SEBI mandated assurance of BRSR for companies in phases. We help you understand the types of assurances & differences – reasonable assurance & limited assurance.

Where the client and the practitioner establish that an assurance service is being sought, ISAE 3000 (Revised) provides two options; reasonable assurance and limited assurance.

For a reasonable assurance engagement the practitioner needs to reduce the assurance engagement risk (the risk that an inappropriate conclusion is expressed when the information on the subject matter is materially misstated) to an acceptably low level as the basis for a positive form of expression of the practitioner’s conclusion. Such risk is never reduced to nil and therefore, there can never be absolute assurance.

For a limited assurance engagement the practitioner collects less evidence than for a reasonable assurance engagement but sufficient for a negative form of expression of the practitioner’s conclusion. The practitioner achieves this ordinarily by performing different or fewer tests than those required for reasonable assurance or using smaller sample sizes for the tests performed.

The practitioner uses the same risk basis for planning their work and the same levels of materiality in evaluating the outcome of tests for reasonable and limited assurance engagements. Since the extent of evidence collected for a limited assurance engagement may be limited due to the reduced sample sizes and test coverage adopted, the level of risk of material misstatement remaining is potentially higher than in a reasonable assurance engagement. Hence, the practitioner is not in a position to express the same degree of confidence as in a reasonable assurance engagement.

The conclusion in a limited assurance engagement is accordingly framed in a negative sense: “Based on the procedures performed, nothing came to our attention to indicate that the management assertion on XYZ is materially misstated.” In contrast with a reasonable assurance conclusion which would be formed in a positive sense, i.e.: “Based on the procedures performed, in our opinion, the management assertion on XYZ is reasonably stated.”

Practitioners may be familiar with the limited nature of the work performed in relation to a published review opinion for listed company half-year financial statements. The half-year review is an example of a limited assurance engagement that is conducted by the company’s auditor under ISRE 2410.

These reviews are ordinarily based on inquiry of management and analytical procedures. Analytical procedures typically involve the comparison of actual information against the expectations formed based on the prior year and industry average. The limited nature of the work is justified because the practitioner has a base of history with the client’s previous financial statement audit and an understanding of the client’s control environment which generally helps the practitioner to determine the reliability of the information produced by management.

While there are certain parallels between half-year reviews and other limited assurance engagements conducted under ISAE 3000 (Revised), there are also differences.

Half-year review of financial statements

The half-year review is a defined concept in relation to a clearly defined subject matter, i.e. the financial statements, and for which there is an expectation of a strongly defined internal control environment appropriate for the size and complexity of the client, structure through accounting practices, double entry book-keeping and other checks and balances required by company law and regulation.

The company’s auditor will have obtained a sound understanding of these matters and conducted recent tests of controls and substantive procedures as part of the annual audit. This background therefore reduces the need for detailed tests beyond inquiry, analytical review and other procedures of limited nature.

Limited assurance over non-financial information

In contrast, a non-financial limited assurance engagement may tackle a subject matter which is less well defined and for which the control environment is far less mature and robust. For example, the calculation of a company’s carbon footprint may have been performed by an individual and the results collected on a spreadsheet and supported by files of memorandum information.

The subject matter information is unlikely to be extracted from a double entry bookkeeping system, reducing the possibility of obtaining cumulative evidence through directional testing. Moreover the relationships, if any, between the non-financial subject matter and trends in other internal and external information sources may not have been identified. Accordingly, the comfort the practitioner can obtain from analytical review alone may be greatly reduced.

The concept of limited assurance allows the assurance provider to accept engagements that provide a range of potential levels of comfort to users of the resulting assurance reports. The only restrictions are that limited assurance should deliver a lower level of comfort than reasonable assurance and that the level of comfort provided should be meaningful.

Because a limited assurance report could represent such a range of levels of comfort, it can be much more important for the assurance practitioner to:

• ensure there is a good shared understanding of the scope of work agreed with the responsible party and/or users;
• document the scope of work in an appropriate level of detail in the terms of engagement; and
• describe the work performed in a plain English in the assurance report.

Reference: The Institute of Chartered Accountants in England and Wales (ICAEW)

BRSR, Core BRSR, BRSR Assurance, Reasonable Assurance, Limited Assurance, SEBI

The International Sustainability Standards Board (ISSB) has today issued its inaugural standards—IFRS S1 and IFRS S2 —ushering in a new era of sustainability-related disclosures in capital markets worldwide. The Standards will help to improve trust and confidence in company disclosures about sustainability to inform investment decisions.

And for the first time, the Standards create a common language for disclosing the effect of climate-related risks and opportunities on a company’s prospects.

The Standards will be officially launched by ISSB Chair Emmanuel Faber at the IFRS Foundation’s annual conference today and through a week of events hosted by stock exchanges around the world, including those in Frankfurt, Johannesburg, Lagos, London, New York, Santiago de Chile; the ASEAN Capital Markets Forum is also hosting a launch event in Singapore.

Emmanuel Faber’s remarks—available to watch live on the IFRS Conference page from 13:30 BST—will focus on the role the ISSB Standards will play in ensuring that companies disclose globally comparable information about sustainability-related risks and opportunities that is decision-useful for investors.

About the Standards

IFRS S1 provides a set of disclosure requirements designed to enable companies to communicate to investors about the sustainability-related risks and opportunities they face over the short, medium and long term.

IFRS S2 sets out specific climate-related disclosures and is designed to be used with IFRS S1.

Both fully incorporate the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).

A global baseline

The ISSB developed IFRS S1 and IFRS S2 with the benefit of extensive market feedback and in response to calls from the G20, the Financial Stability Board and the International Organization of Securities Commissions (IOSCO), as well as leaders in the business and investor community.

This support for a comprehensive global baseline of sustainability-related disclosures demonstrates the widespread demand for a consistent understanding of how sustainability factors affect companies’ prospects.

The ISSB Standards are designed to ensure that companies provide sustainability-related information alongside financial statements—in the same reporting package. The Standards have been developed to be used in conjunction with any accounting requirements. They are also built on the concepts that underpin the IFRS Accounting Standards, which are required by more than 140 jurisdictions. The ISSB Standards are suitable for application around the world, creating a truly global baseline.

Adoption of the ISSB Standards

Now that IFRS S1 and IFRS S2 are issued, the ISSB will work with jurisdictions and companies to support adoption. The first steps will be creating a Transition Implementation Group to support companies that apply the Standards and launching capacity-building initiatives to support effective implementation.

The ISSB will also continue to work with jurisdictions wishing to require incremental disclosures beyond the global baseline and with GRI to support efficient and effective reporting when the ISSB Standards are applied in combination with other reporting standards.

Source: IFRS News, 26 June 2023

Contact us to find out how we can assist you with assisting you with the ISSB disclosures.

2019: ESMA published its first annual report on sustainable finance, highlighting the increasing importance of sustainability in the EU financial system.

2020: ESMA issued guidelines on disclosure of climate-related risks for investment firms and credit institutions. The guidelines are designed to assist firms in understanding and disclosing their exposure to climate risks, and to enhance the comparability of climate risk information across the EU.

2021: ESMA published its final report on sustainability-related disclosures in the insurance sector, outlining the expectations for insurance companies to disclose information about their sustainability practices and impact.

2021: ESMA also issued draft technical advice to the European Commission on possible delegated acts regarding sustainability-related disclosures in the EU Regulation on sustainability-related disclosures in the financial services sector (SFDR). The draft technical advice provides recommendations on how to implement the SFDR’s provisions, including the required sustainability-related disclosures.

These initiatives demonstrate ESMA’s commitment to promoting sustainability in the EU financial system, and to enhancing the transparency and accountability of companies in their sustainability practices.