Fair presentation vs compliance: A new challenge in CSRD audits
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Fair presentation vs compliance: A new challenge in CSRD audits
With the introduction of the Corporate Sustainability Reporting Directive (CSRD), auditors face new responsibilities and perspectives. Traditionally, financial reporting often walked a line between "rules-based" approaches, like those in the United States, and "principles-based" frameworks, seen in the Netherlands and IFRS. Now, auditors are encountering a similar balance within sustainability reporting: should we focus on compliance, or on a fair presentation of sustainability data?
What does ‘Fair Presentation’ mean for Sustainability Reporting?
In the Netherlands, a "principles-based" approach is well-established; auditors evaluate whether financial statements offer a "true and fair view." This sometimes requires departing from specific rules when strict compliance would present a misleading picture, known as the "true and fair view override." This concept, which also appears in IAS 1.19, requires that management look beyond mere rule adherence to provide an accurate, fair representation. With CSRD, the question becomes whether this override is also relevant—or even essential—in the context of sustainability compliance.
A Compliance-driven approach: American influence within CSRD
CSRD mandates that companies report sustainability information "in accordance with the established sustainability reporting standards." Consequently, audit opinions now resemble a compliance-based framework. Auditors are required to opine on whether sustainability information meets CSRD requirements, which seems a step toward the U.S. model, where rules are primary, and interpretation is limited. This raises the question of whether a principles-based approach, such as the true and fair view, might still be needed within CSRD to maintain the integrity of reporting—especially as companies rely on auditors to ensure a fair representation.
Implications for auditors and the future of assurance
The shift toward a more compliance-driven approach in CSRD raises formal questions: how should auditors address deviations and omissions in sustainability reporting? The European Commission acknowledged this and issued clarifications, suggesting that auditors should conclude that no matters indicate the sustainability data is unfairly presented—hinting at a "true and fair view" framework within CSRD assurance.
While this approach seeks to promote consistency across Europe, differences in national implementation could still result in varied interpretations. For auditors, CSRD demands a nuanced approach, balancing regulatory compliance with a fair and transparent presentation of sustainability data that truly reflects your company’s commitment to responsible practices.
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Kevin van Dam
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