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Deloitte audits nature-related risks on Earth Day

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Deloitte auditors have been turning their attention to climate risks affecting clients who need to deal with a growing array of regulations and laws around the world as the pace of climate change accelerates.

With Monday, April 22, marking the 54th anniversary of Earth Day, the accounting profession is playing a greater role in sustainability reporting and assurance for many organizations that are trying to comply with the European Union’s Corporate Sustainability Reporting Directive, the International Sustainability Standards Board’s S1 and S2 standards for sustainability and climate-related disclosures, and the Securities and Exchange Commission’s recently issued rule on climate-related disclosures, which is current on hold due to lawsuits.

Big Four firms like Deloitte have been doing more work in the sustainability space to help clients account for their impact on nature in response to these types of requirements, as well as demand from investors and the public. “The world is evolving to account for nature, and that means there’s different guidance and frameworks looking into value in nature, and who better to do this than accountants?” said Stephanie Cardenas, an audit and assurance senior manager at Deloitte. “It has to do with how accountants have evolved in the profession.”

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Her own career has progressed from working in the Galapagos Islands studying the impact of tourism on the global ecosystem to a career at Deloitte, while working in between with different environmental groups.

“I’m a Deloitte ‘boomerang’ which means I was once at Deloitte Ecuador, and then I moved to New York, and then went back to Deloitte,” she explained. “How everything started was I saw what tourism was doing to the natural environment during my days in the hospitality industry and then I wanted to become part of the solution. I worked with some companies in the Galapagos Islands on tourism and focused with different NGOs — local and also from the U.S. — around what can be done within the Galapagos Islands on different projects.”

She worked on conservation projects to preserve the endemic species of trees in the Galapagos and the larger ecosystem. Then she studied for a master’s degree in sustainability to focus her career on this area. She has worked with the Galapagos Conservancy as well as the World Wildlife Fund Ecuador. And now that she’s at Deloitte, she’s working with her fellow auditors at CPAs.

“Here at Deloitte, I think there’s that magic sauce,” she said. “I work with CPAs and people that have done audit and assurance for a longer period of time. My background is much more technical. Pairing those two really helps our clients in this space meet those regulatory requirements with the process, controls and assurance in mind.”

She sees more of a demand for sustainability reporting and assurance from clients to comply with the various rules. frameworks and standards. In addition to the EU and SEC rules and the ISSB standards, the Global Reporting Initiative has developed sustainability and biodiversity standards and the Taskforce on Nature-related Financial Disclosures offers a set of disclosure recommendations and guidance.

“I have been working on the voluntary side and helping clients work on the more regulatory lens,” said Cardenas. “I did a secondment thanks to Deloitte on TNFD, the Taskforce for Nature-related Financial Disclosures. That was a fantastic experience seeing groups come together and really think through with that science lens what’s practical to really look into nature-related risks.”

The TNFD has been partnering with the European Financial Reporting Advisory Group and the ISSB, she noted. The EU has promulgated not only the CSRD but also the Regulation on Deforestation Free Products, which deals with seven categories of forest risk commodities: timber, cattle, soy, palm oil, cocoa, coffee and rubber. Under the EU Deforestation Regulation, those types of products will no longer be sold in the EU if they come from areas affected by deforestation or forest degradation practices.

“If you’re importing or exporting from the EU, and this is part of your materials you used in your products, you will have to look into a due diligence process, ensuring that these products are not coming from deforested land,” said Cardenas.

In the U.S., such guidelines are still mostly voluntary, but as states like California promulgate their own climate-related disclosures, U.S. companies may be forced to abide by such rules as well. 

“I think it’s very important for companies to think about this,” said Cardenas. “You can see specifically there’s an evolution of the market, and that’s what we’re seeing with our clients as well. Probably everything started on that voluntary lens, then going more into a must have and it’s mandatory. All the supply chain disruptions are forcing companies to rethink in the short term and the long term about where those materials are coming from. Are they coming from clear cutting? Is it deforested land? Is it land degradation? How are you impacting IPLC, a term for Indigenous People in Local Communities? Thinking of this as more of a systems problem, that’s where we help our clients put the pieces together and not see nature and climate as separate, but bringing it together as one topic. To be strategic about it, you need to approach it with that lens.”

Auditors will also need to be sure that companies are properly reporting the impacts on the climate, vetting the claims, in some cases by visiting these places to see whether they’re really fulfilling what they say they’re doing, although in the Galapagos and other remote areas, they may need to rely on technology such as satellite imaging.

“Nature tech is one of the highest-rising areas in this space,” said Cardenas. “There’s still a lot of development that needs to happen. But there are various technologies where you could actually measure the state of nature: how an ecosystem is performing, many tools that are out there, including geospatial technology that we use at Deloitte for clients to measure the state of nature. And pairing this with the regulatory requirements, specifically for EUDR [EU Deforestation Regulation] where the regulation does require you to go look at the flood level, like where has this commodity been produced?”

The satellite imagery can help produce different data sets for land and water-related risks. “Nature risk is very localized, but then this enters that supply chain lens,” said Cardenas. “If any deforestation is happening in a country like Brazil or Indonesia, and these products enter the different markets, that’s how it all goes back to companies that work with these products or raw materials.” 

Despite the backlash against ESG in some parts of the U.S., other parts of the world like the EU are requiring companies to do more to mitigate their environmental impact.

“Because of the regulatory requirements from CSRD, we have seen an uptick in the market,” said Cardenas. 

Even in the U.S., she has seen more demand for reporting and assurance services on nature-related risks.

“Nature specifically is a topic that is more tangible,” said Cardenas. “You know that there’s no water because you can see it. You can feel it. You don’t know if there’s more emissions or not if you just go outside. You know if it’s raining or if it’s not raining, if it’s sunny, if it’s too hot. With emissions, it’s a little bit less tangible. We can measure them. We can know their impact. That’s also why I think there’s that acceptance toward what does nature mean, especially to our business? Many examples are happening right now. The price of cacao is being raised in the market because of a huge drought in Africa, and also rain. It’s like all the other markets. That nature-related risk is impacting supply chains directly.”

For accountants who want to enter the field, particularly young people who are concerned about climate change, she has some advice.

“First of all, identify what your transferable skills are,” said Cardenas. “How can you use what you’ve learned to apply it to something else? There are frameworks like natural capital accounting. It is something that accountants would be doing, but now with that nature lens. It might not be only accountants. I’m dreaming of an accountant wanting to become an ecologist or biologist and pairing both things. Keep up with the market knowledge. Read a lot to stay informed. Be open to a fast-paced changing environment that’s full of opportunities. And really think through how you get better data. This is one of the key things that accountants are really good at is getting that data. The data processes, controls and completeness of that data will help you make the right decisions. It goes back to the impact that you could have with those magic skills.”

The urgency of the need for nature accounting can’t be dismissed due to the quickening pace of climate change. “They know climate change is happening,” said Cardenas. “They know biodiversity loss is happening. But all this is happening not in the timeframe that was supposed to happen, but faster, at unprecedented rates. I think that urgency is a good motivation for all of us to think about nature, what we have and really shift those mindsets and relate that business to nature to make sure that we have thriving economies, societies and businesses.”

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IAASB tweaks standards on working with outside experts

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The International Auditing and Assurance Standards Board is proposing to tailor some of its standards to align with recent additions to the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants when it comes to using the work of an external expert.

The proposed narrow-scope amendments involve minor changes to several IAASB standards:

  • ISA 620, Using the Work of an Auditor’s Expert;
  • ISRE 2400 (Revised), Engagements to Review Historical Financial Statements;
  • ISAE 3000 (Revised), Assurance Engagements Other than Audits or Reviews of Historical Financial Information;
  • ISRS 4400 (Revised), Agreed-upon Procedures Engagements.

The IAASB is asking for comments via a digital response template that can be found on the IAASB website by July 24, 2025.

In December 2023, the IESBA approved an exposure draft for proposed revisions to the IESBA’s Code of Ethics related to using the work of an external expert. The proposals included three new sections to the Code of Ethics, including provisions for professional accountants in public practice; professional accountants in business and sustainability assurance practitioners. The IESBA approved the provisions on using the work of an external expert at its December 2024 meeting, establishing an ethical framework to guide accountants and sustainability assurance practitioners in evaluating whether an external expert has the necessary competence, capabilities and objectivity to use their work, as well as provisions on applying the Ethics Code’s conceptual framework when using the work of an outside expert.  

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Tariffs will hit low-income Americans harder than richest, report says

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President Donald Trump’s tariffs would effectively cause a tax increase for low-income families that is more than three times higher than what wealthier Americans would pay, according to an analysis from the Institute on Taxation and Economic Policy.

The report from the progressive think tank outlined the outcomes for Americans of all backgrounds if the tariffs currently in effect remain in place next year. Those making $28,600 or less would have to spend 6.2% more of their income due to higher prices, while the richest Americans with income of at least $914,900 are expected to spend 1.7% more. Middle-income families making between $55,100 and $94,100 would pay 5% more of their earnings. 

Trump has imposed the steepest U.S. duties in more than a century, including a 145% tariff on many products from China, a 25% rate on most imports from Canada and Mexico, duties on some sectors such as steel and aluminum and a baseline 10% tariff on the rest of the country’s trading partners. He suspended higher, customized tariffs on most countries for 90 days.

Economists have warned that costs from tariff increases would ultimately be passed on to U.S. consumers. And while prices will rise for everyone, lower-income families are expected to lose a larger portion of their budgets because they tend to spend more of their earnings on goods, including food and other necessities, compared to wealthier individuals.

Food prices could rise by 2.6% in the short run due to tariffs, according to an estimate from the Yale Budget Lab. Among all goods impacted, consumers are expected to face the steepest price hikes for clothing at 64%, the report showed. 

The Yale Budget Lab projected that the tariffs would result in a loss of $4,700 a year on average for American households.

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At Schellman, AI reshapes a firm’s staffing needs

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Artificial intelligence is just getting started in the accounting world, but it is already helping firms like technology specialist Schellman do more things with fewer people, allowing the firm to scale back hiring and reduce headcount in certain areas through natural attrition. 

Schellman CEO Avani Desai said there have definitely been some shifts in headcount at the Top 100 Firm, though she stressed it was nothing dramatic, as it mostly reflects natural attrition combined with being more selective with hiring. She said the firm has already made an internal decision to not reduce headcount in force, as that just indicates they didn’t hire properly the first time. 

“It hasn’t been about reducing roles but evolving how we do work, so there wasn’t one specific date where we ‘started’ the reduction. It’s been more case by case. We’ve held back on refilling certain roles when we saw opportunities to streamline, especially with the use of new technologies like AI,” she said. 

One area where the firm has found such opportunities has been in the testing of certain cybersecurity controls, particularly within the SOC framework. The firm examined all the controls it tests on the service side and asked which ones require human judgment or deep expertise. The answer was a lot of them. But for the ones that don’t, AI algorithms have been able to significantly lighten the load. 

“[If] we don’t refill a role, it’s because the need actually has changed, or the process has improved so significantly [that] the workload is lighter or shared across the smarter system. So that’s what’s happening,” said Desai. 

Outside of client services like SOC control testing and reporting, the firm has found efficiencies in administrative functions as well as certain internal operational processes. On the latter point, Desai noted that Schellman’s engineers, including the chief information officer, have been using AI to help develop code, which means they’re not relying as much on outside expertise on the internal service delivery side of things. There are still people in the development process, but their roles are changing: They’re writing less code, and doing more reviewing of code before it gets pushed into production, saving time and creating efficiencies. 

“The best way for me to say this is, to us, this has been intentional. We paused hiring in a few areas where we saw overlaps, where technology was really working,” said Desai.

However, even in an age awash with AI, Schellman acknowledges there are certain jobs that need a human, at least for now. For example, the firm does assessments for the FedRAMP program, which is needed for cloud service providers to contract with certain government agencies. These assessments, even in the most stable of times, can be long and complex engagements, to say nothing of the less predictable nature of the current government. As such, it does not make as much sense to reduce human staff in this area. 

“The way it is right now for us to do FedRAMP engagements, it’s a very manual process. There’s a lot of back and forth between us and a third party, the government, and we don’t see a lot of overall application or technology help… We’re in the federal space and you can imagine, [with] what’s going on right now, there’s a big changing market condition for clients and their pricing pressure,” said Desai. 

As Schellman reduces staff levels in some places, it is increasing them in others. Desai said the firm is actively hiring in certain areas. In particular, it’s adding staff in technical cybersecurity (e.g., penetration testers), the aforementioned FedRAMP engagements, AI assessment (in line with recently becoming an ISO 42001 certification body) and in some client-facing roles like marketing and sales. 

“So, to me, this isn’t about doing more with less … It’s about doing more of the right things with the right people,” said Desai. 

While these moves have resulted in savings, she said that was never really the point, so whatever the firm has saved from staffing efficiencies it has reinvested in its tech stack to build its service line further. When asked for an example, she said the firm would like to focus more on penetration testing by building a SaaS tool for it. While Schellman has a proof of concept developed, she noted it would take a lot of money and time to deploy a full solution — both of which the firm now has more of because of its efficiency moves. 

“What is the ‘why’ behind these decisions? The ‘why’ for us isn’t what I think you traditionally see, which is ‘We need to get profitability high. We need to have less people do more things.’ That’s not what it is like,” said Desai. “I want to be able to focus on quality. And the only way I think I can focus on quality is if my people are not focusing on things that don’t matter … I feel like I’m in a much better place because the smart people that I’ve hired are working on the riskiest and most complicated things.”

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