Leaders of the Public Company Accounting Oversight Board (PCAOB) said that the board’s existing standards and rules can be used for the SEC’s climate disclosure rule adopted in March. And the PCAOB has not had, to date, a separate standard-setting project related to environmental, social, and environmental (ESG) or sustainability matters.
“Our standards are currently fit for purpose under the SEC’s climate rule,” Williams said on May 9, 2024, in response to a question by Thomson Reuters about whether standard-setting would be necessary.
Also, PCAOB member George Botic told Thomson Reuters on May 17 that “nothing prevents” firms from using the board’s attestation standards.
By contrast, the AICPA’s Auditing Standards Board is working to issue a proposal on ESG and sustainability standard in the fourth quarter or early 2025. This in part follows plans by the International Auditing and Assurance Standards Board (IAASB) to finalize its proposed International Standard on Sustainability Assurance (ISSA) 5000, General Requirements for Sustainability Assurance Engagements, in the third quarter. The IAASB issued the proposal in August 2023 in part after the International Sustainability Standards Board issued its first sustainability standards in June 2023.
The AICPA’s goal is to converge its standards as much as possible with those set by the IAASB. The AICPA writes standards for audits of private companies while the PCAOB sets standards for public companies.
In the US, some large public companies already began to prepare to implement the Securities and Exchange Commission’s (SEC) climate disclosure rules despite the legal challenge. And the commission rules include attestation requirements over greenhouse gas (GHG) emissions data for Scope 1 and Scope 2 if material for larger companies.
PCAOB’s Project on Attestation Standards—Not on ESG
In the meantime, the PCAOB has had a project to update its attestation standards and is expected to issue a proposal in 2025. This does not mean the PCAOB has a specific ESG assurance project on its agenda. The attestation project is intended to modernize the standards that have been in place since 2003 when the board adopted on an interim basis the attestation standards of the AICPA.
When Williams became chair, she said it was high time for the PCAOB to modernize its standards especially because the AICPA’s standards are written by the accounting and auditing industry.
Williams confirmed that the PCAOB “would be looking to modernize [attestation standards] as we are with other interim standards.” But she again emphasized that the board’s “current standards are applicable under the SEC’s adopted rule, including attestation standards.”
The PCAOB’s effort, at least for now, may not be necessary not only because of legal challenges to the SEC’s rules but also because the commission has made the attestation requirement flexible.
Other professional services firms, such as engineering firms, can provide the assurance for the reported emissions data.
Moreover, the SEC stated in its final release that the PCAOB’s audit inspections would not cover engagements for the assurance of GHG emissions.
The commission agrees that investor protection would be increased if a PCAOB-regulated firm provided the assurance; however, it has balanced this against other considerations, “such as the availability of GHG emissions providers and compliance costs, which could potentially be lower if a larger pool of assurance providers is available.”
“Nevertheless, we agree with those commenters who stated that if the final rules permit non-PCAOB-registered accounting firms to provide attestation services, the Commission would need to ensure that there are appropriate protections in place for investors,” the SEC noted.
This means that the provider must comply with attestation standards established by an organization that has followed due process procedures.
“If the service provider is a firm, we would expect it to have policies and procedures designed to provide it with reasonable assurance that the personnel selected to conduct the GHG emissions attestation engagement have significant experience with respect to both attestation engagements and GHG emissions,” the SEC said in the final rule.
The SEC is explicitly allowing firms to use standards from the PCAOB, the AICPA, the IAASB, and the International Organization Standardization.
Non-CPAs are not able to use the AICPA or PCAOB attestation standards.
AICPA’s Standard-Setting Project on Sustainability
The AICPA meanwhile is currently focusing on the requirements for limited assurance engagements, among other things, on its sustainability standard-setting project.
Limited assurance provides a basis for the practitioner’s conclusion in a review report about whether the practitioner is aware of any material modifications that should be made to the subject matter in order for it to be compliant with the criteria or the responsible party’s assertion in order for it to be fairly stated.
A task force for the project “is currently considering whether revisions should be made to the current attestation standards (that is, the “baseline attestation standards”), including AT-C Section 210, and the ASB’s ESG Task Force is considering a potential sustainability specific section of the AT-Cs to specifically address sustainability review and examination engagements in the US, based on the proposed ISSA 5000 and subsequent changes,” according to a discussion paper presented during the ASB’s meeting on May 15.
AT-C Section 210 is the standard for review engagements.
This article originally appeared in the May 23, 2024, edition of Accounting & Compliance Alert, available on Checkpoint.
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