THE country’s certified public accountants (CPAs) are gearing up to perform assurance work on sustainability reports that publicly-listed corporations (PLCs) are required to submit to the Securities and Exchange Commission (SEC).
For CPAs to do so, they must go beyond crunching the numbers and audit the so-called “triple bottom line” of companies, Chris Ferareza, partner in the advisory services division of P&A Grant Thornton, was quoted in a statement as saying. “To remain relevant, accountants must acquire the knowledge and skills to show clear links between sustainability issues with financial performance,” Ferareza said.
According to the executive of the audit firm, the skills needed go beyond traditional accounting and auditing as the role requires the ability to quantify and/or evaluate risks, as well as opportunities related to the environment and to society or the two other bottom lines in “profit, people and planet.”
The SEC has made it mandatory for PLCs to submit sustainability reports by 2023. Since it required companies to submit their sustainability reports under an approach called “comply or explain” in 2019, the compliance rate among PLCs has been growing: from 90.4 percent in 2019 for the 2020 reports to 91.07 percent for the 2021 reports. However, Ferareza noted that many sustainability reports are yet to be at a level of quality that goes beyond mere compliance.
“It’s still a far cry from those in other developed countries such as Japan, as we’re just in the nascent stage in sustainability reporting and much still needs to be improved,” he added.
Ferareza said this may be the case because sustainability has yet to be embraced by reporting entities and incorporated in their businesses. Other challenges of PLCs are the lack of sustainability reporting expert within the organization, and a possible conflict of interest among companies engaged in businesses that pose harm to the environment or society.
This is where independent auditors have an edge, he said.
“We are duty bound to verify whatever information is provided to us, just like in auditing financial statements.”
Accountants are trained to provide clear and reliable information, gather evidence, and ensure that necessary processes and procedures are established.
“We usually know the business inside out so it’s easier for us to marry financial and non-financial aspects of the business operation,” Ferareza said. “Perhaps this is also the reason studies show that CPAs are the professionals of choice for assuring sustainability information.” As non-financial issues such as carbon emission, human rights, and diversity increasingly affect companies’ reputation and, ultimately, profitability, Ferareza said accountants will thus have to “upskill and evolve to become specialists” in environmental, social, and governance (ESG) principles.
To prepare for auditors’ expanded role, the Philippine Institute of Certified Public Accountants (Picpa) entered into a memorandum of understanding with the SEC and the Global Reporting Initiative (GRI) last year to conduct capability building on sustainability and integrated reporting.
The Picpa also created a national committee on sustainability and integrated reporting to mainstream the reporting of sustainability practices and advocate business activities that consider the “Triple Bottom Line” framework.
As published in BusinessMirror, dated 08 October 2021