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CA Final · Advanced Auditing, Assurance and Professional Ethics · Sustainable Development Goals (SDG) & Environment, Social and Governance (ESG) Assurance

Narmada Chemicals Ltd. engages a CA firm for reasonable assurance on selected ESG indicators. Management states that its water-withdrawal metric is calculated using criteria it developed internally, which are not disclosed in the report and change each year. The practitioner finds the criteria are neither relevant nor available to users. What is the most appropriate conclusion on the engagement?

The practitioner should conclude that suitable criteria, a precondition for an assurance engagement, are absent and should decline unless management adopts suitable, available criteria. Undisclosed and ever-changing internal criteria are not relevant or reliable, and agreed-upon procedures cannot be relabelled as assurance.

  1. AProceed, because management-chosen criteria are always acceptable if the metric is numerical
  2. BConclude that the preconditions for an assurance engagement, including suitable criteria, are not met, and decline unless management agrees to adopt suitable criteriaCorrect
  3. CProceed but issue an adverse opinion on the engagement terms
  4. DPerform only agreed-upon procedures and still call it assurance

Explanation

An assurance engagement requires suitable criteria that are relevant, complete, reliable, neutral and understandable and available to intended users. If criteria are unsuitable, the practitioner should not accept the engagement as assurance unless management changes them. An adverse opinion presumes a valid engagement, and agreed-upon procedures do not provide assurance.

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