The International Standard on Assurance Engagements (ISAE) 3000 (Revised) establishes the basic principles and procedures to support the performance of assurance engagements other than audits or reviews of historical information.

ISAE 3000 (Revised) can be applied to a broad range of underlying subject matters and can give rise to either a reasonable or limited assurance.

Assurance engagements under ISAE 3000 (Revised) can be performed as either:

• Reasonable assurance; or
• Limited assurance.

Under reasonable assurance, the practitioner designs and executes procedures to reduce the engagement risk (the risk that a conclusion is wrongly expressed on whether the subject matter is materially misstated) to an acceptably low level. The conclusion is reported in a positive form of expression such as “Based upon the procedures performed, in our opinion the [subject matter] is reasonably stated”. Reasonable assurance is the highest level of assurance provided, similar to a statutory audit opinion.

For a limited assurance engagement, the practitioner’s conclusion is based upon less evidence than for reasonable assurance but is sufficient to provide a negative form of expression within the report e.g. “Based upon the procedures performed, nothing came to our attention to indicate that the [subject matter] is materially misstated”. This is achieved through performing fewer tests than those required for reasonable assurance, however the risk basis for planning the engagement and level of materiality remain the same across both limited and reasonable assurance. 

Limited assurance engagements allow the practitioner to tackle subject matter which is less well defined and for which the control environment is less mature and robust. However, because there could be a range in level of comfort given under limited assurance, it is important that the practitioner: 

• Ensures there is a shared understanding of the scope of the work agreed with the responsible party and/or users;
• Documents the scope of work at an appropriate level of detail; and

Sufficiently describe the work performed within the assurance report. 

How should I consider materiality for the assurance opinion?

Misstatements, including omissions, are considered to be material when, individually or in aggregate, they could reasonably be expected to influence the decisions of the user on the basis of the subject matter. The International Standards on Auditing do not explicitly define materiality, but rather the context of materiality within the financial reporting framework. They do, however, highlight some key words and phrases including:

• Misstatements (including omissions) which could influence decisions of users;
• Judgement based on the circumstances, including the size and nature of the misstatement; and
• That those decisions are based on the users’ common needs as a group. 

As such, for financial information, materiality is usually determined through the use of a benchmark e.g. Profit before tax or total equity, depending on the nature of the entity in question. 
When considering how to apply the concept of materiality to ESG related subject matter criteria, practitioners need to account for additional considerations, including:

• The varied and complex nature of the subject matter criteria;
• The impact of auditing forward looking information;
• The impact of the information on the decision making of a broad set of stakeholders; and 
• The accompanying narrative does not omit or distort the information.

When considering materiality for sustainability reporting, practitioners should not limit their assessment only to those topics that have a significant financial impact on the entity. We should consider the impact of the topic on the economic, environmental and social aspects that impact the ability of the entity to meet the needs of the present without compromising the needs of the future.

As such, we need to assess both the accuracy and the relevance of the information:

Report materiality

Report materiality considers the threshold where information is deemed to be relevant for inclusion in the report or deemed significant enough to be separately disclosed rather than aggregated with other information. 

In determining report materiality, practitioners may consider aspects such as:

• requirements and guidance from reporting frameworks being utilised;
• alignment to internal strategy and objectives; or
• the outcome of a stakeholder dialogue process in determining what the varied users of the information assess as material information. 

Element materiality

Element materiality focusses on accuracy. It is the threshold (or tolerance level) applied to the individual KPI or disclosure above which a misstatement would be considered material. In other words, the point at which the difference could reasonably be expected to influence the users of the report. Element materiality can be different for each KPI/disclosure.

The consideration of stakeholder dialogue is key. When assessing sustainability related subject matters at Public Interest Entities, it is also important to assess information considering the influence the disclosure may have on a reasonably informed general member of society. Practitioners should ensure they have appropriately documented the basis for setting materiality, the evaluation of identified misstatements and the rational for both.