Law in the Federal Parliament today - Chamber of Public Accountants reminds of European requirements - The government draft of a law to transpose the European Corporate Sustainability Reporting Directive (CSRD) into German law has been available since July 24, 2024. Today, the German Federal Parliament is debating the bill at first reading.

The main topic of public debate is which group of people should be authorized to legally audit sustainability reports. Andreas Dörschell, President of the Chamber of Public Accountants, comments on this:

On August 29, 2024, the International Auditing and Assurance Standards Board (IAASB) published the 2023-2024 edition of the Handbook of International Quality Control, Auditing, Review, Other Assurance, and Related Services Pronouncements. The work contains the current international auditing standards ISA as well as other professional pronouncements of the IAASB and consists of four volumes for the first time:

The International Auditing and Assurance Standards Board (IAASB) has issued guidance (Authority Supplemental Guidance) on the application of the International Standard on Auditing of Financial Statements of Less Complex Entities (ISA for LCE) (for the publication of the standard, see “Neu auf WPK.de” from December 7, 2023 (in German)).

Among other things, this guidance is intended to assist auditors in deciding whether the standard can be applied to a particular engagement and addresses the responsibilities of the audit firm, the engagement partner and the audit team. They are merely an interpretative aid in relation to the standard, which alone is binding.

On August 7, 2024, the European Commission published a comprehensive catalog of questions and answers on sustainability reporting and its assurance (PDF). The 90 questions cover the following eight sections:

On July 22, 2024, the WPK commented on the Committee of European Auditing Oversight Boards' (CEAOB) draft non-binding guidance on the limited assurance engagement on sustainability reporting. The draft was published by the CEAOB in June 2024.

The WPK welcomes the publication of corresponding guidelines in principle. However, the WPK emphasizes the importance of appropriate scaling aspects and points out that the existing and developing standards and pronouncements (in particular ISAE 3000 (Revised), ISSA 5000 and the Code of Ethics) should be integrated into the guidelines. The WPK also provides technical advice.

On July 24, 2024, the Federal Ministry of Justice (BMJ) published the government draft of a law to implement Directive (EU) 2022/2464 of the European Parliament and of the Council of December 14, 2022 amending Regulation (EU) No. 537/2014 and Directives 2004/109/EC, 2006/43/EC and 2013/34/EU with regard to corporate sustainability reporting (in German) (Corporate Sustainability Reporting Directive - CSRD).

From the first comparison with the draft bill of March 22, 2024, the following key findings can be made:

On July 5, 2024, the Corporate Sustainability Due Diligence Directive (CSDDD) was published in the Official Journal of the European Union (Directive (EU) 2024/1760). The directive must be transposed into national law by July 2026. It can be assumed that this will take place in Germany through corresponding amendments to the German Supply Chain Due Diligence Obligations Act, among other things.

In March 2024, the Federal Ministry of Justice published the draft bill for a so-called CSRD Implementation Act. The WPK participated in the consultation of the associations with a statement dated April 19, 2024.

The WPK has also developed a position paper "Ensuring the requirements of a level playing field in the context of CSRD implementation". It sheds light on the framework conditions that the Statutory Audit Directive places on auditors of sustainability reports and identifies where other providers of assurance services lack the corresponding requirements.

On May 31, 2024, the European Financial Reporting Advisory Group (EFRAG) published three Implementation Guidance documents on the implementation of the European Sustainability Reporting Standards in accordance with the CSRD. These are:

On May 8, 2024, the WPK commented on the draft Proposed International Ethics Standards for Sustainability Assurance (including International Independence Standards) (IESSA) and Other Revisions to the Code Relating to Sustainability Assurance and Reporting as part of the consultation of the International Ethics Standards Board for Accountants (IESBA).

The draft contains independence and ethics standards for the preparation and audit of sustainability reports and, like the draft ISSA 5000 published by the IAASB in summer 2023, is designed to be profession agnostic. It also explicitly includes the Group Audit context.

On April 29, 2024, the WPK commented on the draft Using the Work of an External Expert as part of the consultation of the International Ethics Standards Board for Accountants (IESBA). The draft serves to establish the professional framework to assist professionals in assessing whether an external expert of the auditor (primarily in the area of sustainability engagements) has the necessary competence, skills and objectivity to enable their work to be used for the intended purposes.

German Chamber of Public Accountants (WPK) advocates the gradual establishment of a market for the confirmation of sustainability information – The draft law of the Federal Ministry of Justice on the implementation of the European Corporate Sustainability Reporting Directive (CSRD) into German law has been available since March 22, 2024. The WPK commented on April 19, 2024 (in German).

Andreas Dörschell, President of the WPK: “Sustainability reporting and the introduction of mandatory auditing for these reports will be major challenges for the German economy in the coming years. Companies are dependent on the expertise of a suitable number of qualified auditors. As a matter of principle, a company's chosen auditor should also be considered the auditor of the sustainability report. Overall, the WPK welcomes the proposal for a one-to-one implementation of the CSRD, but sees potential for optimization in this and other points for the gradual development of a market for the confirmation of sustainability information."

On April 8, 2024, the WPK commented on limited changes due to the amended PIE definition (Track 2) as part of the IAASB's consultation. The amendments are primarily intended to align the definitions and requirements of the IAASB pronouncements (in particular ISQM 1 and ISQM 2, ISA 200, ISA 260 (Revised), ISA 700 and ISRE 2400 (Revised)) with the new definitions for listed entities and public interest entities (PIEs) in the IESBA Code of Ethics.

On March 15, 2024, the Committee of Permanent Representatives (COREPER) approved a compromise proposal on the Corporate Sustainability Due Diligence Directive (CSDDD) after prolonged resistance from several member states.

The CSDDD obliges companies of a certain size to comply with human rights and environmental standards along their global value chain. Compared to the provisional agreement in December 2023, there are a few defusions, particularly with regard to the scope of application.

The European Financial Reporting Advisory Group (EFRAG) has published the first twelve questions and answers on the application of ESRS (Explanations 1/2024) on its ESRS Q&A Platform set up in October 2023.

On February 22, 2024, the International Federation of Accountants (IFAC), together with the American Institute of Certified Public Accountants (AICPA) and the Chartered Institute of Management Accountants (CIMA), published an updated study on the sustainability reporting and auditing of the world's 1,400 largest companies from 22 countries. The period under review covers the years 2019 to 2022.

The European Council and the European Parliament have reached a provisional agreement to follow the European Commission's proposal and postpone the adoption of the sector-specific ESRS, originally planned for June 2024, by two years to June 2026. This is intended to give companies the opportunity to concentrate on implementing the first package of cross-sector ESRS for the time being.

The International Ethics Standards Board for Accountants (IESBA) has published two consultations (Exposure Drafts, EDs) on amendments to the Code of Ethics (Code):

• Sustainability: Proposed International Ethics Standards for Sustainability Assurance (Including International Independence Standards) (IESSA) and Other Revisions to the Code Relating to Sustainability Assurance and Reporting,
• Consultation with Experts: Using the Work of an External Expert.

Both consultations were closely coordinated with the International Auditing and Assurance Board (IAASB). Comments are requested by May 10, 2024 (Sustainability) and April 30, 2024 (Experts).

On January 10, 2024, the International Federation of Accountants (IFAC) published a Sustainability & Education Literature review highlighting key aspects of education and training in sustainability reporting and assurance that will enable the global profession to meet the expectations of proper and reliable sustainability reporting.