Audit and Consulting Firms at Odds Over Who Should Verify Climate Data

Only licensed public accountants can audit public corporations’ monetary statements, per U.S. securities legal guidelines. But, underneath the SEC’s proposal, the attestation report may very well be ready not solely by exterior auditors but in addition by different service suppliers, resembling an engineering, consulting or certification agency. The Big Four accounting companies—Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers—are pushing for narrower standards on who can carry out this responsibility, in accordance with letters despatched to the SEC as a part of a public session that ended final month. Meanwhile, some non-accounting companies say technical experience is vital, and different observers say the market is large enough for each varieties of companies.

If the SEC proposal is adopted, assurers of environmental, social and governance particulars would seemingly see larger demand for his or her providers. At the second, U.S. corporations typically voluntarily ask an engineering or consulting agency to confirm their information quite than a conventional accounting agency. Many companies disclose some local weather information on their very own, however the SEC desires to make it simpler for buyers to match that info.

About 6% of S&P 500 corporations final 12 months used an accounting agency to confirm at least a few of their ESG info, in contrast with 47% who employed a non-accounting agency, in accordance with the most recent out there information from the Center for Audit Quality, an accounting-industry group.

Most lively within the area of assuring ESG info are consulting companies, together with Apex Companies LLC,

WSP Global Inc.,

Lloyd’s Register Group Ltd. and ERM International Group Ltd., alongside certification companies

Bureau Veritas SA

and

SGS SA,

primarily based on analysis by Audit Analytics, which reviewed the most important U.S. corporations by market capitalization.

That is partly as a result of these suppliers typically cost much less, stated

Derryck Coleman,

director of analysis analytics at Audit Analytics.

The Big Four really helpful requiring companies to show they’ve the required experience to offer such a assurance. PwC stated the SEC ought to think about whether or not U.S. state licensure legal guidelines would exclude professionals aside from CPAs from performing attestation providers. PwC additionally suggested the regulator to weigh requiring attestation suppliers to register with the Public Company Accounting Oversight Board, the U.S. audit watchdog, to higher defend buyers. Under the Sarbanes-Oxley Act of 2002, public accounting companies should register with the PCAOB. If attestation suppliers aren’t registered with the PCAOB, they need to be compelled to adjust to necessities associated to conduct, ethics and engagement efficiency, PwC stated.

KPMG stated the SEC ought to make clear whether or not all practitioners could be required to contemplate sure supplementary info as CPAs do. Accountants should establish inconsistencies between so-called different info and audited monetary statements. Auditors’ “role is to serve the capital markets using professional skepticism and systems of quality control, along with experience in evaluating internal systems for processing data,” stated

Scott Flynn,

KPMG’s vice chair of audit.

PwC and the SEC declined to remark, whereas EY and Deloitte didn’t reply. Deloitte is a sponsor of CFO Journal.

The Big Four stand to realize larger revenues from offering these providers to extra corporations. The companies don’t get away the income they generate from ESG-related work, and there aren’t any exterior estimates.

Engineering, certification and consulting companies are defending their experience. French certification agency Bureau Veritas is certified to deal with the duty due to its workers’ engineering backgrounds, which implies it may attest to the validity of the info and weigh in on corporations’ plans to scale back carbon emissions, stated

Marc Boissonnet,

govt vp of company and exterior affairs.

“You need much more than audit tools,” Mr. Boissonnet stated, referring to offering ESG assurance. “You need people who are qualified in technical aspects and need to know the sector they are assessing.”

Other companies stated the attestation market is probably going large enough for each audit and nonaudit companies. “When the demand for attestation is so high, it is important that we give companies as many options as possible to meet both the voluntary and regulatory disclosure requirements,” stated

Beth Wyke,

international head of company assurance at London-based ERM.

Rockville, Md.-based Apex stated the notion that solely a monetary accountant can do that work ignores the necessity for experience in environmental science and engineering programs. “The market doesn’t have enough expertise if you use only accountants and the market doesn’t have enough expertise if you use only scientists,” stated

Nicole Bouquet,

govt director of ESG.

Few corporations disclose how a lot they spend on local weather assurance. Oil and gasoline agency

Diamondback Energy Inc.

and communications infrastructure supplier

Crown Castle International Corp.

in 2021 paid $31,500 and $40,000 to Grant Thornton and PwC, respectively, for restricted assurance providers, regulatory filings confirmed. Energy infrastructure enterprise

Kinder Morgan Inc.

in a submitting stated it paid $375,000 to PwC for restricted assurance providers final 12 months, up 15% from the earlier 12 months.

Investors seemingly gained’t care which sort of agency verifies corporations’ local weather information, so long as the SEC requires them to satisfy the identical stage {of professional} and attestation requirements that public accounting companies are required to satisfy, stated

Sandy Peters,

senior head of monetary reporting advocacy at the CFA Institute, which represents funding professionals.

The SEC proposal has confronted resistance from corporations that say it could be too pricey to conform and from Republican lawmakers and regulation professors who question whether the regulator has the legal authority to set such a rule. The regulator plans to overview suggestions to the proposal and decide whether or not to make adjustments.

Write to Mark Maurer at Mark.Maurer@wsj.com