Audit and consulting firm at odds on who should verify climate data

According to US securities laws, only certified public accountants may audit the financial statements of public companies. But, under the SEC’s proposal, verification report Can be prepared not only by external auditors but also by other service providers, such as engineering, consulting or certification firms. According to letters sent to the SEC as part of a public consultation that ended last month, the Big Four accounting firms—Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers—are pushing for narrower criteria to fulfill this duty. Huh. Meanwhile, some non-accounting firms say technical expertise is important, and other observers say the market is large enough for both types of firms.

If SEC proposal If adopted, assurers of environmental, social and governance details will likely see a higher demand for their services. At the moment, US companies often voluntarily ask an engineering or consulting firm to verify their data, rather than a traditional accounting firm. Many businesses disclose some climate data themselves, but the SEC wants to make it easier for investors to compare that information.

Last year, nearly 6% of S&P 500 companies used an accounting firm to verify some of their ESG information, according to the latest available data from the Center for Audit Quality, Accounting, while 47% reported a non-accounting firm. was hired. Industry group.

ESG are the most active consulting firms in the field of information security, including Apex Company LLC,

WSP Global Inc.,

Lloyd’s Register Group Limited and ERM International Group Limited, along with certification firms

Bureau Veritas Feather

And

SGS SA,

Based on research from Audit Analytics, which reviewed the largest US companies by market capitalization.

Derrick Coleman, director of research analytics at Audition Analytics, said that’s partly because these providers often charge less.

The Big Four recommended that firms need to demonstrate that they have the expertise needed to provide this type of assurance. PwC said the SEC should consider whether US state licensing law would exclude professionals other than CPAs from performing certification services. PwC advised the regulator that in order to better protect investors, verification providers need to register with the Public Company Accounting Oversight Board, the US audit watchdog. Under the Sarbanes-Oxley Act of 2002, public accounting firms must register with the PCAOB. If verification providers are not registered with the PCAOB, they should be forced to comply with requirements related to conduct, ethics and engagement performance, PwC said.

KPMG said the SEC should clarify whether all physicians would need to consider certain supplemental information as CPAs do. Accountants have to identify discrepancies between so-called other information and the audited financial statements. Scott Flynn, KPMG’s vice president of audit, said, “The role of auditors is to serve the capital markets by using systems of professional skepticism and quality control, as well as experience in evaluating internal systems for data processing.”

PwC and the SEC declined to comment, while EY and Deloitte did not respond. Deloitte is a sponsor of CFO Journal.

The Big Four stands for getting higher revenue from providing these services to more companies. Firms do not break out revenue generated from ESG-related work, and there are no outside estimates.

Engineering, certification and consulting firms are defending their expertise. French certification firm Bureau Veritas is qualified to handle the task because of the engineering background of its employees, which means it can attest to the validity of the data and weigh in on companies’ plans to reduce carbon emissions, Marc Boissonte, Executive Vice President of Corporate and External Affairs.

“You need much more than an audit tool,” Mr Boissonte said, referring to the ESG assurances provided. “You need people who are qualified in the technical aspects and need to know the area they’re assessing.”

Other firms said the verification market for both audited and nonaudited firms is quite large. “When the demand for verification is so high, it is critical that we give companies as many options as possible to meet both voluntary and regulatory disclosure requirements,” said Beth Wyke, global head of corporate assurance at London-based ERM.

Rockville, MD-based Apex said the notion that only a financial accountant can do this job negates the need for expertise in environmental science and engineering systems. “If you only use accountants there is not enough expertise in the market and if you only use scientists there is not enough expertise in the market,” said Nicole Bouquet, executive director of ESG.

Few companies disclose how much they spend on climate assurance. oil and gas firm

Diamondback Energy Inc.

and communication infrastructure provider

Crown Castle International Corporation

Paid $31,500 and $40,000, respectively, to Grant Thornton and PwC in 2021 for limited assurance services, regulatory filings showed. Energy Infrastructure Business

baby morgan Inc.

In a filing it said it paid PwC $375,000 for limited assurance services last year, up 15% from the previous year.

Investors will not care what type of firm verifies the companies’ climate data, as long as the SEC requires them to meet the same level of professional and verification standards that public accounting firms must meet. are required, said Sandy Peters, senior head of financial reporting advocacy at the CFA Institute, which represents investment professionals.

The SEC proposal has faced resistance from companies that say it will be too expensive to comply with and from Republican lawmakers and law professors. Who questions whether the regulator has the legal authority to set such a rule?, The regulator plans to review feedback on the proposal and determine what changes to make.

write to Mark Maurer Mark.Maurer@wsj.com