This lesson explores the application of internal controls over financial and sustainability reporting. It examines the regulatory requirements, the role of the COSO framework, and the challenges and benefits of implementing internal controls for non-financial information such as ESG data. This is a key area of the IMA’s focus on sustainability reporting .

• Internal Controls Over Financial Reporting (ICFR): ICFR is a mandatory requirement for publicly traded companies in the US under SOX. It requires management to assess and report on the effectiveness of internal controls over financial reporting, and for external auditors to attest to this assessment. The COSO framework is the standard for designing and evaluating ICFR . The CIMA P3 syllabus and IMA CMA content also cover internal controls .

• Internal Controls Over Sustainability Reporting (ICSR): With the rise of ESG reporting and regulations like the EU’s Corporate Sustainability Reporting Directive (CSRD), the need for controls over non-financial reporting has grown significantly . In early 2023, COSO issued a publication on “Internal Control over Sustainability Reporting,” adapting the existing COSO framework to these new forms of reporting . This ensures that the same principles of reliability and accountability apply to non-financial information as to financial data . The IMA podcast highlights the importance of internal controls in providing a basis for external assurance and building stakeholder trust in reported sustainability information .

• Challenges and Benefits of ICSR: Challenges in implementing ICSR include the evolving regulatory landscape, a focus on materiality and risk assessments, and supply chain transparency . For smaller organisations, lack of familiarity with the reporting process is a significant hurdle . Benefits include providing reliable, high-quality ESG information to stakeholders, enabling assurance, and improving decision-making. Organisations that adopt robust internal controls over sustainability reporting are better positioned to manage risks and capture opportunities .

• The Role of the Management Accountant: Management accountants have both an opportunity and a responsibility to determine whether internal control and governance frameworks meet their organisation’s needs . This includes ensuring that controls are in place for both financial and non-financial reporting. They are also involved in addressing ethical issues related to data collection, storage, and use .