The International Standard on Sustainability Assurance (ISSA) 5000. The Assessment of Sustainability and Financial Performance of Business Entities in the Practice of Auditing Firms

Abstract

The article is devoted to important issues of implementing verification schemes for sustainability reporting (SR) in the practice of auditing firms on the basis of the International Standard on Sustainability Assurance (ISSA) 5000. The authors demonstrate that ISSA 5000 is a standard containing strict requirements and technical recommendations on SR assessment; it is characterized by universality, professional flexibility and focus on building trust with SR users. ISSA 5000 applies to verifications of SR, compiled on the basis of the norms such as Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB), the European Sustainability Reporting Standards (ESRS), etc. Directive (EU) 2022/2464 regulating corporate SR has extended the requirements to its compilation and verification. ISSA 5000 is a comprehensive standard applied to engagements on both material and limited assurance on the sustainability-related information. ISSA 5000 offers the framework for phasing SR verifications. Based on it, the authors defined five phases: (i) acceptance of customer and engagement, determining the subject of auditor’s attention (environmental issues, social dimensions and governance, SR assessment criteria); (ii) risk assessment and planning of verification; (iii) collection of evidence; (iv) preparation of the independent practitioner’s reporting, containing the report for management staff (communication to management staff), and the report on limited or material assurance. It is demonstrated that an auditor / an independent practitioner, when collecting the evidence, must assess the business entity’s sustainability, the financial sustainability in particular. The following procedures are applied in international practices in assessing the disclosed information on sustainability: stakeholder interviews; consideration of complaints; using external ranks of business performance; comparative analysis. However, normative documents on sustainability assessment do not provide a set of assessment indicators. Therefore, the author proposed to assess key components (such as environmental sustainability, economic sustainability and its social dimensions, business management, e. g. technical sustainability issues) using a set of coefficients. These coefficients include: trends in the environmental tax paid by Ukrainian businesses; carbon footprint; energy efficiency coefficient; waste recovery rate; dynamics of tax revenues (estimates of the total taxes – nationwide, local taxes and fees – paid by a business entity in the reporting and previous period; their allocation, e. g. on financing privileges for job creation); coefficients measuring technical sustainability. It is proposed that the financial sustainability assessment be performed by financial analysis methods. The assessment of sustainability and financial resilience of a business entity allows for insights into the actual situation with SR. It is demonstrated that the auditing firms that have learnt and implemented ISSA 5000 requirements would have additional competitive advantages in the present-day dynamic environment, whereas verifications of SR reporting enhance the corporate reputation of business entities.