IAASB Approves New Standard on Sustainability Assurance

By Ashley Bentley, Ed.D., CPA; Lana Becker, Ed.D., CPA (Inactive); and Emily Cokeley, Ph.D., CPA

As more and more companies add environmental, social and governance (ESG) reporting to their financial reporting, there is an increasing demand for assurance of ESG information. Even companies that are not subject to mandatory ESG reporting often voluntarily provide sustainability information to meet the demands of various stakeholders.

Although the social (labor practices, human rights, stakeholder relationships) and governance (composition of board, executive compensation, transparency, anti-corruption) practices of a company are important to investors and other stakeholders, it is the practices related to a company’s stewardship of the natural environment (greenhouse gas emissions, use of renewable energy, management of resources) that are most commonly reported.

The current sustainability landscape reflects a movement toward mandatory reporting for many companies. On a global basis, the IFRS Foundation, known for its global accounting standards as issued by the International Accounting Standards Board (IASB), has now added a standard-setting body for ESG reporting known as the International Sustainability Standards Board (ISSB, 2025). The ISSB is developing global standards for sustainability reporting that become mandatory in those jurisdictions where adopted and are focused on the information needs of investors.

The IFRS Foundation is collaborating with the Global Reporting Initiative (GRI) to maximize the interoperability between the ISSB standards and the world’s most commonly used standards for voluntary sustainability reporting. Furthermore, the ISSB has embraced the widely used reporting framework developed by the Task Force on Climate-Related Financial Disclosures (TCFD), as well as the 77 industry standards developed by the Sustainability Accounting Standards Board (SASB) as discussed in the article “Understanding Sustainability Accounting Standards Board Standards” in the March/April 2025 issue of Today’s CPA.

The most stringent mandatory ESG disclosures are currently found in the European Union. The EU’s Corporate Sustainability Reporting Directive (CSRD) was set forth by the European Financial Reporting Advisory Group (EFRAG) and is applicable to both European-based entities and potentially over 3,000 U.S. based companies that conduct business in Europe (Abramson, 2024). As recently as February 2025, the European Commission proposed a series of amendments to reduce the requirements for ESG reporting and due diligence under CSRD; thus, mandatory reporting in the EU and affected U.S. companies remains a fluid issue.

With regard to mandatory reporting in the United States, the SEC approved The Enhancement and Standardization of Climate-Related Disclosures for Investors Rule in March 2024 (SEC, 2024). Although the rule has been temporarily halted due to ongoing legal challenges, as well as a change in leadership at the SEC, its pending implementation would result in mandatory climate-related disclosures for SEC registrants. (See “SEC Adopts Climate-Related Disclosures” in the September/October 2024 issue of Today’s CPA). The future direction for mandatory climate-related disclosures in the U.S. remains uncertain at this time.

Although a great deal of uncertainty exists in the current ESG landscape regarding mandatory ESG reporting, companies continue to be pressured to provide ESG information from investors whose focus has turned to the firm’s long-term value creation. Today’s broad array of other stakeholders, including consumers, employees and communities, expect a company to be transparent about its ESG practices and its overall commitment to sustainability.

Increased Demand for Sustainability Assurance

As more companies report on sustainability, the demand for third-party assurance is rising. Standard-setting bodies now require it, and stakeholders expect it to validate management’s claims. Assurance enhances credibility and helps prevent misleading practices aimed at appearing more environmentally responsible than reality (i.e., greenwashing). Like financial statements, investors and other key stakeholders are looking for validation of management’s claims within the sustainability reports.

One challenge faced by practitioners in the assurance space is lack of guidance. For some time, practitioners have been trying to apply a combination of financial attestation procedures to non-financial information, characterized by metrics and measurements other than dollars. The vast majority of global audit firms have been using ISAE 3000 (Revised), Assurance Engagements Other than Audits or Reviews of Historical Financial Information and ISAE 3410, Assurance Engagements on Greenhouse Gas Statements, both issued by the International Auditing and Assurance Standards Board (IAASB) for sustainability assurance work.

In the United States, practitioners have also followed guidance offered by AICPA’s attestation standards, such as AT-C section 105, Concepts Common to All Attestation Engagements, and AT-C section 201, Review Engagements. Although broad in scope, these standards lack clear guidance tailored to sustainability assurance, even as the need for standardization is more important than ever.

Key Provisions of ISSA 5000

In September 2024, the IAASB approved International Standard on Sustainability Assurance (ISSA) 5000. Formal publication of the standard occurred in November 2024, following the certification by the Public Interest Oversight Board (PIOB). Implementation of ISSA 5000 will be effective for sustainability assurance engagements for periods beginning on or after December 15, 2026 (early application is permitted).

This standard is the first comprehensive guidance issued specifically for sustainability assurance. Designed to provide a standard framework for verifying sustainability information, ISSA 5000 will replace ISAE 3000 (Revised). ISAE 3410 will continue to be used, alongside ISSA 5000, when a separate conclusion on greenhouse gas emissions is required (IAASB, 2024). Supplemental materials and an implementation guide were also released by the IAASB in January 2025 to assist practitioners.

The IAASB intentionally created ISSA 5000 to be flexible, broad and framework neutral. It is a principles-based standard that applies to all ESG information (i.e., social and governance issues, as well as environmental), prepared using any of the numerous sustainability reporting guidelines or frameworks previously discussed (Anderson, 2024a). ISSA 5000 can be adapted to organizations of any size and across most industries. It can be used by both accounting and non-accounting professionals and applied to both limited and reasonable assurance engagements (Anderson, 2024a).

Much like reviews, limited assurance engagements are less extensive and offer a lower level of assurance. The report indicates that the assurance provider is unaware of any material modifications that need to be made (i.e., negative assurance). Reasonable assurance:

• Is the highest level of verification of ESG data,
• Requires that the auditor perform more comprehensive audit procedures and critically evaluate source documentation.

The report states the information is in accordance with the criteria set forth by the selected reporting standards and free from material misstatement (i.e., positive assurance).

The flexibility aspect of the ISSA 5000 is important, as reporting and assurance requirements continue to evolve. For the early reporting years, only limited assurance is mandatory. However, requirements will gradually move to reasonable assurance for the global, EU and U.S. mandatory reporting standards.

Many of the provisions within ISSA 5000 are similar to those found in the current literature on conducting assurance of financial information. However, there is one new element that should be of significant interest to assurance providers.

Double Materiality

One of the key features of ISSA 5000 is the inclusion of double materiality (Anderson, 2024b). While this concept is not new to companies subject to the European Union’s CSRD (where a double materiality assessment is required), it may be a novel concept to companies in other parts of the world, including the United States.

Similar to materiality that is considered in audits of financial statements, double materiality considers the effects of sustainability matters on the financial reporting of the company (financial materiality). Financial materiality is what accountants and auditors have traditionally known but is specifically applied to how sustainability matters may impact the financial performance of the company (“outside in”). This might include environmental, social and governance expenses already incurred, but could also include actual or potential fines, fees or other costs resulting from governmental sanctions, as well as the loss of customers from poor labor or other ESG practices, and effects of severe weather events.

The second side of double materiality (impact materiality) considers the effects the company has on the physical and social environment of any external stakeholder (“inside out”). It considers the impact of a company’s sustainability activity (or lack thereof) on the environment and people surrounding the company, both locally and globally.

Impact materiality, while lesser known to most firms and assurance providers, requires a similar level of consideration to financial materiality in sustainability assurance. Most importantly, a sustainability issue needs to be material from only one of the two perspectives (“outside in” or “inside out”) to require disclosure.

Paragraph A306 of ISSA 5000 notes that not all reporting frameworks require the use of double materiality, but if the selected reporting framework requires the company to consider double materiality, the assurance provider is required to assess double materiality while also verifying that no significant sustainability areas have been overlooked by the organization in its own materiality assessment.

Sustainability assurance relies heavily on qualitative data and support, and the verification of some aspects of impact materiality can come as a challenge, as significant practitioner judgment regarding the nature and extent of assurance evidence is required. As previously stated, ISSA 5000 provides the framework for sustainability assurance using any reporting framework, but leaves the practitioner significant latitude to determine the specific procedures to be used in the assurance engagement.

What’s Next for Sustainability Assurance in the United States

Will the United States follow suit with its own set of ESG-specific assurance standards? AICPA’s Auditing Standards Board’s (ASB) Sustainability Task Force has been charged with reviewing ISSA 5000 and evaluating the implications of the new standard on its sustainability guidance. The task force is working to determine what revisions to the current attestation standards are necessary for practitioners providing assurance on sustainability information under these standards. The ASB is planning to issue an exposure draft to seek comment on proposed revisions to standards, including sustainability specific content in the AT-C standards.

As demand and mandates for sustainability reporting increase globally and domestically, this opens up significant opportunities for assurance providers. Currently, only 23 percent of sustainability assurance work in the United States is being performed by CPAs (IFAC, 2024). The vast majority of this type of assurance is provided by non-CPAs, such as environmental specialists within consulting and engineering firms.

Conversely, 58 percent of global sustainability assurance work is performed by CPA firms (IFAC, 2024). CPAs in the United States have a prime opportunity to build upon the audit skills that have already been developed for traditional engagements and adapt these skills to this contemporary ESG era where stakeholders are interested in the long-term value of an organization, not only the current financial position.

About the Authors:

Lana Becker, Ed.D., CPA (inactive), is an Associate Professor and the Dr. Martha Pointer Faculty Fellow in the Department of Accountancy at East Tennessee State University. She can be reached at becker@etsu.edu.

Ashley Bentley, Ed.D., CPA, is an Assistant Professor and the Blackburn, Childers, and Steagall Faculty Fellow in the Department of Accountancy at East Tennessee State University. She can be reached at bentleyab@etsu.edu.

Emily Cokeley, Ph.D., CPA, is an Assistant Professor in the Department of Accountancy at East Tennessee State University. She can be reached at cokeley@etsu.edu.

References

Abramson, K. (2024, December 4). Ensuring CSRD compliance: Why U.S. companies must act now. Forbes. https://www.forbes.com/councils/forbestechcouncil/2024/12/04/ensuring-csrd-compliance-why-us-companies-must-act-now/

Anderson, K. (2024a). What is ISSA 5000? https://greenly.earth/en-us/blog/company-guide/what-is-issa-5000

Anderson, K. (2024b). Our Guide to the CSRD’s Double Materiality Assessment. https://greenly.earth/en-us/blog/company-guide/our-guide-to-the-csrds-double-materiality-assessment

International Auditing and Assurance Standards Board (IAASB). (2024). International Standard on Sustainability Assurance 5000, General Requirements for Sustainability Assurance Engagements. https://www.iaasb.org/publications/international-standard-sustainability-assurance-5000-general-requirements-sustainability-assurance

International Federation of Accountants (IFAC). (2024). The State of Play: Sustainability Disclosure & Assurance 2019-2022, Trends &Analysis. https://www.ifac.org/knowledge-gateway/audit-assurance/publications/state-play-sustainability-disclosure-assurance-2019-2022-trends-analysis

International Sustainability Standards Board (ISSB). (2025). About the International Sustainability Standards Board. https://www.ifrs.org/groups/international-sustainability-standards-board/

PwC. (2022). Global Investor Survey 2022. https://www.pwc.com/gx/en/issues/esg/global-investor-survey-2022.html

U.S. Securities and Exchange Commission (2024, March 6). SEC Adopts Rules to Enhance and Standardize Climate-Related Disclosures for Investors. https://www.sec.gov/newsroom/press-releases/2024-31

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