unusual or abnormal contracts, and similarity to sanctioned goods.
The guide suggests a multistep approach to due diligence, including identification of the threats and vulnerabilities, risk analysis, design of mitigating measures, implementation of the enhanced measures and regular updating.
