EER Assurance September 2018

1. EER AssuranceSeptember 2018 Agenda Item 7 September 20, 2018

2. Recap of June meeting Challenge 3 Challenge 2 Challenge 4 Generalized construct of an EER report and its relationship to assurance concepts Addressing Materiality for Diverse Information with Little Guidance in EER Frameworks Building Assertions for Subject Matter Information of a Diverse Nature Evaluating the Suitability of Criteria in a Consistent Manner

3. Agenda • CAG feedback • Presentation of the remaining phase 1 ‘issues’ which were not discussed in June 2018. • Present a first draft of the phase 1 guidance. • Receive feedback on the draft guidance. The EER Assurance House (under construction) Communicating Effectively in the Assurance Report   Evaluating Suitability of Criteria Applying Materiality Building Assertions Maturity in Governance & Internal Control  &  Addressing Narrative and Future-Oriented Information Phase 1 Challenges allocated to phase 1 Determining the Scope of an EER Assurance Engagement  Exercising Professional Skepticism and Professional Judgment  Challenges split between phase 1 and phase 2 Obtaining the Competence Necessary to Perform the Engagement 

4. Maturity in Governance & Internal Control (Challenge 5) What is the challenge? Many entities may have a reporting system, controls and oversight in place for EER which are not yet very robust. A lack of maturity and formality may mean it is challenging for the practitioner to conclude whether the preconditions for an assurance engagement are present or not.

5. Maturity in Governance & Internal Control (Challenge 5) System of Internal Control • Issues Paper • Paragraphs 6-12 Assessment of the entity’s system of internal control broadly consistent with structure in ISA 315 (Revised) ED. The entity’s reporting system, controls and oversight need to have developed sufficiently to support an assurance engagement. The level of formality and complexity should reflect the entity’s size and nature.

6. Questions to the IAASB • Issues Paper • Paragraphs 6-12 The IAASB is asked for its views on: Whether the Task Force has addressed the issues related to Challenge 5 appropriately and sufficiently.

7. Obtaining Assurance of Narrative & Future-Oriented Information (Challenges 6 & 7) What are the challenges? Narrative information that is not factual is subject to management judgment and may be more susceptible to management bias. The key challenge is how to address the inherent subjectivity and increased risk of management bias and to manage potentially unrealistic expectations that the practitioner can reduce the degree to which the subject matter information is affected by inherent subjectivity. Future-oriented information is found in some EER reports in a few different forms and there is generally greater measurement or evaluation inherent uncertainty. This may make the process of assessing whether the criteria are suitable more complex.

8. The general concept of an EER report – subject matter information (qualitative) Criteria Evaluation… subject matter elements green Quality: color subject matter element (composite object) Evaluation… subject matter element (composite object) Quality (Aspect) of color: shade light green

9. The general concept of an EER report – subject matter information (quantitative) 97 Criteria 98 subject matter elements 99 Evaluation (measurement)… Quality: weight 100 grams 101 subject matter element (composite object) Quality (Aspect) of weight: quantity (grams) 102 103 subject matter element (composite object)

10. Obtaining Assurance of Narrative Information (Challenge 6) • Issues Paper • Paragraphs 13-20 Narrative information may be: • factual; or • inherently subjective. Narrative information is at higher risk of being ambiguous than numerical information where language used is not subject to precise or specific enough definitions. Very important for criteria to be reliable and understandable. Increased risk of management bias in preparing subjective narrative information – considering whether it is neutral and free from bias therefore becomes a greater area of focus for the practitioner.

11. Obtaining Assurance of Future-Oriented Information (Challenge 7) • Issues Paper • Paragraphs 13-16 & 21-24 Inclusion of future-oriented information in most reports today tends to be relatively limited and restricted to specific areas such as an entity’s strategy, performance outlook and future risks/opportunities. Two possible categories of future-oriented information: • information which ‘predicts’ the future; and • information about the entity’s intentions or strategy. Future-oriented information contains significant levels of measurement or evaluation uncertainty, although this is similar to uncertainty in historically-oriented information, and in making accounting estimates in financial reporting.

12. Questions to the IAASB • Issues Paper • Paragraphs 13-24 The IAASB is asked for its views on: Whether the Task Force has addressed the issues related to Challenges 6 & 7 appropriately and sufficiently.

13. Draft guidance – Agenda Item 7-A • Introduction • Preconditions for assurance • Maturity in Governance & Internal Control • Determining the Scope of an EER Assurance Engagement • Evaluating the Suitability of Criteria • Using Materiality to Evaluate what is included in the Report • Building Assertions • Obtaining Assurance of Narrative Information • Obtaining Assurance of Future-Oriented Information • Performance Materiality • Evaluating whether subject matter information is free from material misstatement • Section II The IAASB is asked for its views on: • Whether the Task Force has addressed the issues related to the challenges allocated to phase 1 appropriately and sufficiently; and • Whether the draft guidance is effective in assisting practitioners to address the issues related to each of the challenges. • Draft Guidance • Paragraphs 1-11 Objectives Explain scope of EER and the IAEPN. Show how IAEPN aligns to ISAE 3000 (Revised). Emphasize key ISAE 3000 (Revised) requirements regarding competence, capabilities and acceptance/continuance procedures (reference to later guidance).

14. Maturity in Governance & Internal Control (Challenge 5) • Introduction • Preconditions for assurance • Maturity in Governance & Internal Control • Determining the Scope of an EER Assurance Engagement • Evaluating the Suitability of Criteria • Using Materiality to Evaluate what is included in the Report • Building Assertions • Obtaining Assurance of Narrative Information • Obtaining Assurance of Future-Oriented Information • Performance Materiality • Evaluating whether subject matter information is free from material misstatement • Section II The IAASB is asked for its views on: • Whether the Task Force has addressed the issues related to the challenges allocated to phase 1 appropriately and sufficiently; and • Whether the draft guidance is effective in assisting practitioners to address the issues related to each of the challenges. • Draft Guidance • Paragraphs 12-55 What is the challenge? Many entities may have a reporting system, controls and oversight in place for EER which are not yet very robust. A lack of maturity and formality may mean it is challenging for the practitioner to conclude whether the preconditions for an assurance engagement are present or not.

15. Evaluating the Suitability of Criteria in a Consistent Manner (Challenge 2) • Introduction • Preconditions for assurance • Maturity in Governance & Internal Control • Determining the Scope of an EER Assurance Engagement • Evaluating the Suitability of Criteria • Using Materiality to Evaluate what is included in the Report • Building Assertions • Obtaining Assurance of Narrative Information • Obtaining Assurance of Future-Oriented Information • Performance Materiality • Evaluating whether subject matter information is free from material misstatement • Section II The IAASB is asked for its views on: • Whether the Task Force has addressed the issues related to the challenges allocated to phase 1 appropriately and sufficiently; and • Whether the draft guidance is effective in assisting practitioners to address the issues related to each of the challenges. • Draft Guidance • Paragraphs 60-104 What is the challenge? EER frameworks are often less prescriptive about the content of a report than more established financial reporting frameworks, meaning there is considerable opportunity for management bias. Much professional judgment and skepticism is required to determine the suitability of criteria.

16. Applying Materiality (Challenge 3) What is the challenge? How to assess what topics and related elements would be material for an EER report is often challenging when both the users and their information needs can be diverse or unknown. • Introduction • Preconditions for assurance • Maturity in Governance & Internal Control • Determining the Scope of an EER Assurance Engagement • Evaluating the Suitability of Criteria • Using Materiality to Evaluate what is included in the Report • Building Assertions • Obtaining Assurance of Narrative Information • Obtaining Assurance of Future-Oriented Information • Performance Materiality • Evaluating whether subject matter information is free from material misstatement • Section II The IAASB is asked for its views on: • Whether the Task Force has addressed the issues related to the challenges allocated to phase 1 appropriately and sufficiently; and • Whether the draft guidance is effective in assisting practitioners to address the issues related to each of the challenges. • Draft Guidance • Paragraphs 105-147

17. Building Assertions (Challenge 4) • Introduction What is the challenge? The diverse nature of EER subject matter information compared with that contained in financial statements makes it more challenging to develop appropriate assertions. • Preconditions for assurance • Maturity in Governance & Internal Control • Determining the Scope of an EER Assurance Engagement • Evaluating the Suitability of Criteria • Using Materiality to Evaluate what is included in the Report • Building Assertions • Obtaining Assurance of Narrative Information • Obtaining Assurance of Future-Oriented Information • Performance Materiality • Evaluating whether subject matter information is free from material misstatement • Section II The IAASB is asked for its views on: • Whether the Task Force has addressed the issues related to the challenges allocated to phase 1 appropriately and sufficiently; and • Whether the draft guidance is effective in assisting practitioners to address the issues related to each of the challenges. • Draft Guidance • Paragraphs 148-159

18. Obtaining Assurance of Narrative & Future-Oriented Information (Challenges 6 & 7) • Introduction What are the challenges? • Narrative information that is not factual is subject to management judgment and may be more susceptible to management bias. • The key challenge is how to address the inherent subjectivity and increased risk of management bias and to manage potentially unrealistic expectations that the practitioner can reduce the degree to which the subject matter information is affected by inherent subjectivity. • Future-oriented information is found in some EER reports in a few different forms and there is generally greater measurement or evaluation inherent uncertainty. • This may make the process of assessing whether the criteria are suitable more complex. • Preconditions for assurance • Maturity in Governance & Internal Control • Determining the Scope of an EER Assurance Engagement • Evaluating the Suitability of Criteria • Using Materiality to Evaluate what is included in the Report • Building Assertions • Obtaining Assurance of Narrative Information • Obtaining Assurance of Future-Oriented Information • Performance Materiality • Evaluating whether subject matter information is free from material misstatement • Section II The IAASB is asked for its views on: • Whether the Task Force has addressed the issues related to the challenges allocated to phase 1 appropriately and sufficiently; and • Whether the draft guidance is effective in assisting practitioners to address the issues related to each of the challenges. • Draft Guidance • Paragraphs 160-196

19. Applying Materiality (Challenge 3) • Introduction What is the challenge? Evaluating misstatements in a diverse range of types of subject matter information is more complex than in audits of financial reporting. • Preconditions for assurance • Maturity in Governance & Internal Control • Determining the Scope of an EER Assurance Engagement • Evaluating the Suitability of Criteria • Using Materiality to Evaluate what is included in the Report • Building Assertions • Obtaining Assurance of Narrative Information • Obtaining Assurance of Future-Oriented Information • Performance Materiality • Evaluating whether subject matter information is free from material misstatement • Section II The IAASB is asked for its views on: • Whether the Task Force has addressed the issues related to the challenges allocated to phase 1 appropriately and sufficiently; and • Whether the draft guidance is effective in assisting practitioners to address the issues related to each of the challenges. • Draft Guidance • Paragraphs 197-215

20. Section II & other questions • Introduction The IAASB is asked for its views on: • Any other sections of the draft guidance, including Section II; • The structure of the draft guidance, including the use of two sections, diagrams and examples, and whether further examples may be needed and if so where in the guidance they would be most helpful; and • What a suitable alternative term for ‘Emerging forms of External Reporting’ (EER) might be, considering that in future these forms of reporting will no longer be emerging. Some suggestions already received are listed on page 3 of the issues paper. • Preconditions for assurance • Maturity in Governance & Internal Control • Determining the Scope of an EER Assurance Engagement • Evaluating the Suitability of Criteria • Using Materiality to Evaluate what is included in the Report • Building Assertions • Obtaining Assurance of Narrative Information • Obtaining Assurance of Future-Oriented Information • Performance Materiality • Evaluating whether subject matter information is free from material misstatement • Section II • Draft Guidance • Paragraphs 217-281

21. Section II & other questions • Introduction The IAASB is asked for its views on: • Any other sections of the draft guidance, including Section II; • The structure of the draft guidance, including the use of two sections, diagrams and examples, and whether further examples may be needed and if so where in the guidance they would be most helpful; and • What a suitable alternative term for ‘Emerging forms of External Reporting’ (EER) might be, considering that in future these forms of reporting will no longer be emerging. Some suggestions already received are listed to the right. Suggestions for an alternative term to EER: • external reporting • extended external reporting • broader [external] reporting • comprehensive reporting • non-financial statement reporting • environmental, social, governance and financial reporting • [external] accountability reporting • comprehensive accountability information • beyond financial reporting • overall picture reporting • enhanced reporting • Preconditions for assurance • Maturity in Governance & Internal Control • Determining the Scope of an EER Assurance Engagement • Evaluating the Suitability of Criteria • Using Materiality to Evaluate what is included in the Report • Building Assertions • Obtaining Assurance of Narrative Information • Obtaining Assurance of Future-Oriented Information • Performance Materiality • Evaluating whether subject matter information is free from material misstatement • Section II • Draft Guidance • Paragraphs 217-281

22. Global Discussion Events Brussels November 8 Host: Marek Grabowski New York October 15 Host: Ron Salole Singapore October 26 Host: Marek Grabowski Sydney November 2 Host: Lyn Provost São Paulo October 18 Host: Fernando Ruiz Monroy Johannesburg October 23 Host: Marek Grabowski Auckland October 30 Host: Lyn Provost

23. Next steps Feedback from global discussion events and an updated draft to be presented to the Board in December. Plan to issue phase 1 guidance as an exposure draft in January 2019 for public comment.