Intersting article from the portal ESG Investor. About the audit function, also of ultimate relevance to ESG issues. Despite the constant déjà vu of corporate scandals.
Stewardship proponents indicate that auditing standards are fundamental to the information flows that come to investors, to influence how the markets work, how confidence works, and investors get engaged.
As we heard last week during an ESG course by IBGC, Brazilin Institute of Corporate Governance, corporate profitability should be a final "reward", after all the rest was properly followed: the "Environmental", the "Social" and the "Governance".
As audit should work as a “service for stakeholders" - btw list of stakeholders may vary from company to company - here are some specific mechanisms or topics of engagement with them:
Audit committees
Audit rotation, i.e. the reappointment of the external auditor from time to time
Audit remuneration, to ensure that audit costs are not cut at the expense of quality
Audit technical expertise
“The management letter” written by the auditor to the board, at the end of the audit process, outlining things to improve and strengths, eventually made public. With clear language.
Auditors signing off on accounts that do not adequately incorporate climate risks
The next frontier for auditing is getting more robust assurance for material ESG related information. Specifically related with Governance, there is synergy with the 2002 Sarbanes-Oxley Act (SOX). Additionally, there are the activities of PCAOB - Public Company Accounting Oversight Board - that oversees the audits of public companies.
Complementing our post from yesterday about IFRS Sustainability Disclosure Standards, work on this is already under way with the International Auditing and Assurance Standards Board (IAASB), towards an overarching standard for assurance on sustainability reporting. A draft document is expected by June 2023, with comments until December 2023, for final approval until September 2024. If interested, you can follow the developments here.
Click at the image below for the full article by ESG Investor.
