Section 5120: The Conceptual Framework

Section 5120: The Conceptual Framework · Complied AI

(b)

Being open and alert to a need for further investigation or other action. 5120.5 A2 When considering the source, relevance and sufficiency of information obtained, the sustainability assurance provider might consider, among other matters, whether: • New information has emerged or there have been changes in facts and circumstances. • The information or its source might be influenced by bias or self-interest. • There is reason to be concerned that potentially relevant information might be missing from the facts and circumstances known to the practitioner. • There is an inconsistency between the known facts and circumstances and the practitioner’s expectations. • The information provides a reasonable basis on which to reach a conclusion. • There might be other reasonable conclusions that could be reached from the information obtained. 5120.5 A3 Paragraph R5120.5 requires all sustainability assurance provider to have an inquiring mind when identifying, evaluating and addressing threats to the fundamental principles. This prerequisite for applying the conceptual framework applies to all practitioners regardless of the professional activity undertaken.

Under

sustainability assurance standards, including those issued by the SRSB, practitioners are also required to exercise professional skepticism, which includes a critical assessment of evidence.

Exercising Professional Judgment

5120.5 A4 Professional judgment involves the application of relevant training, professional knowledge, skill and experience commensurate with the facts and circumstances, taking into account the nature and scope of the particular professional activities, and the interests and relationships involved. For example, application of knowledge of certain location-specific environmental, social, economic, cultural or other sustainability-related issues might be relevant when performing sustainability assurance engagements. 5120.5 A5 Professional judgment is required when the sustainability assurance provider applies the conceptual framework in order to make informed decisions about the courses of actions available, and to determine whether such decisions are appropriate in the circumstances.

making this determination, the practitioner might consider matters such as whether: • The practitioner’s expertise is sufficient to reach a conclusion. • There is a need to consult with others with relevant expertise. • The practitioner’s own preconception or bias might be affecting the practitioner’s exercise of professional judgment. 5120.5 A6 The circumstances in which sustainability assurance provider carry out professional activities and the factors involved vary considerably in their range and complexity. The professional judgment exercised by practitioners might need to take into account the complexity arising from the compounding effect of the interaction between, and changes in, elements of the facts and circumstances that are uncertain and variables and assumptions that are interconnected or interdependent. 5120.5 A7 Managing complexity involves: • Making the firm and, if appropriate, relevant stakeholders aware of the inherent uncertainties or difficulties arising from the facts and circumstances. (Ref: Para. R5113.3) • Being alert to any developments or changes in the facts and circumstances and assessing whether they might impact any judgments the sustainability assurance provider has made. (Ref: Para. R5120.5 to 5120.5 A3, and R5120.9 to 5120.9 A2) 5120.5 A8 Managing complexity might also involve: • Analyzing and investigating as relevant, any uncertain elements, the variables and assumptions and how they are connected or interdependent. • Using technology to analyze relevant data to inform the sustainability assurance provider’s • judgment. • Consulting with others, including experts, to ensure appropriate challenge and additional input as part of the evaluation process.

Reasonable and Informed Third Party

5120.5 A9 The reasonable and informed third party test is a consideration by the sustainability assurance provider about whether the same conclusions would likely be reached by another party. Such consideration is made from the perspective of a reasonable and informed third party, who weighs all the relevant facts and circumstances that the practitioner knows, or could reasonably be expected to know, at the time the conclusions are made. The reasonable and informed third party does not need to be a sustainability assurance provider, but would possess the relevant knowledge and experience to understand and evaluate the appropriateness of the practitioner’s conclusions in an impartial manner.

Identifying Threats

R5120.6

The sustainability assurance provider shall identify threats to

compliance with the fundamental principles. 5120.6 A1 An understanding of the facts and circumstances, including any professional activities, interests and relationships that might compromise compliance with the fundamental principles, is a prerequisite to the sustainability assurance provider’s identification of threats to such compliance. The existence of certain conditions, policies and procedures established by the practitioner’s profession, legislation, regulation, or the firm that can enhance the practitioner acting ethically might also help identify threats to compliance with the fundamental principles. Paragraph 5120.8 A2 includes general examples of such conditions, policies and procedures which are also factors that are relevant in evaluating the level of threats. 5120.6 A2 Threats to compliance with the fundamental principles might be created by a broad range of facts and circumstances. It is not possible to define every situation that creates threats. In addition, the nature of engagements and work assignments might differ and, consequently, different types of threats might be created. 5120.6 A3 Threats to compliance with the fundamental principles fall into one or more of the following categories:

(e)

Intimidation threat – the threat that a sustainability assurance provider will be deterred from acting objectively because of actual or perceived pressures, including attempts to exercise undue influence over the practitioner. 5120.6 A4 A circumstance might create more than one threat, and a threat might affect compliance with more than one fundamental principle.

Evaluating Threats

R5120.7

When the sustainability assurance provider identifies a threat

to compliance with the fundamental principles, the practitioner shall evaluate whether such a threat is at an acceptable level.

Acceptable Level

5120.7 A1 An acceptable level is a level at which a sustainability assurance provider using the reasonable and informed third party test would likely conclude that the practitioner complies with the fundamental principles.

Factors Relevant in Evaluating the Level of Threats

5120.8 A1 The consideration of qualitative as well as quantitative factors is relevant in the sustainability assurance provider’s evaluation of threats, as is the combined effect of multiple threats, if applicable. 5120.8 A2 The existence of conditions, policies and procedures described in paragraph 5120.6 A1 might also be factors that are relevant in evaluating the level of threats to compliance with the fundamental principles. Examples of such conditions, policies and procedures include: • Corporate governance requirements. • Educational, training and experience requirements. • Effective complaint systems which enable the sustainability assurance provider and the general public to draw attention to unethical behavior. • An explicitly stated duty to report breaches of ethics requirements. • Professional or regulatory monitoring and disciplinary procedures.

Consideration of New Information or Changes in Facts and Circumstances

R5120.9

If the sustainability assurance provider becomes aware of new

information or changes in facts and circumstances that might impact whether a threat has been eliminated or reduced to an acceptable level, the practitioner shall re-evaluate and address that threat accordingly. 5120.9 A1 Remaining alert throughout the professional activity assists the sustainability assurance provider in determining whether new information has emerged or changes in facts and circumstances have occurred that:

(b)

Use the reasonable and informed third party test.

Other Considerations when Applying the Conceptual Framework

Bias

5120.12 A1 Conscious or unconscious bias affects the exercise of professional judgment when identifying, evaluating and addressing threats to compliance with the fundamental principles. 5120.12 A2 Examples of potential bias to be aware of when exercising professional judgment include: • Anchoring bias, which is a tendency to use an initial piece of information as an anchor against which subsequent information is inadequately assessed. • Automation bias, which is a tendency to favor output generated from automated systems, even when human reasoning or contradictory information raises questions as to whether such output is reliable or fit for purpose. • Availability bias, which is a tendency to place more weight on events or experiences that immediately come to mind or are readily available than on those that are not. • Confirmation bias, which is a tendency to place more weight on information that corroborates an existing belief than information that contradicts or casts doubt on that belief. • Groupthink, which is a tendency for a group of individuals to discourage individual creativity and responsibility and as a result reach a decision without critical reasoning or consideration of alternatives. • Overconfidence bias, which is a tendency to overestimate one’s own ability to make accurate assessments of risk or other judgments or decisions. • Representation bias, which is a tendency to base an understanding on a pattern of experiences, events or beliefs that is assumed to be representative. • Selective perception, which is a tendency for a person’s expectations to influence how the person views a particular matter or person. 5120.12 A3 Actions that might mitigate the effect of bias include: • Seeking advice from experts to obtain additional input. • Consulting with others to ensure appropriate challenge as part of the evaluation process. • Receiving training related to the identification of bias as part of professional development.

Firm Culture

5120.13 A1 The effective application of the conceptual framework by a sustainability assurance provider is enhanced when the importance of ethical values that align with the fundamental principles and other provisions set out in this Part is promoted through the internal culture of the firm. 5120.13 A2 The promotion of an ethical culture within a firm is most effective when:

(b)

Independence in appearance – the avoidance of facts and circumstances that are so significant that a reasonable and informed third party would be likely to conclude that a firm’s, or a sustainability assurance team member’s, integrity, objectivity or professional skepticism has been compromised. 5120.15 A2 Sections 5400 to 5600 and Part 4B set out requirements and application material on how to apply the conceptual framework to maintain independence when performing sustainability assurance engagements.

Sustainability

assurance provider and firms are required to comply with these requirements and application material in order to be independent when conducting such engagements. The conceptual framework to identify, evaluate and address threats to compliance with the fundamental principles applies in the same way to compliance with independence requirements. The categories of threats to compliance with the fundamental principles described in paragraph 5120.6 A3 are also the categories of threats to compliance with independence requirements.

Professional Skepticism

5120.16 A1 Under sustainability assurance standards, including those issued by the AASB, sustainability assurance provider are required to exercise professional skepticism when planning and performing sustainability assurance engagements.

Professional skepticism and the fundamental principles that

are described in Section 5110 are inter-related concepts. 5120.16 A2 In a sustainability assurance engagement that is within the scope of the Independence Standards in this Part, compliance with the fundamental principles, individually and collectively, supports the exercise of professional skepticism, as shown in the following examples: • Integrity requires the sustainability assurance provider to be straightforward and honest. For example, the practitioner complies with the principle of integrity by: o Being straightforward and honest when raising concerns about a position taken by a sustainability assurance client. o Pursuing inquiries about inconsistent information and seeking further evidence to address concerns about statements that might be materially false or misleading in order to make informed decisions about the appropriate course of action in the circumstances. o Having the strength of character to act appropriately, even when facing pressure to do otherwise or when doing so might create potential adverse personal or organizational consequences. Acting appropriately involves: