The role of future internal auditors in ensuring sustainability — Azleen Ilias

FEBRUARY 3 — It is essential to understand how ESG (Environmental, Social, and Governance) criteria and sustainability standards can be integrated into company operations and audits. Ensuring that a company is environmental, governance and socially responsible is crucial for sustainability.

Sustainability encompasses environmental, social responsibility, and governance. Environmental Sustainability companies are increasingly expected to demonstrate their environmental responsibility through actions like reducing waste, using renewable energy, and adhering to environmental regulations.

Social Responsibility involves companies taking responsibility for their impact on society which businesses go beyond profit to contribute positively to their communities and stakeholders. A strong governance framework ensures that companies operate responsibly and transparently while being held accountable for their actions.

Evaluating company operations and practices is necessary to determine their environmental impact, such as resource management, waste management, compliance, and risk management. This aligns with environmental regulations and promotes a sustainable approach. The Non-Financial Reporting Directive requires organisations to prepare and report sustainability information, emphasising the importance of ESG in organisational practices.

According to the author, future auditors must understand their role in ESG reporting, ensuring accuracy, completeness, and reliability in disclosures. Internal auditors play a crucial role in risk management and sustainability by reviewing and quality-checking sustainability data. — Unsplash pic  

In Malaysia, the significance of ESG and sustainability audits is acknowledged as also aligned with the issues raised by BDO, Deloitte, EY, and The Institute of Internal Auditors. Future auditors must understand their role in ESG reporting, ensuring accuracy, completeness, and reliability in disclosures. Internal auditors play a crucial role in risk management and sustainability by reviewing and quality-checking sustainability data.

They assess environmental issues like climate change, emissions, pollution, biodiversity, energy efficiency, and waste management. Social aspects of ESG include customer satisfaction, data protection, gender diversity, employee engagement, community relations, human rights, and labour standards. Governance focuses on board composition, audit committee structure, anti-corruption measures, executive compensation, company culture, political contributions, and whistleblower procedures.

Internal auditors add value by ensuring sustainability through advisory roles and establishing a robust control environment. They provide assurance and support in sustainability risk assessment and control. The advisory role of internal auditors helps create awareness of ESG development, offering insights and guidance on governance, control, and risk management. They ensure the accuracy of non-financial reporting and support external auditors in ESG-related audits.

To generally understand ESG, there are need to educate future internal auditors that could acquire the development of knowledge, experience and awareness of these emerging trends. First, graduates need to develop foundation knowledge for ESG which they need to acquire an understanding of key frameworks such as Task Force on Climate-related Financial Disclosures (TCFD), Sustainability Accounting Standards Board (SASB) Standards, Global Reporting Initiative (GRI) Standards, AA1000 AccountAbility Principles, International Standard on Assurance Engagements (ISAE) 3000 Revised, Assurance Engagements Other than Audits or Reviews of Historical Financial Information, International Standards on Auditing (ISA) 720: The Auditor’s Responsibility Relating to Other Information and any related to the Malaysian framework.

This may also be achieved by incorporating with accounting curriculum as well as any webinar that could be attended by both future graduates and academicians. Hence, this will equip them with a strong foundation knowledge of sustainability and any relevant businesses.

Second, there is a need to ensure multidisciplinary learning to ensure knowledge development for environmental, social, governance and various principles. This knowledge also needs to be aligned with emerging technologies such as Artificial Intelligence (AI) and any additional certification which will be more ready for any ESG issues and multiple perspectives.

Third, future graduates need to acquire strong analytical skills which ESG auditing involves complex and non-financial data. Therefore, applications of case studies and real-world scenarios are important to stimulate the ESG context with the usage of data analysis tools.

Fourth, communication and negotiation skills are important skills for stakeholder engagement, therefore role-playing, presentation and discussion skills are needed to conduct in-class assignments.

Fifth, the involvement of students and academicians in community-based events such as waste management, energy initiatives or any social-related programme which in the end will provide more understanding of the role of ESG in real scenarios.

Specifically for auditing, educating accounting students and academicians on evaluating company sustainability, internal control, and ESG principles is crucial for improving company practices and ensuring long-term sustainability.

First, accounting students need to be trained to assess sustainability reports, ESG disclosures, and other systems of measurement that help assess a company’s environmental footprint, social contributions, and governance standards.

Second, accounting students should also learn the ESG criteria and principles that could provide implications for financial outcomes, business strategy, and company reputation.

Third, academicians should deepen their understanding of environmental sustainability, climate change, and the role of businesses in mitigating environmental harm, and social sustainability aspects and should be aware of the latest regulations around the world.

* The author is a Senior Lecturer and an OKU, Department of Accounting and Finance, UNITEN Business School (UBS), Universiti Tenaga Nasional (UNITEN). She may be reached at [email protected]

** This is the personal opinion of the writer or publication and does not necessarily represent the views of Malay Mail.