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IAASB rolls out ISSA 5000 sustainability assurance standard

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The International Auditing and Assurance Standards Board is preparing for the adoption of its International Standard on Sustainability Assurance 5000 early next year as companies look to get outside approval from auditing firms on their environmental efforts.

The IAASB approved the standard in September, but is awaiting final approval from the Public Interest Oversight Board, an international body that oversees the IAASB and other standard-setters affiliated with the International Federation of Accountants. The IAASB expects to provide educational materials in January once the PIOB formally approves ISSA 5000, probably by the end of this year. 

Policymakers, regulators and other standard-setting bodies in multiple jurisdictions have already indicated plans to adopt this new standard. Earlier this year the U.S. Securities and Exchange Commission recognized the IAASB’s work and standards in this area for the purpose of allowing assurance on climate disclosures, even though the SEC’s own climate rule is currently on hold pending the outcome of multiple lawsuits. 

IFAC offices

“ISSA 5000, which is our sustainability assurance standard, is meant to serve as a global baseline for sustainability assurance practices,” said IAASB chair Tom Seidenstein. 

Once the PIOB certifies the IAASB standard, the IAASB plans to offer a range of guidance and educational materials to help people and other standard-setters with the application and implementation of ISSA 5000. So far, the IAASB has heard positive responses from standard-setters in various jurisdictions, including Australia, Canada, Brazil, Turkey and the European Union, about their intention of adopting some or all of the standard for their requirements. “That’s just the earliest stages,” said Seidenstein. “They were all waiting for us to finish the standard, and we’ll have to see how those considerations progress.”

ISSA 5000 builds on two of the IAASB’s existing standards on assurance: International Standard on Assurance Engagements 3000, a principles-based standard for assurance for nonfinancial reporting, and ISAE 3410, a specific standard for greenhouse gas reporting assurance.

“With the growing desire to have sustainability reporting throughout the world and the emergence of some of the leading reporting frameworks, we were urged to take what we had and make it specific to sustainability reporting,” said Seidenstein. “We took a pretty broad-based, principles-based framework that applied to all assurance and really focused it in, took our best practices on the assurance side, grabbed some of the key concepts that we’ve brought into the audit side, and made a sustainability-specific standard. Now what’s really important about this is it will work with all sustainability information prepared with any suitable reporting framework.”

That means it would work with not only the SEC’s climate-related disclosure rule, but also with the International Sustainability Standards Board’s S1 and S2 standards on sustainability and climate-related disclosures as well as the European Sustainability Reporting Standards mandated under the European Union’s Corporate Sustainability Reporting Directive, along with other major frameworks like Global Reporting Initiative standards. The IAASB has also been in talks with the American Institute of CPAs’ Auditing Standards Board about incorporating at least some of the ISSA 5000 framework into the ASB’s attestation requirements.

The IAASB developed the standards so they could work with various frameworks. “Our standard covers any sustainability information, so that would be covered as long as the reporting framework fulfills certain criteria, then our standard will work against that,” said Seidenstein. “You’re assuring against a framework. Reporting standard-setters will set the framework.”

ISSA 5000 addresses both limited and reasonable assurance. “Most assurance engagements these days are on a limited assurance basis,” said Seidenstein, noting that both the SEC and CSRD rules require only limited assurance. But he believes investors will eventually be demanding the more stringent “reasonable assurance.” 

“We wanted to have a clear pathway in our standards with a differentiation between limited and reachable assurance requirements, and ISSA 5000 provides both,” said Seidenstein. 

Reasonable assurance is similar to the level of assurance offered in financial audits. “The assurance practitioner does a number of inquiries, does the risk assessment, responds to it and reduces the risk of material misstatement down to an acceptable level,” Seidenstein explained. “That’s really important, and will give a high-level degree of confidence that the sustainability reports are stated correctly. In the world of limited assurance, there’s less work done. It’s stated in a negative way, that there’s nothing that’s come to the attention of the practitioner that would lead them to believe that the statements are materially misstated. That’s really about a different type of risk assessment, different lines of inquiry, in responding to areas of risk, whereas a reasonable assurance engagement is much more robust. Most people are focused on limited right now to develop the capacity, knowledge and understanding as we then transition to reasonable assurance over time.”

However, the standards should help investors assess the reliability of a company’s sustainability reporting. 

“What these standards will do, just like audit standards and just like assurance today, but in a much more specific way, will give the users of information more confidence that an external third party that’s independent and expert has reviewed the sustainability reports and can either provide a limited assurance or reasonable assurance opinion against the sustainability report, and that should give confidence,” said Seidenstein. “It’s the same thing as you would expect on the financial reporting side. It’s precisely why audits are important that you have an independent expert third party look at it to make sure that there’s no material misstatements.” 

An IFAC report that was released in June aims to help those who use sustainability reporting understand what to expect from sustainability assurance, addressing limited vs. reasonable assurance and explaining what different types of conclusions can indicate.

Auditors would follow many of the same basic approaches and methodologies in the world of financial auditing, from the planning to the conclusion to the reporting stages. “We focus very much on the planning, the risk assessment phase, the risk response phase of audits, so it’s very similar in many concepts, but translated to a sustainability context,” said Seidenstein. “What is slightly different in this world is first of all, you have much more qualitative and prospective information than you would in the financial reporting context, so you’re very focused on the process, the controls, the approach to making sure that the disclosures are materially correct.”

The IAASB wrote the standard so it can be used by both accountants and non-accountants since some other types of consulting firms that aren’t accounting firms have also been providing assurance on sustainability reporting, particularly when it comes to greenhouse gas emissions. IFAC’s State of Play in Sustainability Assurance report found that 689 of 1,187 (for 950 companies) assurance reports were signed by audit firms in 2022. 

The report found the IAASB’s assurance standard, International Standard on Assurance Engagements 3000 (Revised), continues to be used most frequently. In the most recent year for which data is available (2022), 92% of firms applied ISAE 3000 (Revised) in their sustainability assurance engagements, 98% of companies reported some level of detail on sustainability, and 69% obtained assurance on at least some of their sustainability disclosures. But the mix of reporting standards used by companies remains fragmented

For ISSA 5000, non-accountant practitioners would still need to adhere to the IAASB’s quality management standards as well as the ethics standards developed by its sister standard-setting board, the International Ethics Standards Board for Accountants. IESBA has also been developing ethics standards for sustainability reporting. The International Organization of Securities Commissions has encouraged both the IAASB and IESBA to develop sustainability assurance and ethics standards since September 2022. IESBA is expected to approve its standards in December, and the PIOB will meet to certify them in January. 

“We’re clearly proud of this work, that we were able to turn this around in under two years’ time with robust due process, and we met the timeline particularly set forward by IOSCO in their recommendation to both us and IESBA in terms of supporting sustainability reporting requirements,” said Seidenstein.

Even though the SEC’s climate rule is on hold, he believes the standards will still be useful for U.S. accountants. 

“In the United States, there are many different companies that will be seeking assurance, or already do seek assurance, on their sustainability reporting,” said Seidenstein. “So many companies have ESG reports or sustainability reports on a voluntary basis. There are a number of companies that are likely to adopt ISSB standards beyond that on a voluntary basis, or report on some other set of standards currently and are seeking assurance. There are many companies that will be required to conform with the European Corporate Sustainability Reporting Directive, and they will be required to have assurance under the CSRD and potentially be required to use our set of standards. The European Commission asked the CEAOB, which is the Committee of European Audit Oversight Boards, to advise the Commission on how to implement assurance requirements. It said specifically to look at our work on 5000 in that regard. American companies may have that requirement and could be in the value chain of companies that require sustainability reporting, whether it’s in Europe or elsewhere, and would also require assurance. There are a number of ways that our work could be relevant to American companies, irrespective of the climate rule.”

A recent report from the Visual Lease Data Institute found that a little over half (55%) of finance executives who were surveyed reported that the pause on the SEC climate disclosure rule has impacted their organization’s climate-related reporting efforts, and only 43% say their companies have established related benchmarks (a 4% increase from 2023).

ISSA 5000 promises to be widely useful for auditing firms in providing assurance on these important metrics. “We believe that this will establish a global baseline on the assurance side to complement what’s happening on the reporting side, and you really can’t have one without the other,” said Seidenstein.

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Accounting

M&A roundup: Aldrich and GHJ expand

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Aldrich, a provider of financial, wealth, tax, and business transaction strategies based in Salem, Oregon, has acquired HMA CPA, an accounting firm based in Spokane, Washington.

The Aldrich Group of Companies includes Aldrich CPAs + Advisors LLP, a Top 75 Firm, as well as Aldrich Wealth LP, a registered investment advisory firm with over $6 billion in assets under management, and Aldrich Advisors Capital LP, which provides advisory services for business transactions. 

Financial terms of the deal were not disclosed.  All four HMA partners and 25 employees will be joining Aldrich, which has $86 million in revenues and 500 team members across the U.S. and India. Aldrich ranked No. 72 on Accounting Today‘s 2024 list of the Top 100 Firms.

The acquisition of HMA CPA will enable Aldrich to expand to the Spokane and Coeur d’Alene, Idaho, area, by adding HMA’s four partners and their employees. Financial terms of the deal were not disclosed. 

“We share with HMA a commitment to serving our people, our clients, and our communities and are honored to build on HMA’s 40-year legacy,” said Aldrich CEO partner John Lauseng in a statement Tuesday. “We are excited to work together to help Spokane and Coeur d’Alene-area companies, owners and employees meet their financial goals.”

HMA was founded in Spokane in 1983 and has grown by expanding its services and through acquisition. In addition to Kevin Sell, HMA’s other owners, Kristi Bushnell, Laura Hays and Mike Whitmore, will be joining Aldrich, along with their colleagues.  

“Joining Aldrich will allow our team to deliver even more value to our clients, as well as create growth opportunities for our professionals,” said HMA CEO Kevin Sell in a statement. “Aldrich shares our entrepreneurial spirit, and we look forward to providing more services to our Spokane area clients through Aldrich CPA + Advisors, Aldrich Wealth, and Aldrich Capital Advisors.”  

After the deal, Aldrich now has eight offices in the Western U.S. across Oregon, California, Colorado, Utah and Washington. 

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IFAC names Jean Bouquot its president

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The International Federation of Accountants announced Jean Bouquot as its president and Taryn Rulton as deputy president.

Bouquot will serve a two-year term through November 2026, previously having served as IFAC deputy president since November 2022.

“It is my honor to serve as IFAC president,” Mr. Bouquot said in a statement. “Together with my fellow board members, I will work on behalf of all IFAC members, convene the profession and its stakeholders to highlight the role and activities of IFAC, and always advance the profession in the public interest.”

IFAC offices

Bouquot has over 44 years of audit experience at EY with exposure to international activities. He currently runs his own practice in Paris. He joined the IFAC board in November 2020, nominated by Compagnie Nationale des Commissaires aux Comptes and Conseil National de l’Ordre des Experts-Comptables.

He was formerly president of the CNCC, formerly president and deputy president of the Compagnie Régionale des Commissaires aux Comptes de Versailles et du Centre, and is currently a board member of IFAC Network Partner organization Fédération Internationale des Experts-comptables et commissaires aux Francophones.

Rulton, elected as IFAC deputy president, joined the board in November 2020. She has over 30 years of experience across the U.K. and Australia with a background spanning the banking industry, Big Four firms KPMG and EY, government, private companies, non-governmental organizations and universities.

She is currently chief commercial officer at La Trobe University in Melbourne, Australia, and serves on multiple corporate boards and committees in the not-for-profit and public sectors, including as chair of audit and risk committees. She has standard-setting experience and completed two terms on the Australian Accounting Standards Board.

The IFAC also announced new and re-appointed board members.

New appointments: 

  • Josephine Su Han Phan (CPA Australia)
  • Michael Niehues (IDW/WPK, Germany)
  • Patricia Stock (SAICA, South Africa)
  • Mark Vaessen (Royal NBA, Netherlands)
  • Lei Yan (CICPA, China)
  • Ahmad Almeghames (SOCPA, Saudi Arabia)

Reappointments:

  • Greg Anton (AICPA, USA)
  • Tashia Batstone (CPA Canada)

The IFAC Council also approved new member and new associate organizations. The admissions were approved at the 2024 IFAC Council hybrid meeting, with a physical location held in Paris on Nov. 6-7.

New IFAC members:

  • Colegio de Contadores Públicos de Pichincha y del Ecuador
  • Consejo General de Economistas de España
  • Emirates Association for Accountants and Auditors

New associates:

  • Institute of Chartered Accountants of the Maldives  
  • Ordre National des Experts-Comptables Algériens
  • Ordre des Professionnels Comptables du Burundi
  • Ordre National des Experts Comptables du Gabon

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Accounting

IRS and Social Security rules for IRA bridge strategy

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For some clients, taking distributions from their traditional individual retirement accounts before retirement may be a bridge too far. For others, the strategy could lead them from pre-retirement jitters to higher Social Security benefits and lower taxes a decade or more down the road.

That’s because the array of rules and figures outlined in the slideshow below add up to complex calculations that vary greatly among clients whose financial advisors and tax professionals may want to consider the so-called bridge strategy. The idea revolves around how clients can take IRA distributions in pre-retirement in order to avoid facing required minimum distributions later while gaining the cash flow necessary to delay Social Security until the payments are bigger.

The thicket of financial calculations, IRS guidelines, Medicare rules and long-term planning involved with deciding when to begin withdrawals and Social Security benefits shows the need for careful, individualized advice, according to four experts who spoke with Financial Planning. 

The last two months of a year mark an especially good time to discuss the possibilities of the bridge with clients. Prior to New Year’s Day, factors such as the level of capital gains, investment dividends, business-related transactions or job situations are coming into focus, said Valerie Escobar, a senior wealth advisor with Kansas City, Missouri-based advisory practice BMG Advisors. Advisors and their clients can weigh them against the possible IRA distributions.

“As we’re approaching the end of the year, you have a better sense of what your income picture is going to look like,” Escobar said. “Having that clarity of the picture makes the year-end the best time to be looking at that.”

READ MORE: The post-‘stretch’ home stretch for Roth IRA conversions

The fourth quarter “is the most important time to be looking at your taxes” because “it’s the last chance you have to fix things,” said Erin Wood, a senior vice president for financial planning and advanced solutions with Omaha, Nebraska-based registered investment advisory firm Carson Group. Client decisions on when to take required minimum distributions and when to begin claiming Social Security can have major consequences — including on their spouse’s survivor payments or the size of their monthly benefit checks (clients could see a bump of 8% a year if they wait until age 70).

“Those are a great example of something that you really only get one chance to make the right decision,” Wood said. “Once you make your decision, you are very much going to be stuck with that decision.”

In addition, those considerations often determine whether clients get stuck with “stealth taxes” on their benefits and whether they have to pay an income-related monthly adjustment amount on their Medicare premiums according to Sarah Brenner, the director of retirement education with retirement consulting firm Ed Slott and Company.

Once traditional IRA owners reach 59½ years old — or the age they must be to avoid getting “whacked with a 10% penalty” for a withdrawal, unless they’re for certain exceptions — they’re going to be thinking through how the distribution affects their income.

“It bumps up what you’re going to pay for Medicare,” Brenner said. “One thing they hate is IRMAA charges.”

READ MORE: A post-election checklist for year-end tax talks with clients

Other than a general rule that claiming Social Security benefits while still employed is not usually a good idea, Heather Schreiber, the founder of advanced planning consulting firm HLS Retirement Consulting, said she had no one-size-fits-all standard timeline for beginning the payments.

“First of all, I’d say, ‘Don’t listen to your neighbor,'” Shreiber said. “Everyone’s decision is very unique to them. I really don’t have an, ‘Everyone should file at X date.'”

For a rundown of the key numbers involved with the IRA “bridge” strategy to claiming bigger Social Security benefits later, scroll down the cardshow. To read FP’s year-end tax planning feature, “A primer on the IRA ‘bridge’ to bigger Social Security benefits,” click here. And, for a look at changes to tax brackets and IRA rules for 2025, follow this link.

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