Evolving Accountant | Fall 2021
The ESG Opportunity for CPAs? Assurance
ESG assurance offers CPAs a new way to serve clients as well as an important role in making the world a better place.
Andrea Wright, CPA
Partner, Johnson Lambert LLP
Trends in Accounting, Auditing, and Consulting
As hot as the latest TikTok trend, ESG (which stands for environmental, social, and
governance) is the acronym on everyone’s lips. Whether it’s investors and investment
managers talking about ESG investing, legislators and regulators pushing ESG initiatives,
or stakeholders demanding more transparency via corporate ESG disclosures,
you’re unlikely to read a business publication or watch a news program and not find those
While the term ESG has been floating around for many years now, it picked up speed and
traction in a pandemic-era social and political climate. According to the Institute of Internal
Auditors’ (IIA) white paper, “Internal Audit’s Role in ESG Reporting,” ESG is defined as “criteria
that characterize an organization’s operations as sustainable, responsible, or ethical.” But
while ESG is sweeping the world and appearing in headlines, there’s still a lot of work to
be done before we have consistent ESG reporting requirements here in the United States
While at least 25 countries—including Argentina, Australia, China, France, the Netherlands,
the Philippines, Turkey, South Africa, and the United Kingdom—have ESG disclosure
requirements, ESG reporting is still voluntary in the United States. According to a 2021
survey of 1,400 companies from 22 countries conducted by the AICPA and CIMA with the
International Federation of Accountants, 91 percent said they reported some level of ESG
information, and 51 percent said they had some level of assurance on that information.
Among these companies, 63 percent of those with assurance engagements on the ESG
information had that work conducted by audit or audit-affiliated firms. However, looking at
the 100 companies within the United States that were included in this study, only 11 percent
of those with ESG assurance had work conducted by an audit or audit-affiliated firm.
With ever-increasing stakeholder pressure, more organizations in the United States are
reporting on ESG data, and the requisite assurance over ESG disclosures presents a major
opportunity for CPAs. But there are also challenges ahead for CPAs looking to increase
their market share in this rapidly growing sector, including the lack of consistency in the
type of assurance needed for ESG issues. At the moment, there are multiple standards and
frameworks being used to report ESG information. We CPAs have an important and exciting
opportunity to leverage our skill sets and expertise to ensure the same level of reliability in
ESG reporting as we bring to financial reporting. CPAs are experienced in evaluating processes and internal controls, and those skills can easily translate to measurement and reporting of ESG information.
ESG data is no different than the financial data auditors continually evaluate: The systems and processes used to accumulate the data must be reviewed to evaluate the end reporting. An ESG audit could look something like this:
An organization makes a commitment to reduce their environmental impact from business air travel through the purchase of carbon offset credits. To ensure they’re meeting this commitment, as well as accurately reporting on it (whether it be via a website, newsletter, or financial report), an audit should be performed. The audit should include validation that the right processes have been set up to record all employee air travel, collect the necessary data (miles flown, aircraft type, etc.) to calculate the carbon emissions, and purchase valid offsets.
This is just a simple example of how CPAs can audit ESG initiatives in the absence of a comprehensive reporting framework.
But CPAs soon may get comprehensive guidance. In February 2021, the AICPA released their roadmap for ESG reporting and attestation. The intent is to help tax practitioners start the conversation with their clients on how to report ESG information and what independent validation could be required in the future as regulators look to adopt reporting requirements. Additionally, the International Financial Reporting Standards Foundation is scheduled to decide whether or not to create an international sustainability reporting standards board by early fall 2021. If they create a new standards board, hopefully international reporting consistency soon follows.
While we wait to see what standards and frameworks will be created for us to leverage, we can begin having conversations with our clients about their interest in ESG reporting and assurance. In the meantime, we can utilize the resources already available through the AICPA and CIMA, as well as COSO and the IIA, to provide the ESG assurance our current and prospective clients are looking for. Perhaps most importantly, we can continue to evolve alongside the organizations we serve that care about using their influence to make the world a better place—which is even cooler than the latest TikTok trend.