Section 5300Part 5

Applying the Conceptual Framework

Introduction

5300.1 Sections 5300 to 5390 set out requirements and application material for sustainability assurance providers when applying the conceptual framework set out in Section 5120Section 5120. They do not describe all of the facts and circumstances, including professional activities, interests and relationships, that could be encountered by practitioners, which create or might create threats to compliance with the fundamental principles.

Therefore, the conceptual framework requires sustainability assurance providers to be alert for such facts and circumstances.

Requirements and Application Material

General

R5300.4

A sustainability assurance provider shall comply with the fundamental principles set out in Section 5110Section 5110 and apply the conceptual framework set out in Section 5120Section 5120 to identify, evaluate and address threats to compliance with the fundamental principles. 5300.5 A2 The more senior the position of a sustainability assurance provider, the greater will be the ability and opportunity to access information, and to influence policies, decisions made and actions taken by others involved with the firm. To the extent that they are able to do so, taking into account their position and seniority in the firm, practitioners are expected to encourage and promote an ethics-based culture in the firm and exhibit ethical behavior in dealings with individuals with whom, and entities with which, the practitioner or the firm has a professional or business relationship in accordance with paragraph 5120.13 A3. Examples of actions that might be taken include the introduction, implementation and oversight of: • Ethics education and training programs. • Firm processes and performance evaluation and reward criteria that promote an ethical culture. • Ethics and whistle-blowing policies. • Policies and procedures designed to prevent non-compliance with laws and regulations. (Ref: Paras. 5120.13 A1 to 5120.13 A3).

Identifying Threats

5300.6 A1 Threats to compliance with the fundamental principles might be created by a broad range of facts and circumstances. The categories of threats are described in paragraph 5120.6 A3.

The following are examples of facts and circumstances within each of those categories of threats that might create threats for a sustainability assurance provider when undertaking a professional service for a sustainability assurance client:

(a)

Self-interest Threats • A sustainability assurance provider having a direct financial interest in a sustainability assurance client. • A sustainability assurance provider quoting a low fee to obtain a new engagement and the fee is so low that it might be difficult to perform the professional service in accordance with applicable technical and professional standards for that price. • A sustainability assurance provider having a close business relationship with a sustainability assurance client. • A sustainability assurance provider having incentives linked to the outcome of a sustainability assurance engagement. • A sustainability assurance provider discovering a significant error when evaluating the results of a previous professional service performed by a member of the practitioner’s firm.

(b)

Self-review Threats • A sustainability assurance provider issuing an assurance report on the effectiveness of the operation of systems that generate sustainability information after designing or implementing the systems. • A sustainability assurance provider having contributed to the preparation of data used to generate information that is subject to procedures in the sustainability assurance engagement. • A sustainability assurance provider having provided sustainability-related services other than sustainability assurance engagements for an entity in a sustainability assurance client’s value chain, the outcome of which is subject to procedures in the sustainability assurance engagement for the client. • A sustainability assurance provider having provided a valuation or forecasting service the outcome of which is subject to procedures in the sustainability assurance engagement for the sustainability assurance client.

(c)

Advocacy Threats • A sustainability assurance provider promoting the interests of a sustainability assurance client. • A sustainability assurance provider acting as an advocate on behalf of a sustainability assurance client in litigation or disputes with third parties. • A sustainability assurance provider lobbying in favor of legislation on behalf of a sustainability assurance client.

(d)

Familiarity Threats • A sustainability assurance provider having a close or immediate family member who is a director or officer of the sustainability assurance client. • A director or officer of the sustainability assurance client, or an employee in a position to exert significant influence over the subject matter of the engagement, having recently served as the engagement leader. • A sustainability assurance team member having a long association with the sustainability assurance client.

(e)

Intimidation Threats • A sustainability assurance provider being threatened with dismissal from a professional service performed for a sustainability assurance client or the firm because of a disagreement about a professional matter. • A sustainability assurance provider feeling pressured to agree with the judgment of a sustainability assurance client because the client has more expertise on the matter in question. • A sustainability assurance provider being informed that a planned promotion will not occur unless the practitioner agrees with an inappropriate sustainability-related analysis or conclusion. • A sustainability assurance provider having accepted a significant gift from a sustainability assurance client and being threatened that acceptance of this gift will be made public.

Identifying Threats Associated with the Use of Technology

5300.6 A2 The following are examples of facts and circumstances relating to the use of technology that might create threats for a sustainability assurance provider when undertaking a professional activity for a sustainability assurance client: • Self-interest Threats o The data available might not be sufficient for the effective use of the technology. o The technology might not be appropriate for the purpose for which it is to be used. o The practitioner might not have sufficient information and expertise, or access to an expert with sufficient understanding, to use and explain the technology and its appropriateness for the purpose intended. • Self-review Threats o The technology was designed or developed using the knowledge, expertise or judgment of the practitioner or firm.

Evaluating Threats

5300.7 A1 The conditions, policies and procedures described in paragraphs 5120.6 A1 and 5120.8 A2 might impact the evaluation of whether a threat to compliance with the fundamental principles is at an acceptable level. Such conditions, policies and procedures might relate to:

(a)

The sustainability assurance client and its operating environment; and

(b)

The firm and its operating environment. 5300.7 A2 The sustainability assurance provider’s evaluation of the level of a threat is also impacted by the nature and scope of the professional service.

The Sustainability Assurance Client and its Operating Environment

5300.7 A3 The sustainability assurance provider’s evaluation of the level of a threat might be impacted by whether the client is a sustainability assurance client:

(a)

For which the practitioner performs a sustainability assurance engagement within the scope of the Independence Standards in this Part;

(b)

For which the practitioner also performs an audit engagement;

(c)

For which other assurance or non-assurance services are also provided and, if so, the nature of those services; or

(d)

Which is a public interest entity.

For example, providing a non-assurance service to a sustainability assurance client that is a public interest entity might be perceived to result in a higher level of threat to compliance with the principle of objectivity with respect to the sustainability assurance engagement. 5300.7 A4 The corporate governance structure, including the leadership of a sustainability assurance client, might promote compliance with the fundamental principles. Accordingly, a sustainability assurance provider’s evaluation of the level of a threat might also be impacted by a client’s operating environment. For example: • The client requires appropriate individuals other than management to ratify or approve the appointment of a firm to perform an engagement. • The client has competent employees with experience and seniority to make managerial decisions. • The client has implemented internal procedures that facilitate objective choices in tendering non-assurance engagements. • The client has a corporate governance structure that provides appropriate oversight and communications regarding the firm’s services. 5300.7 A4a The sustainability assurance provider’s evaluation of the level of a threat might be impacted by the quantitative and qualitative characteristics of a sustainability assurance client’s value chain. For example, the evaluation of a threat to compliance with the principle of professional competence and due care might be impacted if the sustainability information that is subject to assurance comes from multiple suppliers that are geographically dispersed or is prepared in accordance with different reporting frameworks.

The Firm and its Operating Environment

5300.7 A5 A sustainability assurance provider’s evaluation of the level of a threat might be impacted by the work environment within the practitioner’s firm and its operating environment. For example: • Leadership of the firm that promotes compliance with the fundamental principles and establishes the expectation that sustainability assurance team members will act in the public interest when providing sustainability assurance. • Policies or procedures for establishing and monitoring compliance with the fundamental principles by all personnel. • Compensation, performance appraisal and disciplinary policies and procedures that promote compliance with the fundamental principles. • Management of the reliance on revenue received from a single sustainability assurance client. • The engagement leader having authority within the firm for decisions concerning compliance with the fundamental principles, including any decisions about accepting or providing services to a sustainability assurance client. • Educational, training and experience requirements. • Processes to facilitate and address internal and external concerns or complaints. 5300.7 A6 The sustainability assurance provider’s evaluation of the level of a threat associated with the use of technology might also be impacted by the work environment within the practitioner’s firm and its operating environment. For example: • Level of corporate oversight and internal controls over the technology. • Assessments of the quality and functionality of technology that are undertaken by a third-party. • Training that is provided regularly to all relevant employees so they obtain and maintain the professional competence to sufficiently understand, use and explain the technology and its appropriateness for the purpose intended.

Consideration of New Information or Changes in Facts and Circumstances

5300.7 A7 New information or changes in facts and circumstances might:

(a)

Impact the level of a threat; or

(b)

Affect the sustainability assurance provider’s conclusions about whether safeguards applied continue to address identified threats as intended.

In these situations, actions that were already implemented as safeguards might no longer be effective in addressing threats. Accordingly, the application of the conceptual framework requires that the sustainability assurance provider re-evaluate and address the threats accordingly. (Ref: Paras. R5120.9 and R5120.10). 5300.7 A8 Examples of new information or changes in facts and circumstances that might impact the level of a threat include: • When the scope of a professional service is expanded. • When the sustainability assurance client becomes a listed entity or acquires another business unit. • When the firm merges with another firm. • When the sustainability assurance provider is jointly engaged by a sustainability assurance client and another client and a dispute emerges between the two clients. • When there is a change in the sustainability assurance provider’s personal or immediate family relationships.

Addressing Threats

5300.8 A1 Paragraphs R5120.10 to 5120.10 A2 set out requirements and application material for addressing threats that are not at an acceptable level.

Examples of Safeguards

5300.8 A2 Safeguards vary depending on the facts and circumstances.

Examples of actions that in certain circumstances might be safeguards to address threats include: • Assigning additional time and qualified personnel to required tasks when an engagement has been accepted might address a self-interest threat. • Having an appropriate reviewer who was not a member of the team review the work performed or advise as necessary might address a self-review threat. • Using different leaders and teams with separate reporting lines for the provision of non-assurance services to a sustainability assurance client might address self-review, advocacy or familiarity threats. • Involving another firm to perform or re-perform part of the engagement might address self-interest, self-review, advocacy, familiarity or intimidation threats. • Disclosing to sustainability assurance clients any referral fees or commission arrangements received for recommending services or products might address a self-interest threat. • Separating teams when dealing with matters of a confidential nature might address a self-interest threat. 5300.8 A3 The remaining sections of this Part describe certain threats that might arise during the course of performing professional services for sustainability assurance clients and include examples of actions that might address threats.

Appropriate Reviewer

5300.8 A4 An appropriate reviewer is a professional with the necessary knowledge, skills, experience and authority to review, in an objective manner, the relevant work performed or service provided to a sustainability assurance client. Such an individual might be a sustainability assurance provider.

Communicating with Those Charged with Governance

R5300.9

When communicating with those charged with governance in accordance with this Part, a sustainability assurance provider shall determine the appropriate individual(s) within the sustainability assurance client’s governance structure with whom to communicate. If the practitioner communicates with a subgroup of those charged with governance, the practitioner shall determine whether communication with all of those charged with governance is also necessary so that they are adequately informed.

R5300.10

If a sustainability assurance provider communicates with individuals who have management responsibilities as well as governance responsibilities, the practitioner shall be satisfied that communication with those individuals adequately informs all of those in a governance role with whom the practitioner would otherwise communicate. 5300.9 A1 In determining with whom to communicate, a sustainability assurance provider might consider:

(a)

The nature and importance of the circumstances; and

(b)

The matter to be communicated. 5300.9 A2 Examples of a subgroup of those charged with governance include an audit committee or another committee tasked with oversight of sustainability information, or an individual member of those charged with governance. 5300.10 A1 In some circumstances, all of those charged with governance are involved in managing the sustainability assurance client, for example, a small business where a single owner manages the entity and no one else has a governance role. In these cases, if matters are communicated to individual(s) with management responsibilities, and those individual(s) also have governance responsibilities, the sustainability assurance provider has satisfied the requirement to communicate with those charged with governance.

Using Non-Assurance Work of Another Practitioner

R5300.11

A sustainability assurance provider who intends to use non-

assurance work performed by another practitioner for purposes of a sustainability assurance engagement shall exercise professional judgment to determine the appropriate steps to take, if any, in order to fulfil the sustainability assurance provider’s responsibilities to comply with the fundamental principles of integrity, objectivity and professional competence and due care. 5300.11 A1 For the purposes of this section, the non-assurance work performed by another practitioner excludes the work of an external expert. When a sustainability assurance practitioner intends to use the work of an external expert, the requirements and application material set out in Section 5390 apply. When a sustainability assurance practitioner intends to use assurance work performed by another practitioner for purposes of a sustainability assurance engagement, the requirements and application material set out in Section 5406 apply. 5300.11 A2 Factors to consider in determining the appropriate steps to take, if any, when a sustainability assurance practitioner intends to use the non-assurance work of another practitioner include: • The reputation and competence of, and resources available to, that other practitioner. • Whether that other practitioner is subject to applicable professional and ethics standards. Such information might be gained from prior association with, or from consulting others about, that other practitioner.