Document ID: chunk:federal_register_of_legislation:F2025L00107:front:0:p134
Version: federal_register_of_legislation:F2025L00107
Segment Type: other
Provision Reference: 
Character Range: 421614–424871

the suitability of the criteria is required in accordance with paragraph 107. This may be the case, for example, if entity-developed criteria are available only after the engagement is accepted, or if the entity applies criteria in preparing the sustainability information that differ from what the practitioner anticipated prior to acceptance or continuance of the engagement. This may be due to a range of factors, for example:

           * The criteria initially identified are no longer suitable for the entity's circumstances.

           * Changes in comparable industry practice.

           * New or revised criteria being available.

           * The entity applies more precise criteria.

           * The entity identifies insufficient specificity in the framework criteria, necessitating entity-developed criteria to be developed.

 1.       Determining the suitability of the applicable criteria and evaluating the appropriateness of their application assists the practitioner in identifying the susceptibility of the disclosures to misstatement. For example, the practitioner may:

           * Identify elements of the applicable criteria that may be more susceptible to incorrect interpretation and application by the entity in preparing the sustainability information.

           * Identify where the entity has the ability to exercise judgement in applying the applicable criteria, and therefore may give rise to risks of material misstatement due to inappropriate judgements in the circumstances of the entity.

           * Identify aspects of the applicable criteria that may be more susceptible to manipulation, for example, when the entity is permitted to prepare the information on a comply or explain basis, provided the entity has a reasonable basis for doing so.

           * Determine that the entity's process for identifying or developing and applying the applicable criteria is lacking, which may give rise to risks of material misstatement relating to the suitability or appropriate application of the applicable criteria in the entity's circumstances.

 1.       Framework criteria may not be considered suitable on their own (e.g., may be incomplete or subject to interpretation in application). Therefore, the entity may need to supplement the framework criteria so that the applicable criteria are suitable. The process of developing the applicable criteria and applying it to the sustainability matters may be complex, require judgement, and may be susceptible to bias. The determination required by paragraph 107 may result in the practitioner identifying disclosures where there is an increased susceptibility to misstatement or cause the practitioner to re-evaluate the suitability of the applicable criteria.

 2.       The determination of the suitability of the applicable criteria may include understanding:

           * The uncertainties and complexities associated with identifying the framework criteria, and any entity-developed criteria used to supplement the framework.

           * The criteria for the entity's process to identify sustainability information to be reported.

           * The criteria for identifying the reporting boundary, and whether this differs for each disclosure.

           *