ESRS-Professional Practice Exam Questions and Answers

EcoFurniture Inc. is performingStep B of its double materiality assessmentunder ESRS, which involves identifying and assessingimpacts, risks, and opportunities (IROs)from both animpact materialityandfinancial materialityperspective​.

During Step B, the organization must:

Compare entity-specific sustainability matters to ESRS 1 AR 16

Screening sustainability matters listed in ESRS 1 AR 16ensures that EcoFurniture Inc. identifies allpotential material topicsand aligns them with itsspecific sustainability context​.

Action:✅(A) is correct

Engage with affected stakeholders

Stakeholder engagementis a key requirement in the ESRSdouble materiality process, especially for industries with environmental and social impacts, such as deforestation risks in EcoFurniture's timber sourcing.

ESRS 2 IRO-1 explicitly states that stakeholder engagement is necessary tovalidate materiality assessments​.

Action:✅(B) is correct

Consider downstream impacts

ESRS mandates assessingboth upstream and downstreamsustainability impacts.Ignoring potential risks in the downstream value chain is not aligned with ESRS requirements.

Action:❌(C) is incorrect

Use scientific research to validate sustainability trends and risks

Theuse of scientific evidenceis an essential part of assessing sustainability matters.ESRS encourages leveraging research and external data to confirm industry-specific sustainability risks​.

Action:✅(D) is correct

Conclusion:EcoFurniture Inc. must integratestakeholder engagement, scientific research, and systematic comparison of sustainability matters to ESRS requirementsto ensure a robust Step B materiality assessment.Ignoring the downstream value chain is not permissibleunder ESRS.

Commission Delegated Regulation (EU) 2023/2772​

Compilation Explanations January - November 2024​

Official References:

TheCorporate Sustainability Reporting Directive (CSRD)replaced theNon-Financial Reporting Directive (NFRD)to address itslimitationsin scope and reporting requirements. Below are the explanations for each option:

A.  

False– The NFRDdid notrequire all companies in the EU to include a non-financial statement. Instead, itapplied only to large public-interest entitieswith 500 or more employees.

B.  

True– The NFRD applied tolarge public-interest entities, includinglisted companies, banks, and insurance firms with more than 500 employees​.

C.  

False– The NFRDdid not mandate external assurancefor sustainability information. TheCSRD introduced mandatory assuranceat the EU level​.

D.  

False– The CSRDdid not replace the NFRD; rather, itexpanded and strengthened reporting requirements. TheNFRD was replaced by the CSRD, but not the other way around​.

E.  

True– TheCSRD was introduced to improve the scope and depth of sustainability reportingcompared to the NFR

D.  

Itexpanded the number of entities required to report, standardized disclosures via ESRS, and introduced third-party assurance requirements​.

Key Differences Between CSRD and NFRDFeature

NFRD (Old Directive)

CSRD (New Directive)

Scope

Large public-interest entities (500+ employees)

All large companies + listed SMEs

Assurance

Not required

Mandatory external assurance

Disclosure Requirements

Limited sustainability disclosures

Comprehensive ESRS-based reporting

Reporting Standards

No standardized framework

ESRS-based mandatory framework

Application Date

In force since 2018

Applies from 2024 onwards

CSRD Directive (EU) 2022/2464– Assurance & Reporting Provisions​.

ESRS Compilation Explanations January - November 2024​.

Official References:

2023/2772, various EFRAG guidance documents, and reports related to CSRD, ESRS, stakeholder engagement, double materiality, external assurance, and digital reporting Study guide References at the end of each question

Under the ESRS framework, effectiveinternal controlsfor assurance purposes must meet key characteristics to ensure reliability, traceability, and auditability.

(A) Documentation & Implementation:Internal controls must be formally documented, implemented as per the designated schedule, and consistently applied​.

(C) Testability by External Assurance Providers:Assurance providers must be able to verify the controls, test their effectiveness, and ensure compliance with CSRD assurance requirements​.

(B) Same Staff Performing & Assuring the Control:A fundamental principle of internal control is theseparation of dutiesto avoid conflicts of interest. The control must be performed by one team and assured independently​.

(D) No Need for Documentation:Proper documentation ismandatoryfor internal controls to enable traceability, testing, and regulatory compliance​.

Commission Delegated Regulation (EU) 2023/2772, GOV-5:Risk management and internal controls over sustainability reporting, highlighting the necessity of internal control mechanisms​.

EFRAG Assurance Guidelines:Stipulating that documented controls must be verifiable and tested for external assurance​.

Correct Options Explained:Incorrect Options Explained:ESRS References:

DuringStep Bof thedouble materiality assessment process, organizations mustidentify actual and potential impacts, risks, and opportunities (IROs). The ESRS framework recommends the following methods:

A.  

The list of sustainability matters in ESRS 1 AR 16✅

ESRS 1 Application Requirement (AR) 16provides acomprehensive reference listof sustainability matters to consider when identifying IROs.

This list includesenvironmental, social, and governance topicsaligned withEU sustainability objectives​.

C.  

Due diligence processes✅

ESRS requires organizations touse due diligence processesto identifynegative sustainability impacts.

Due diligence aligns with frameworks such as theOECD Guidelines for Multinational Enterprisesand theUN Guiding Principles on Business and Human Rights​.

This ensures that potentialrisks and opportunitiesare assessed based oninternational sustainability standards.

D.  

Feedback from stakeholders✅

Stakeholders, includingemployees, suppliers, customers, and affected communities, providecrucial insightsinto sustainability impacts.

ESRSmandates engagement with affected stakeholdersas part of theIRO identification process​.

Financial materiality thresholds apply later in the process (Step C)when evaluating thefinancial impact of sustainability matters.

Step Bfocuses only on identifying IROs, makingfinancial thresholds irrelevant at this stage​.

Why is

B.  

Official Commission Delegated Regulation (EU) 2023/2772, various EFRAG guidance documents, and CSRD-related references:

Commission Delegated Regulation (EU) 2023/2772, ESRS 1, AR 16:List of Sustainability Matters for Identifying IROs​.

EFRAG Compilation of Explanations (January - July 2024): Confirmation thatdue diligence and stakeholder inputare part ofIRO identification​.