23-Assurance Statement Quality in Environmental, Social and Sustainability Reporting a Cri

7/30/2019 23-Assurance Statement Quality in Environmental, Social and Sustainability Reporting a Cri

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No. 23-2004 ICCSR Research Paper Series - ISSN 1479-5116

No. 23-2004 ICCSR Research Paper Series - ISSN 1479-5124

Assurance Statement Quality in Environmental,Social and Sustainability Reporting: A Critical

Evaluation of Leading Edge Practice

David Owen and Brendan ODwyer

Research Paper SeriesInternational Centre for Corporate Social Responsibility

ISSN 1479-5116

Editor: Dirk Matten

International Centre for Corporate Social ResponsibilityNottingham University Business School

Nottingham UniversityJubilee CampusWollaton Road

Nottingham NG8 1BBUnited Kingdom

Phone +44 (0)115 95 15261

Fax +44 (0)115 84 66667Email [email protected]://www.nottingham.ac.uk/business/ICCSR
mailto:[email protected]://www.nottingham.ac.uk/business/ICCSRhttp://www.nottingham.ac.uk/business/ICCSRmailto:[email protected]


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Assurance Statement Quality in Environmental, Social and SustainabilityReporting: A Critical Evaluation of Leading Edge Practice

Professor David Owen and Dr. Brendan ODwyer

ABSTRACT

Recent years have witnessed a continual growth in the number of companiesreporting publicly on various aspects of their environmental and socialperformance. Accompanying this growth has been a discernible rise in thenumber of these reports that are being verified by independent third parties inorder to increase the credibility of their contents for readers. In this paper weundertake a detailed critical analysis of assurance statements appearing inleading edge environmental, social and sustainability reports as represented bythose shortlisted for the 2002 ACCA UK and European Sustainability Reporting

Awards scheme. Prior studies have questioned the credibility of statementswhich appeared in the mid to late 1990s, raising fundamental questions as totheir value for external stakeholders. Drawing on an evaluative frameworkcentrally informed by the recently issued AccountAbility, FEE and GRI guidelineson assurance, we advance previous work by assessing whether current leadingedge assurance practices offer more in terms of enhancing transparency andaccountability than did their predecessors.

Our analysis indicates some improvement in terms of the rigour of workundertaken and independence of the assurance exercise. However, it alsoexposes a large degree of management control over the assurance process, as

evidenced by a reluctance to address statements to specific stakeholderconstituencies and a general absence of stakeholder participation in assuranceprocesses. Distinct approaches to assurance among accountant and consultantassurers are also highlighted with the former primarily adopting a cautious,limited approach aimed at providing low assurance levels. While consultantassurers take a more evaluative approach and appear to provide higher levelassurance, their focus on aiding corporate strategic direction potentially blurstheir independence. We contend that their apparent intertwining of the conceptsof accountability and value added needs careful scrutiny as this may reflect anultimate accountability to corporate management as opposed to otherstakeholders.

Authors

David Owen is Professor of Environmental and Social Accounting at theInternational Centre for Corporate Social Responsibility (ICCSR) at NottinghamUniversity Business School.Brendan ODwyer, BComm MBS DPA PhD ACA lectures in the Department of

Accountancy at the Michael Smurfit Graduate School of Business, University


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College Dublin where he is Programme Director of the Master of Accounting.Brendans main research interests encompass: corporate social accountability,social and ethical accounting, auditing and reporting, corporate governance,professional accounting body ethics, and qualitative research methods. His workhas been published widely in a number of leading international refereed

academic journals includingAccounting, Auditing and Accountability JournalandThe European Accounting Review. He is a member of the editorial board ofAccounting, Auditing and Accountability Journal. Prior to joining academia,Brendan worked as a Chartered Accountant with Ernst and Young in Dublin.

Address for correspondence

Professor David Owen, International Centre for Corporate Social Responsibility,Nottingham University Business School, Nottingham University, Jubilee Campus,Wollaton Road, Nottingham NG8 1BB, United Kingdom, [email protected]

Dr. Brendan ODwyer, Department of Accountancy, Michael Smurfit GraduateSchool of Business, University College Dublin, Blackrock, Co. Dublin, Ireland, Email:[email protected]
mailto:[email protected]:[email protected]


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ASSURANCE STATEMENT QUALITY IN ENVIRONMENTAL, SOCIAL ANDSUSTAINABILITY REPORTING: A CRITICAL EVALUATION OF LEADING EDGEPRACTICE

1. Introduction

Recent years have witnessed a steady growth in the number of companies reporting

publicly on various aspects of their environmental and social performance. For

leading edge reporters, predominantly, but not exclusively, large companies

operating in sensitive industrial sectors the preferred means of dissemination has

increasingly become the production of a substantial stand alone paper and/or web

based report. Since 1993, KPMGs tri-annual survey of reporting practice has charted

the steady growth in the number of reporters. In the latest (2002) survey, for

example, it is noted that 45% of the top 250 companies of the Global Fortune 500

(GFT250) now issue an environmental, social or sustainability report compared to

35% in 1999 (KPMG, 2002). A significant growth rate is also noted in the number of

reports issued by the top 100 companies in eleven countries (including nine from

Europe together with the USA and Australia) up from 13% in 1993 to 28% in 2002.

Accompanying the growth in reporting has been a discernible rise in the proportion of

environmental, social and sustainability reports that are verified by independent third

parties. This trend is primarily driven by a realisation that the growing levels of

disclosure are being undermined by a credibility gap arising from a lack of confidence

in both the data and the sincerity of reporting organisations (Doane, 2000; Swift and

Dando, 2002; Dando and Swift, 2003). According to KPMGs figures, 29% of GFT250

report issuers in 2002 had their reports verified (1999: 19%) whilst similarly 27% of

top 100 companies included a third party verification statement in their report

compared with just 18% in 1999 (see also, CSR Network, 2003; Kolk, 2003).

Amongst leading edge reporters verification is significantly more prevalent, with

SustainAbilitys (2002) analysis of sustainability reporting indicating that 68% of the

worlds best sustainability reports feature some form of assurance statement. KPMG

(2002) suggests that the increased prevalence of verification arises from the

demand for reliable and credible information from management, for managing the

companys environmental and social risks, and from stakeholders who want

assurance that the report truly represents the companys efforts and achievements


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(p.18). As Roger Adams, Technical Director of the Association of Chartered Certified

Accountants (quoted in AccountAbility, 2003a) notes:

All organisations want to show themselves in the best possible light. ACCA

believes that independent external assurance is a vital part of the credibility

and trust building process. The role of independent assurance is to ensure

that the reporter presents an account that is fair, complete, unbiased and

relevant. (p. 7)

Significantly, in the light of Adams comments, studies of assurance practice in the

context of environmental reporting have raised serious questions over the credibility

of such exercises and fundamental doubts concerning any value thereby added to

the reports produced from the perspective of external stakeholders. Kamp-Roelands

(2002) highlights major inconsistencies in terms of subject matter addressed, audit

scope, objectives and criteria employed, level of assurance provided, audit

procedures employed and wording of audit opinions offered. In a more critical vein,

Ball et al (2000) suggest that question marks over verifier independence and the

degree of rigour applied to their work, evidence of auditee control over the process

and an overriding emphasis on management systems as opposed to performance

based issues are indicative of a managerial turn rather than the exercise

representing any corporate commitment to external transparency and accountability

(see also, Gray, 2000, 2001).

Developments since the above two studies were carried out (for both the Kamp-

Roelands and Ball et al. studies the most recent reporting year utilised was 1997-98)

suggest that this is an opportune time to re-visit the issue of assurance statement

quality in order to ascertain the degree to which current practice exhibits similarweaknesses to the ones they highlighted. One key development, accompanying the

increased popularity of reportingper se referred to above, has been the introduction

of a social, in addition to the longer standing environmental, component into reports

as what is commonly termed sustainability reporting becomes ever more prevalent.

Significantly, KPMGs 2002 survey is described as being one of sustainability

reporting whilst the previous ones were termed environmental reporting surveys.

Figures produced in the 2002 survey indicate that 27% of the GFT250 and 35% of

the top 100 company reports studied contained a significant social dimension. The

2002 survey draws particular attention to an increasing focus on social issues,

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like community involvement, equal opportunity, workforce diversity, human rights,

supplier relations, child labour, freedom of association and fair trade, and goes on to

note that we expect this trend to be continued in the following years and for

sustainability reporting to become more integrated into business practice (p. 5).

Such a major broadening of focus for the reporting exercise has clear implications for

any accompanying assurance process, both in terms of scope of work carried out

and constituencies placing reliance on it. Recognition of this fact seems apparent

from the issuing of assurance practice guidance statements in recent years by

influential bodies such as AccountAbility (1999, 2003b), the Federation des Experts

Comptables Europeens (FEE, 2002) and the Global Reporting Initiative (GRI, 2002).

Whilst apparently pursuing somewhat different agendas, all of these initiatives have

the common aim of securing increased rigour in assurance practice, with a view to

enhancing the credibility of the reporting exercise itself. Additionally, they provide a

yardstick by which to judge the degree of reliance that can be placed on current

assurance practice as being fair, complete, unbiased and relevant.

Our aim in this paper is to undertake a critical analysis of assurance statements

appearing in leading edge environmental, social and sustainability reports as

represented by those shortlisted for the 2002 ACCA UK and European Sustainability

Reporting Awards scheme. By investigating whether inconsistencies in approach and

evidence of a managerial turn still permeate current practice we advance and

update the work of Ball et al. (2000) in light of the recent increase in assurance

practice. In addition, we also analyse the extent to which the contents of assurance

statements satisfactorily address key elements forming the basis of the

AccountAbility, FEE and GRI recommendations such as independence, clearidentification of the scope of the engagement together with standards and criteria

employed, materiality, completeness and responsiveness. This represents the first

comprehensive attempt to evaluate leading edge assurance practice drawing on

guidance issued by these influential bodies. Underpinning our analysis is a concern

to answer the question as to whether current leading edge assurance practices offer

more in terms of enhancing transparency and accountability than did their

predecessors (see, Ball et al., 2000; Owen et al 2000). Before turning our attention to

the analysis of assurance statements we look in a little more depth at the

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AccountAbility, FEE and GRI guidelines that centrally inform our evaluative

framework.

2. The AccountAbility, FEE and GRI Guidelines

AccountAbility issued an exposure draft of a Foundation Standard, AA1000, in

November 1999, which was concerned with specifying the processes both

organisations and assurance providers should employ to secure the quality of what

they then termed social and ethical accounting, auditing and reporting. Subsequently

a programme of work was begun to revise the standard via an envisaged AA1000

Series which is intended to guide organisations in establishing systematic

accountability processes that involve Stakeholders in the generation of strategies,

policies and programmes as well as associated indicators, targets and

communication systems, which effectively guide decisions, activities and overall

organisational performance (AccountAbility, 2003b, p.33). As part of this process a

stand alone Assurance Standard has been produced which provides the basis for

assuring a sustainability report, together with underlying processes, systems and

competencies, against the AA1000 series definition of accountability and associated

principles. In addition to providing guidance for the assurance provider in applying

the AA1000 principles and in evaluating evidence in the context of assessing report

credibility, the standard specifies the following elements that the Assurance

Statement itself should cover:

A statement on the use of the AA1000 Assurance Standard.

Description of work undertaken, the level of assurance pursued and

description of the agreed criteria to be used during the assurance process.

Conclusions as to the report quality and underlying organisational processes,

systems and competencies which must cover whether:i. the report provides a fair and balanced representation of material

aspects of performance (materiality)

ii. the organisation has an effective process in place for identifying and

understanding activities, performance, impacts and stakeholder views

(completeness)

iii. the organisation has an effective process in place for managing aspects

of sustainability performance and responding to stakeholder views,including any significant weaknesses in underlying processes, systems

and competencies (responsiveness)

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iv. the report can be used by stakeholders (responsiveness)

It is further suggested that additional commentary may be offered highlighting

progress in both reporting and assurance since the last report together with

suggestions for improvements in reporting and underlying processes, systems and

competencies for the next cycle. Finally, the standard requires assurance providers

to make information publicly available, within the assurance statement or related

public document, concerning their independence from the reporting organisation,

impartiality towards stakeholders and their own competencies.

FEEs 2002 Discussion Paper Providing Assurance on Sustainability Reports

discusses three possible approaches to providing assurance on sustainability

information, termed accountancy, social audit and consultancy. The accountancy

approach, whereby the roles of report preparer and assurance provider are clearly

distinguished, with the latter using a structured approach involving the analysis of risk

and use of appropriate procedures to gather evidence prior to issuing a report stating

the assurance given, is considered to fundamentally underpin the comprehensive

assurance process advocated. The Discussion Paper notes that:

In essence, the comprehensive approach is the accountancy approach,

enhanced through accommodation of aspects of stakeholder dialogue taken

from the social audit approach and the well-developed understanding of

management systems and processes developed through consultancy

methods (p.21).

Significantly, the accountancy approach dictates the recommended way forcommunicating assurance to report users (in situations where the assurance provider

is a professional accountant intending to convey a high level of assurance) with

IFACs International Standard on Assurance Engagements (ISA 100) providing the

template. This calls for the assurance statement to include:

A title

An addressee

A description of the engagement objective and subject matter

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A statement identifying the party responsible for the subject matter of the

report and the responsibilities of the assurance provider

In cases where the report is for restricted purposes, identification of the parties

to whom the report is restricted and for what purpose it was prepared

Identification of the standards under which the engagement was conducted

Identification of the criteria against which the subject matter of the report was

evaluated

A conclusion concerning the subject matter evaluated, indicating any

reservations or denial of a conclusion

The report date

The name of the assurance provider and place of issue of the report

In considering a number of practical difficulties which may arise in preparing an

assurance statement some scope is offered for relaxing the rather constrained IFAC

derived format outlined above. It is, for example, suggested that the credentials of the

assurance provider may be disclosed in situations where users may be unaware of

them, whilst it may also be necessary to explain the assurance providers degree of

independence from the reporting company. Furthermore, whilst issues appertaining

to stakeholder views and concerns do not feature centrally in assurance statement

content, as is the case with AA1000, it is acknowledged that stakeholder dialogue is

likely to be a significant issue in the reporting process itself and may therefore be

referred to in the assurance statement, and indeed may be necessary in helping

determine appropriate wording for the statement. Finally, scope is offered for

providing some assessment of the companys sustainability performance, or

reporting of that performance, although it is stressed that any such assessment must

be clearly differentiated from the assurance on the sustainability report itself.

Despite the above concessions, FEEs approach to sustainability assurance appears

much more bounded by an attitude of caution than that of AccountAbility, with an

overriding desire to avoid creating an expectation gap whereby a user mistakenly

assumes that there is more assurance than is actually present (p. 17). Indeed much

emphasis is placed on using the term assurance rather than audit or verification

for the very reason that it conveys a lower level of endorsement than that of the lattertwo terms.

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Whereas carrying out an assurance exercise is not mandatory under the GRI

Sustainability Reporting Guidelines, auditability of information forms one of the laid

down reporting principles considered essential for underpinning the production of a

balanced and reasonable report. Furthermore, a working group was formed in 1999

to explore issues and options for strengthening the credibility of sustainability

reports through various assurance mechanisms (GRI, 2002, p. 25). Guidance as to

what might be included in an independent assurance report arising as a result of the

groups consultations is contained in annex four appended to the Guidelines

document. The guidance has much in common with that provided by FEE including

recommendations that:

A separately identified assurance statement is produced with a specified

addressee identified. (It is suggested that this will normally be the board of

directors, or, if agreed, the organisations stakeholders.)

The respective responsibilities of report preparer and assurance provider are

clearly distinguished.

A statement of the scope and objective of the assurance engagement is

presented.

The criteria used in assessing evidence and reaching conclusions are

provided.

Standards applied are disclosed.

A statement of the conclusion reached concerning the subject matter

evaluated (with encouragement to report constructively on any reservations) is

provided

The identity and location of the assurance provider together with date of report

is included.

The GRI guidance, however, goes a little further than that of FEE in a number of

instances. Firstly, it is specified that a statement affirming the assurance providers

independence and freedom from bias and conflicts of interest should, rather than

may, be included. Secondly, a brief description, or outline, of how evidence providing

the basis for the conclusion reached was obtained is called for. Significantly, it is

noted that this will include the extent to which different categories of stakeholders

participated in the planning and execution of the assurance process and indicate any

constraints on this process (GRI, 2002, p. 79). Finally, the GRI guidance is a littlemore prescriptive than that of FEE concerning wording of any conclusion reached in

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that this should address the accuracy, completeness, reliability and balance of

the sustainability report, relative to the scope of the engagement (GRI, 2002, p. 79).

3. Research Method and Sample

As noted earlier, our sample of assurance statements for analysis comprises those

appearing in environmental, social and sustainability reports shortlisted for the 2002

ACCA UK and European Sustainability Reporting Awards. The total number of

reports shortlisted was 81, of which 48 were from the UK. Of the UK reports 28

contained assurance statements (58%), whereas for the European reports, 13

assurance statements were located (34%). The latter figure, however, gives a rather

understated picture of assurance practice within large European companies in that

none of the seven companies shortlisted in the separate SME category for the

European scheme featured an assurance statement within their report, whilst

additionally we were unable to access English language versions of a further four

reports. Excluding these eleven reports from the overall sample moves the

percentage assured up to 59%, a figure much more in line with that observed in the

UK.

In carrying out our analysis we have followed the practice of earlier researchers (Ball

et al., 2000; Kamp-Roelands, 2002) in looking for variations in approach between

accountant and consultant verifiers and draw attention to notable differences where

appropriate. Additionally, we have looked for differences in assurance practice

applied to environmental and social/sustainability reporting exercises. A priori we

would expect some variation in the former instance, with accountant verifiers

presumably more likely than consultants to be influenced by the accountancy

approach of FEE and the GRI. In the case of type of report we wouldnt, however,necessarily expect much in the way of differences of approach, save except perhaps

for more reference to issues of stakeholder engagement and dialogue in the case of

social/sustainability reporting. This is for two reasons. Firstly, the FEE (and to a large

extent the GRI) guidelines, as noted, draw on IFACs ISA 100 standard, which

applies to any report intended to convey a high level of assurance. Secondly, the

term sustainability report is increasingly being used to cover the broad range of

formats in which companies are reporting on their social and environmental

performance, whether within individual social, environmental, corporate

citizenship or environmental, health and safety reports; as part of their corporate

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annual report; or in designated triple-bottom line and sustainability reports.

(AccountAbility, 2003a, p.3). By implication, therefore, it would appear that

AccountAbility are assuming their own assurance standard to be applicable to a

broad range of reports. Table 1 provides a breakdown of the number of assurance

statements analysed in terms of type of report and assurance provider.

Table 1: Assurance Statements Analysed

Type of Report Total Assurance Provider

Accountant Consultant

Environmental 13 (32%) 9 4

Social/Sustainability 28 (68%) 10 18

Total 41 19 (46%) 22 (54%)

Noteworthy from Table 1 is that the dominant position of consultant verifiers identified

in the Ball et al. and Kamp-Roelands studies appears to have been significantly

eroded (at least as far as our sample is concerned), although accountants seem

more prominent in environmental rather than social/sustainability assurance

provision. Also, the preponderance of social/sustainability reports contrasts

somewhat with the picture painted by KPMGs (2002) survey referred to earlier, whilst

however providing some support for AccountAbilitys assertion above.

The evaluative framework employed for analysing our sample of assurance

statements is developed from the AccountAbility, FEE and GRI guidelines outlined in

the previous section. Key questions focussed upon are as follows:

What level of basic information concerning the assurance provider and the

assurance process is provided? Issues addressed are whether FEE and GRI

stipulations as to clearly identifying the type of statement (title), the addressee

and respective responsibilities of preparer and assurance provider are

followed, and whether information concerning the assurance providers

competencies is provided.

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Is the degree of independence of the assurance provider from the reporting

organisation made clear?

Is a clear description of work undertaken offered, covering such issues as

scope of the assurance exercise, criteria and standards employed, together

with the level of assurance being given?

To what extent do statements address the core assurance principles of

materiality, completeness and responsiveness emphasised in AccountAbilitys

AA1000 assurance standard?

Is any assessment of underlying processes and systems, reporting procedures

and performance itself made, with weaknesses highlighted and

recommendations/ strategic commentary offered?

In what form are opinions stated? For example, do conclusions reached on the

report address issues such as accuracy, completeness, reliability and balance

as called for in the GRI guidance?

A detailed questionnaire was partially derived from the instrument used in Ball et al. (2000).

However, this instrument was substantially revised to accord with the evaluative framework

outlined above. The initial analysis was undertaken by a research assistant who read each

assurance statement in detail on numerous occasions. Give that there is an element of

subjectivity in the interpretation of aspects of the evaluative framework, both authors then re-

checked these results by reading the statements independently on several occasions.

Numerous changes were made to the overall analysis and the statements were again analysed

in depth by the authors to confirm and agree these revised findings.

4. Results

4.1 Information Provision Relating to the Assurance Provider and Assurance

Process

As one would expect, all assurance providers clearly identified themselves (which

allowed us to separately identify accountant and consultant verifiers) and in the

overwhelming majority of cases their statements were dated. Information provided

on competencies was however patchy. Generally, Big 4 accountant verifiers were

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content for the very name of the firm to indicate competence to undertake the

assurance process. We identified only two instances (11% of the accountant sample)

in which some clear indication was given of past assurance experience and four

examples (22% of the accountant sample) of the particular area of expertise brought

to bear on the assurance process being mentioned. In the former case, for example,

KPMGs attestation report for Volkswagen AG notes that experience and findings

from previous audits of environmental reports assisted them in identifying critical

areas for examination and drawing up an audit strategy. In terms of disclosing areas

of expertise, PriceWaterhouseCoopers (PwC) review of Abbey Nationals corporate

citizenship report is identified as being conducted by their environmental

management consultancy arm, whilst in a similar vein the verification of BASFs

social responsibility report is attributed to Deloitte and Touche Global Environment

and Sustainability Services. For their part, KPMG refer to the assembly of a

multidisciplinary team of social responsibility and assurance specialists to undertake

work on the Co-operative Insurance Societys social accountability report.

Consultant verifiers were more likely to disclose details of past assurance

experience, areas of expertise and relevant qualifications for undertaking the

assurance exercise with almost half (48%) disclosing in this vein. For example,

Ashridges verification report for Camelot refers to the verification team leader being

a Certified Member and Director of AccounAbility while Casella-Stanger append to

their verification statement for BAAs sustainability disclosures a note that they are a

UK based environmental consultancy which has expertise in a wide range of areas,

such as corporate social responsibility, EMS, risk, air quality, noise, water quality and

ecology. Additionally, the company has experience in the design, development and

verification of sustainability reports in a wide range of sectors, and several staff areregistered with the Institute of Environmental Management and Assessment (EMA)

as qualified auditors and members of AA1000.

Turning to information provision concerning the assurance process itself, we were

somewhat surprised to note that, notwithstanding the cautionary approach to

terminology adopted in the FEE guidelines, verification statement or verifiers report

was by a considerable margin the most popular term employed for independent

opinion statements. This term was used on twenty occasions (49% of overall sample)

which contrasts somewhat with the relative unpopularity of the term assurance

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which appeared only six times (17%). It should however be noted that accountants

were much less likely to employ the term verification, using it in just five cases (26%

of accountants sample). Significantly, the accountant verifiers were also far more

likely to draw attention to the respective responsibilities of report verifiers and

preparers than were consultants. Indeed, we found only one occasion where no

specific reference was made identifying responsible parties. This was in the context

of Deloitte and Touches checking of certain data control procedures operated by

Grundfos, in which case the firm is at pains to point out that neither an audit or review

has been carried out in accordance with Danish accounting standards and that no

assurance is provided on the correctness of the total report. For consultants, by

contrast, on nine occasions (41%) no specific reference is made to the

responsibilities

of corporate management for report preparation, although it should be acknowledged

that the responsibilities undertaken by the verifier are generally most clearly spelt out.

One significant area where FEE and GRI guidelines seem to be having little impact is

in the specification of an addressee for the assurance statement. In only eleven

instances (27% of sample) did this occur and this was exclusively among the

accountant verifiers. They identified the board of directors on seven occasions, the

company itself on three and, rather quaintly, the readers of the report on the

remaining one. Intriguingly, when looking at the constituencies the organisations

report itself purports to address we see that employees are identified in 66% of

cases, customers 59%, the local community 54% and shareholders 49%. We can but

contrast the situation here with that of financial reporting where the report is prepared

for shareholders and the audit report is also clearly addressed to the same

constituency. There are significant issues of corporate governance to unpick in therealm of sustainability reporting that presently go somewhat unacknowledged.

4.2 Independence of the Assurance provider

In total, just under half (46%) of assurance statements made some reference to the

providers independence from the reporting organisation. Consultant verifiers (65% of

cases) were more likely than accountant verifiers (39%) to provide such a statement

or reference, particularly in the context of verifying social/sustainability reports.

Indeed, for accountants, in the majority of cases simply labelling their statement as

being independent was deemed to suffice. Generally, by contrast, the consultant

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group offered a more complete description of the degree of independence prevailing

in the reporter-assurance provider relationship. One example here is provided by

ethics etcs statement on the Co-operative Banks partnership report that they hold

a Business Direct account, but no other business or personal relationship with the

bank or its directors and managers.

Despite the accountant groups reluctance to provide a detailed statement of

independence from the client company, it is easy to draw an inference of an arms

length relationship from the generally detailed description provided of the respective

responsibilities of report preparer and assurance provider drawn attention to earlier.

Indeed, we came across no examples of accountant verifiers performing services for

the client other than assurance provision in the context of the environmental and

social reporting process. Whilst the overriding majority of the assurance statements

from the consultant group suggested a similar arms length relationship, we did

discover four instances where independence, either currently or potentially, was less

than complete. The clearest example of this comes from csr networks validation of

Balfour Beattys safety, environment and social report where ongoing consultancy

contracts with the company are referred to:

In 2002 these included advice on environmental metrics and data collection,

and a third annual environmental management benchmarking exercise.

Significantly, it is then noted that:

Taken together, these contracts add depth to our appreciation of governance

arrangements within the Group, but they also mean that our opinion cannot be

viewed as fully independent(emphasis added).

Interestingly, Ashridges verification of Camelots social and environmental report

draws attention to the offering of advice and guidance on the appropriate

performance measures to be included in the report but makes no similar

acknowledgement of their independence being possibly compromised. The contrast

with csr networks procedures is further highlighted by another instance, the latters

assurance statement appended to FRC Groups social report, where it is stated that

FRC have commissioned csr network to provide advice on social accounting

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throughout the coming year. This presents a conflict of interest, particularly in relation

to future assurance exercises (emphasis added).

The final example of a less than fully independent relationship is provided by The

Corporate Citizenship Companys attestation statement for South African Breweries

corporate accountability report where attention is drawn to the fact that they have

acted as consultants to the company since 1999. The nature of the relationship is

rather underlined by Michael Tuffreys (co-founder of The Corporate Citizenship

Company) external commentary on the report which commences with the

resounding statement:

Having worked with SAB since soon after its London listing, it is personally

pleasing to see how frequently the company is now cited as a leader in social

reporting.

We would suggest that this is not the ideal way to commence an attestation

statement if one wants to achieve credibility with ones readership. Indeed, the rest of

the commentary does rather tend to accentuate the positive and ends with the

rallying call that SABs record is already a strong one. Meeting the social challenge

will make it stronger still.

Whilst we have drawn particular attention to situations where the relationship

between the company and its assurance provider may fall short of one of full

independence, it must be acknowledged that these now appear to be very much the

exception. However, similar issues of corporate governance that we drew attention to

in the previous sub-section are again relevant when considering the concept ofindependence in the fullest sense of the term. Put simply, the assurance exercise is

commissioned by corporate management, rather than individual stakeholder groups,

who are thus able to place restrictions on the areas of performance and reporting

upon which the assurance provider can bring to bear independent judgement. An

example of this is provided in a footnote to Lloyds Register Quality Assurance

Limiteds (LROA) verification statement on BT Groups 2002 social and

environmental report where it is noted that:

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[v]erification scope is to confirm that the information presented is right.

LRQA had no input to topics chosen or their content, this is the responsibility

of BT, with support from the Independent Advisory Panel (emphasis added).

4.3 Description of Work Undertaken

Whereas all assurance statements make some reference to the scope of the

exercise undertaken, only fifteen statements (37%) go on to provide clear and

specific information on areas not reviewed or assessed. Information provision on the

level of assurance provided and specific criteria employed is provided by less than

half of the sample (41%).

Accountant verifiers (53%) seem more likely than their consultant counterparts (30%)

to spell out the exact level of assurance pursued. In a number of cases, notably in

work performed by PwC, it is indicated that there are limitations in the degree of

assurance being offered. Thus, for example, in their review of Abbey Nationals

corporate citizenship report it is clearly stated that, we have not conducted an

audit, as defined in auditing standards, and we do not express an audit opinion on

the performance data and information in the Report. The same phrase appears in

the firms review of BG Groups social and environmental report, with the additional

information provided that work had been planned and performed, in order to

obtain reasonable, rather than absolute, assurance on the information tested,

although a belief is stated that the work carried out, provides a reasonable basis

for our findings. The health warning appended to the attestation statement for BPs

environmental and social review is rather more stark, indicating that the statement in

itself, should not be taken as a basis for interpreting BPs performance in relation

to its non-financial policies. By contrast, in a rare example of a non Big 4accountants verification exercise, Rainbow Gillespie convey the fact that they have

audited the social accounts of Traidcraft in accordance with AccountAbility 1000

Section 3 - Guidelines for the social and ethical auditor. Interestingly, the only two

other examples of (Big 4) verification exercises offering a high level of assurance are

both confined to environmental reports. PwC give an audit opinion concerning

environmental and safety indicators published in Rhodias sustainable development

report, whilst KPMG are clear that they are performing an audit of Volkswagens

environmental report. Significantly, the existence of Generally Accepted Audit

Standards for Audits of Environmental reports (IDW PS 820), issued by the German

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Institute of Accountants, was instrumental in enabling the latter exercise to be carried

out.

Clearly, the lack of specific criteria, in terms of directly applicable auditing standards,

is a major constraint on the level of assurance offered. The criteria employed by

accountants are generally stated as reflecting emerging best practice together with

the underlying principles within international standards for assurance engagements.

We came across only twelve cases (29% of sample) where the verifier clearly

indicated that a particular standard had provided the criteria employed in the

assurance engagement. In the case of environmental report verification, in addition to

the use of IDW PS 820 observed above we also noted three references to

environmental management certification. For social/sustainability report verification

the AA1000 Framework Standardand the recently issued Accountability Assurance

standard are clearly achieving a position of some influence, being used substantially

to guide the assurance process on eight occasions (29% of this sample) and partially

once (URS Verifications assurance of Unilevers web based environment and society

disclosures). Generally consultants were to the fore in using this standard, with

assurance work at BAA, BAT, BT, Camelot, FRC and the Co-operative Bank being

driven by the AA1000 approach. In addition to Rainbow Gillespies verification of

Traidcraft, referred to above, the only other example we came across of an

accounting firms use of the AA1000 standards is KPMGs statement on the Co-

operative Insurance Societys social accountability report. In this case the three page

verification draws particularly heavily on the provisions of the AA1000 Framework

Standardand features a detailed review of improvements achieved by the society

against the eight core principles of 1999 draft of the Standard.

Whilst criteria underpinning verification work, as may be seen from the above, aregenerally not clearly specified, an overwhelming majority of statements do provide

details of work undertaken on the assignment as Table 2 indicates.

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Table 2: Nature of Assurance Work Undertaken

Nature of Work

Undertaken

% ofTotal

Sample

(41reports)

% ofEnvironmental

Reports

(13 reports)

% ofSocial/Sustainability

Reports

(28 reports)

Validation of data inreport

93 93 93

Validation of datacollection systems

85 69 93

Validation of achievementof targets

12 15 11

Validation of governancearrangements

17 8 21

Site visit(s) carried out 56 69 50

Staff interviewed 85 77 89

Stakeholders interviewed 10 8 11

Comparing figures on work undertaken during the assurance process in the above

table with those appearing in Ball et al.s (2000) study suggests that a discernible

improvement in the rigour with which the process is conducted has taken place.

Notably, for our sample 93% of assurance providers make reference to having

undertaken a review of data in arriving at an opinion as against 70% in Ball et al.s

study. Additionally, 85% refer to having undertaken a review of systems (Ball et al.

43%), 56% to site visits (Ball et al. 32%) and 85% to having interviewed client staff

(Ball et al. 61%). Significantly, the latter figure contrasts somewhat starkly with the

number of statements (10%) that refer to interviews being carried out with

stakeholders as part of the assurance process. Interestingly, however, for the few

assurance providers commenting on governance issues, reference is generally made

to the need for involving stakeholders more closely in the reporting process. Thus, for

example, URS Verification Ltd note that the process of evaluation of stakeholder

opinion is emerging and the link to reporting is yet to be clearly established in their

verification of Unilevers report. In similar vein Bureau Veritass verification of BATs

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social report refers to a need for the company to demonstrate actionable

commitment to stakeholder issues if they are to build trust, and so improve

inclusivity.

4.4 Materiality, Completeness and Responsiveness

The core principles of AccountAbilitys AA1000 Assurance Standard providing

guidance to the assurance provider in reaching an opinion, those of materiality,

completeness and responsiveness, are centrally concerned with issues of

stakeholder engagement and inclusivity. The materiality principle requires the

assurance provider to state whether the organisations report contains information

about sustainability performance required by its stakeholders for them to be able

to make informed judgements, decisions and actions (p. 14). According to the

AA1000 Assurance Standard, information is material if its omission or

misrepresentation in the Report could influence the decisions and actions of the

Reporting Organisations stakeholders (AccountAbility, 2003b, p. 15). The

completeness principle calls for an evaluation of the extent to which the reporting

organisation can identify and understand material aspects of its sustainability

performance (p. 17) which encompasses activities, impacts and stakeholder views.

Finally, the responsiveness principle requires the assurance provider to evaluate

whether the reporting organisation has responded to stakeholder concerns, policies

and relevant standards, and adequately communicated these responses in its report

(p. 18).

We found instances of specific reference being made to materiality issues in thirteen

assurance statements (31% of sample). However, the general procedure adopted

was to offer a very broad statement rather than specific details of how materialitylevels had been set or indeed what exactly material implied. For example, PwCs

review of BG Groups social and environmental report notes simply that it

addresses the material Health, Safety, Security and Environmental issues associated

with BGs operations, whilst Ernst and Youngs attestation of BPs environmental

and social review states that we are not aware of any material modifications that

should be made to the HSE data which would affect assessment of group-wide HSE

performance. Significantly, the latter report also points out that decisions regarding

matters included in the review have been made by the company and that the

degree to which the Review contents address key stakeholder concerns are based

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on BPs judgement. We could find only two assurance statements which specifically

and unambiguously addressed the issue of materiality from a stakeholder

perspective. These were Bureau Veritas verification statement for BATs social

report which focussed centrally on the stakeholder dialogue process employed by the

company and KPMGs statement on CIS social accountability report which in

drawing attention to improvements made by the company against the eight AA1000

(1999) principles noted under the materiality heading that:

CIS is integrating social, ethical and environmental risks into a new risk

management process. Stakeholder dialogue is used in risk identification and

CIS is experimenting with various techniques of stakeholder dialogue with

different groups and issues.

One further example of reference being made to a stakeholder centred notion of

materiality worthy of particular mention is PwCs review of Cable and Wirelesss

environment report which notes that further work is required to strengthen the

framework for gathering and reporting environmental information including:

Development of a Group-wide approach to stakeholder engagement to

confirm the material environmental issues at Group, business and site level.

Turning to the issue of completeness, we found fourteen instances (34% of sample)

where the assurance provider offered some specific degree of assessment of the

extent to which the reporting organisation is able to identify and understand its own

sustainability performance. Consultant assurance providers (39% of cases) appeared

more likely to offer comment in this vein than accountant assurance providers (27%).

Specific comment was made suggesting that all information was provided to enablestakeholders to make informed judgements on only four occasions (10% of sample).

In particularly forthright style in this context Ashridges verification of Camelots social

and environmental report claims confidence that:

this report presents a true, complete, balanced and accurate account of

how the organisation is implementing the values and principles stated in the

success models relevant to each stakeholder group.

However, their statement goes on to express two minor qualifications relating to the

level of detail of data provision, making the full report difficult for all but the most

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informed audience to read, and the identification of areas of performance where

additional indicators would give a more complete picture of the companys

environmental impact. A similar concern with report complexity causing difficulties for

certain stakeholder groups is conveyed by csr networks assurance statement on

FRC Groups social and environmental performance report which also expresses

some reservations over completeness in noting that:

The report goes some way towards covering the impacts of both the activity of

the business and its governance and management. Areas for the future might

include the benefits to society as a whole of taking materials out of the waste

stream and further analysis of stakeholders such as policy makers.

In all, we identified just thirteen instances (32%) where the assurance provider

expresses some degree of uncertainty or reservation as to the accessibility of the

report to stakeholders or possible areas of incompleteness in reporting.

Finally, as far as responsiveness is concerned, in twelve (29%) of the assurance

statements analysed clear reference was made by the assurance provider to the fact

that an evaluation had been made of the extent to which the organisation had sought

to identify stakeholder interests and concerns. Significantly, most statements refer to

the need for the organisations concerned to do more in this regard. Fairly typical

comments here appear in two reviews carried out by PwC. Firstly, in the case of BG

Group it is noted that further work is required in terms of:

development of a systematic Group-wide approach to engaging with

relevant stakeholder groups to confirm the material social issues for BG and

communication of the results of this engagement in future reports.

Similarly, for Lattice Group attention is drawn to the need for:

formalising the Group level approach to stakeholder engagement,

particularly in order to confirm the material non- financial issues for the Group.

Whereas reference to the organisations procedures (or lack of them) for identifying

stakeholder interests and concerns features in assurance statements appended to

both environmental and social/sustainability reports, far more detail appears in the

latter cases, particularly in the relatively few instances where the assurance provider

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has adopted the AA1000 Assurance Standard. In these cases reference is generally

made to evaluation of the reporting organisation having:

decided how to respond to expressed interests and concerns

established associated policies, targets and indicators

demonstrated that adequate resources have been allocated for their

implementation, and

communicated the above in its report in a manner that is both timely and

accessible to stakeholders.

Bureau Veritas verification of BATs social report provides a particularly good

illustration here. Amongst statements made are the following:

British American Tobacco has not yet defined and developed indicators and

targets for areas or issues raised in dialogue and we would have liked to see

more qualitative and substantial indicators included in this report, including

time commitments and performance targets. British American Tobacco states

it aims to move forward with a wider and more diverse means of stakeholder

engagement, to review and communicate a broader set of values and to

develop indicators and targets with stakeholders during the second reporting

cycle.

A clear budgetary commitment has been made to continue the accounting and

reporting process.

[Information conveyed in this social report] is both understandable and

accessible to stakeholders who wish to gain a better understanding of the

social and ethical issues facing British American Tobacco Group companies in

the UK and how those companies plan to address the issues.

4.5 ASSESSMENT OF UNDERLYING PROCESSES AND SYSTEMS,REPORTING PROCEDURES

AND PERFORMANCE

Twenty-two assurance statements (54% of sample) made specific reference to

instances of weaknesses in the organisations underlying systems, management

practices, reporting procedures or overall performance. In all but one case (Ernst &Youngs attestation of BPs environmental and social review) some form of

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recommendation for improvement was offered. Significantly, consultant assurance

providers (70% of sample) were far more likely to go down this route than

accountants (33%) with the procedure being adopted more commonly in

social/sustainability report assurance (68% of sample) than for environmental reports

(38%). In the main, recommendations were couched in fairly general terms. A fairly

typical example here, albeit one that specifies a time scale for implementation, is csr

networks validation of Balfour Beattys safety, health and environmental disclosures:

Over the next year, we recommend that the company should assess the

information that has been collated, progressively improve its completeness

and quality, and set relevant improvement targets. The challenge now is to

embed environmental management consistently in UK operations and to

progressively extend these requirements to new acquisitions and the

international businesses.

The same consultants assurance statement for Musgrave Group is a little more

specific in terms of recommending further development of key performance

indicators:

In particular, Musgrave Group should seek to develop relevant indicators of

social and economic performance, for example group-wide health and safety,

and the positive impacts on local (rural) communities through indirect job

creation and support to social infrastructure.

Some assurance providers went so far as to recommend specific reporting

developments. For example, URS verification of Unilevers web based report

recommended that the company consider reporting incidents in addition toprosecutions and fines in order to conform with emerging best practice. An even

more hands on approach was adopted by Arthur D. Little in their verification of

Novartis health, safety and environment report, where it is noted that:

An example of the omission of relevant life cycle impact is the CO2 emission

since it addresses only the emissions from energy generated by Novartis. To

ensure that CO2 emissions from energy consumed from external suppliers is

also addressed wepropose to redefine the CO2 target accordingly(emphasis

added).

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In terms of the areas in which weaknesses were noted, and associated

recommendations offered, most commonly addressed were underlying processes

and systems (39% of cases) followed by issues relating to report content (34%) and

the preparation process (22%). In six cases verifiers went further in providing views

on the acceptability of the reporting organisations performance. Most specific were

Casella Stangers verification of Canary Wharfs environment and social report and

Entecs verification of The Environment Agencys report which both commented in

some detail on the organisations record in achieving performance targets. The only

reference we came across to acceptability of social performance, however, was Earth

Tecs verification of Pennon Groups environmental and social report where it is

noted that:

The Groups strong social performance in the sector has been recognised by

the Dow Jones STOXX Sustainability Indexes.

Whereas, in the main, observations on, and recommendations for improving, systems

and reporting procedures were fairly brief, there were three examples of substantial

strategic commentary being offered. Significantly, all were by consultants - csr

network for BA, LE Group and United Utilities, together with Casella Stangers

Strategic Overview of BAAs Long Term Progress Since 1997 (the year that the firm

were appointed as verifiers). The latter, in particular, is a particularly detailed

commentary which offers analysis of BAAs sustainable development programme,

success in achieving environmental targets, progress in developing environmental

key performance indicators and progress made in implementing recommendations

from the previous years verification exercise. Clearly, informed comment of this

nature may be regarded as adding value for the reports readership. At the sametime, however, questions are inevitably raised as to whether combining what is

essentially a consultancy function with a separate arms length assurance exercise

compromises the integrity of the latter, particularly when no indication of fee levels for

the respective commissions is offered.

4.6 Nature of Assurance Opinions Offered

One of the more illuminating features of our analysis was the rather terse use of

wording in the opinions of most Big 4 accountant assurance providers. Significantly,

there was an absence of the use of the term true and fair in these opinions despite

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its ubiquity in financial statement opinions. Whilst most accountants opinions

addressed issues surrounding the accuracy and reliability of the transfer of

information from management systems to reports, their explicit limitations of scope,

referred to earlier, tended to lead to the crucial issue of completeness of reporting

being ignored in their opinions.

Consistency was the term generally favoured by accountant assurance providers in

the wording of their opinions. A fairly typical statement is that provided by Deloitte

and Touche in Denmark which focussed on confirming that submitted data were

consistent with the source documentation presented to us and thereby provided

some confirmation of data collection procedures. However, a reader might be more

comfortable if the wording requested by them was used instead of presented to

them, as the latter could easily imply that the companydecided what information

would be presented hence making a mockery of the assurance procedures. It is

also interesting to contrast the use of the term consistent here to that used by PwC

in their opinions on Cable and Wireless, Volkswagen AG, BG Group and Lattice

Group. Here, the information in the reports is deemed not inconsistent with the

findings from PwCs work. Whether not inconsistent equates with consistent is left

up to the reader to decide. Additionally, PwC in London favoured the use of the term

appropriate representation when assessing how the reports of BG Group and

Lattice Group reflected social and environmental policies and governance

arrangements. However, from reading the assurance statements in full it is difficult to

understand how appropriate is to be defined, and by whom.

Whereas few accountant assurance providers explicitly addressed the issue of

completeness in their opinions, KPMGs opinion on Volkswagen AG provided anexception in stating that the report is a complete and appropriate representation

insofar as materially relevant of the impact of on the environment of the Volkswagen

Marque. As we noted earlier, KPMGs opinion on CIS social accountability report

also assessed the report against the AA1000 principles, one of which is

completeness.

The KPMG/PwC opinion on Shell Internationals report is one of the few to deal

explicitly with performance issues in noting that in the case of certain information

appearing in the report, for which page number references are given, the data

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properly reflect(s) the performance of the reporting entities. Additionally, Rainbow

Gillespie provide an opinion on Traidcrafts social accounts that, the companies

social impact on the stakeholder groups reported upon has been fairly presented .

However, the desire of most accountant assurance providers to warn against placing

too much reliance on their reviews is evident in the final statement contained within

PwCs opinion on sections of Unique Zurich Airports environmental report:

Our statement should be read in conjunction with the inherent limitations of

accuracy and completeness for environmental data, as well as in connection

with the scope of reporting on page 5.

The opinions of consultant verifiers tended to portray a more re-assuring picture for

the reader, with statements predominantly attesting to the accuracy, reliability and

completeness of reporting by companies. For example, csr network, who provided

assurance for six (15%) companies in our sample, had a separate section entitled

accuracy and completeness in all of their statements. Fairly typical of the opinions

offered in this section is the following extract from their assurance statement for BAs

social and environmental report:

For the air emissions, fuel efficiency, energy, noise, people relationships and

citizen report sections, we have found the data collection systems to be robust

and that the underlying trends are substantially correct.

However, later in the section a greater degree of reservation is expressed when they

refer to BAs environmental indicators only representing a reasonable overview of

the companys key impacts. The word reasonable is used in a similarly (at least

implicitly) negative manner by the same firm in noting that FRCs social report provides a reasonable basis for understanding the key aspects of the companys

behaviour and social and environmental impact.

In contrast to the accountant assurance providers, we found only one instance where

the term consistent was used by consultants in relation to information reported. Far

more common was mention of fairness and balance in terms of information

presented, significantly, words that accountants generally refrained from using. For

example, RPS Consultants speak of Countryside Properties report providing a fair

reflection of the environmental, social and community activities undertaken by the

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company, whilst Arthur D Little note that Novartis HSE report contains a fair

summary of relevant HSE impacts at Novartis own sites. For their part, Earth Tech

in their verification of Pennon Groups environmental and social report find that it

provides a fair and balanced representation of the significant environmental and

social sustainability issues and actions being taken under the control of the Pennon

Group. Finally in this context, a particularly strong endorsement of Unilevers web

based disclosures is offered by URS Verification:

URSVL considers that the report text and data relating to environmental

performance and management addresses the significant environmental

aspects of the business and these have been reported in a fair and balanced

manner.

In summary, clear distinctions between accountant and consultant assurance

provider opinions pervade our sample. From our analysis, a greater level of

assurance can be gleaned from the opinions of consultants, which certainly offer

more in terms of robustness and fullness of commentary. This review of opinions, of

course, is simply consistent with our earlier impression that there are very few

instances where Big 4 assurance providers are prepared to offer a high level of

assurance to report readers. Consultant assurance providers seemingly have far

fewer inhibitions. Whether their boldness is fully justified would be easier to ascertain

if details of fees paid for such assurance work were routinely disclosed, as is the

case with financial audit engagements.

5. Discussion and Conclusions

Our objective in this paper was to carry out a critical analysis of assurance

statements appearing in leading edge environmental, social and sustainability reports

as represented by those shortlisted for the 2002 ACCA UK and European

Sustainability Reporting Awards scheme. Using an evaluative framework centrally

informed by the AccountAbility, FEE and GRI guidelines, we examined the extent to

which the contents of assurance statements satisfactorily address key elements of

these guidelines such as independence, clear identification of the scope of the

engagement together with standards and criteria employed, materiality,completeness and responsiveness. This represents the first comprehensive attempt

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to evaluate leading edge assurance practice drawing on guidance issued by these

influential bodies. Underpinning this analysis was a concern to ascertain whether

current leading edge assurance practices offer more in terms of enhancing

transparency and accountability than did their predecessors. Hence, our analysis

significantly advances the work of Ball et al. (2000) in light of the recent increase in

assurance practice.

Contrasting the findings of this study with those of Ball et al. (2000), which utilised a

similar sample of assurance statements drawn from the ACCA Environmental (now

Sustainability) Awards Scheme shortlists, appears to indicate some improvement in

terms of rigour of work undertaken and independence of the exercise. Additionally, a

greater degree of focus on the performance (as opposed to simply management

systems) dimension is discernible, particularly in the case of assurance exercises

conducted on social/sustainability reports which employ AA1000 methodology.

However, even in these cases, stakeholder input into the assurance process is very

much the exception despite Henriques (2003) assertion that in order to enhance

trust in reporting assurers [need to] be well connected to the stakeholders and

understand their issues well. Moreover, stakeholder engagement with the reporting

organisationper se is often minimal (an issue mentioned in a number of assurance

statements), which, in itself threatens the credibility of these exercises. Hence, there

is still a large degree of management control over the reporting, and indeed

assurance, process. Assurance providers are appointed by management, who may

place any restrictions they choose on the assurance exercise, and they effectively

report to management. Significantly in this latter context, save for one mention of the

assurance statement being directed at its readership, on the few occasions that an

addressee is specified it is corporate management. The contrast here with

governance structures underpinning the financial audit process is only too clear. Thisreluctance to address the assurance statement to specific constituencies seems to

imply they are primarily providing value to management thereby reflecting a

perceived demand for verification of this information from management as opposed

to stakeholders (see, KPMG, 2002, p. 18).

The reluctance to address assurance statements to specific stakeholder

constituencies also has implications for assurance on the materiality of the

information provided. In the AA1000 Assurance Standard (AA1000b, p. 15),

information is deemed material if its omission or misrepresentation could influence

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the decisions and actions of stakeholders. From this, we can assume that identified

stakeholders are viewed as the key users of these reports, so why the reluctance to

address assurance statements to them? If these reports are addressed only to

management they merely represent an internalassurance exercise being published

externally. If credibility and trust are to be enhanced, the next wave of assurance

statements will need to move beyond this restrictive approach which implicitly defines

materiality as it pertains to management. Providing statements to management for

management is hardly likely to counter the apparent scepticism surrounding social/

sustainability reporting (Dando and Swift, 2003).

This reluctance to identify key constituents is also reflected in the lack of any

substantive consideration of materiality, defined in stakeholder terms, in assurance

statements. Materiality is a thorny and emerging issue in the area of assurance

(Zadek, 2003) but as Zadek (2003) points out:

if stakeholders dont think the information is relevant [or material], it just

wont count [and] public reporting [will] flunk as an accountability

mechanism.

AccountAbilitys recent attempt to provide a five part test of materiality may provide

for improved assurance by guiding providers more specifically, as well as providing

greater legal protection for reluctant directors (AccountAbility, 2003d). However, this

would also mean involving stakeholders more in assurance processes (see

JustAssurance, 2003), which, as we outline above, is not prevalent among our

sample.

An increasingly clear distinction is emerging between the approaches of accountant

and consultant assurance providers. The former tend to adopt a cautious approach

that largely focuses on the issue of consistency of information appearing in the

organisations report with underlying data sets. The phrase true and fair is

conspicuously lacking in accountants opinion statements, whilst completeness of

information provision is generally not attested to. Indeed, accountant assurance

providers are in many cases at pains to point out that, in the absence of generally

accepted social audit standards, high level assurance cannot be offered. The only

exceptions to this rule occurred in two instances of clearly delineated assurance

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exercises conducted on environmental reports and two further occasions when

assurance of sustainability reports was conducted under AA1000 provisions.

However, despite this, recent evidence produced by Accountability (2003c) suggests

that early adopters of the AA1000 Assurance Standard perceive mainstream

accountancy bodies as reluctant to provide a statement of assurance that goes

beyond an opinion on the accuracy of the data included in the report (Accountability,

2003c, p.6). They tend to engage in little real time assurance (for example, by

attending stakeholder engagement meetings, where they occur) and in their concern

for a high level of detail in the assurance process are accused of reducing it to a

mere data checking exercise. This trend stands in stark contrast to the broader

holistic strategic risk based approaches to financial audit that have been

promulgated by the Big 4 over the past decade which take a big picture view of

enterprises and focus on audits adding value to clients (Higson, 1997; Winograd,

Gerson and Berlin, 2000; Solomon and Peecher, 2001). In fact, the accountants

approach to assurance in this study bears a striking resemblance to an equivalent of

the outmoded first generation financial auditing approach where transactions in

books were directly verified (Higson, 1997, p. 200). In conjunction with the

reluctance to consult stakeholders, their approach also resists providing assurance

on information chosen by user[s] (Elliott, 2002, p. 139), which has been deemed

part of the future of 21st century assurance for accountancy firms (Elliott, 2002).

Given the recent emergence of standards such as AA1000 it will be interesting to

track if these accountancy firms are willing to start providing more high level

assurance involving stakeholders in the near future and why, outside of their

complaints regarding the non-existence of appropriate standards, they have been

reluctant to do so to date.

In contrast to the accountant assurance providers, consultant assurance providers

tend to focus much more on the issues of completeness, fairness and overall balance

within their opinion statements. Furthermore, they tend to provide more in the way of

commentary on systems, reporting and performance weaknesses. Consultants also

tended to take more of an evaluative approach and in contrast to many of the

accountant assurers were involved as the reporting process emerged as opposed to

merely arriving at the end to verify data collection procedures and accuracy. In sum,

consultants would appear to adopt a more strategic approach to the audit exercise,

which might be considered as adding value to the process from the perspective of

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external stakeholder groups (Investment Responsibility Research Center [IRRC]

1996). Ironically, this is exactly the approach one might have expected from the Big 4

providers given the recent trends in financial audit assurance.

There is some indication, particularly from our analysis of the accountant assurers,

that little thought has gone into what assurance statements are supposed to be

providing. The accountants reluctance to mention their credentials suggests that

they may rely on their brand name as opposed to any substantive work to covey an

impression of assurance in reporting. In the recent study of early adopters of the

AA1000 Assurance Standard referred to above, one participant stated that we need

the assurance provider to provide a brand that is trusted by stakeholders (AA1000,

2003c). From our analysis, we can only conclude that the reluctance to specify

credentials may reflect the symbolic nature of these exercises. It seems to be the

case that, in many instances, indicating that a social/sustainability report is assured

by a respected assurer is deemed enough to convey the credibility required on the

report. It is a mere badge of approval, whatever its substantive content.

On a cautionary note, from the perspective of assurance being viewed as a central

element in holding powerful economic entities accountable to their stakeholders, the

added value approach of consultants referred to above seems highly problematical.

As Gray (2000) points out, once social accounting and auditing moves away from its

focus on holding the organisation to account it operates largely as a management

tool rather than a mechanism of democratic society. Wheeler and Elkington (2001),

for example, write in gushing terms of the accountability agenda being superseded

by a value adding agenda for companies, their markets and their main stakeholders.

For them, the term assurance, rather than portraying a lower level of endorsement is, a more powerful and strategically relevant alternative to audit or verification,

carrying as it does the sense of governance, stewardship and strategic risk

management (p. 10). Significantly, what this will entail for the assurance process will

be:

partnerships with public relations and communications professionals and

with other agents and brokers (i.e. not just company managements) who can assist

in designing what should and should not be part of the assurance framework. (p.12)

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To us, this suggests that, to quote Power (1997, p. 127), more [assurance will] not

necessarily mean more and better accountability merely more value added for

management as they manage key risks imposed by various stakeholder groups who

need to be controlled.

However, a key irony in the added value approach of consultants in our sample is

that, despite the potentially compromising position they find themselves in, they tend

to, through their assurance statements, provide the reader with higher levels of

assurance on the reports and processes they assess. This is an issue that would

benefit from more in-depth exploration with these assurance providers in order to

ascertain how they juggle these potentially sensitive roles.

In our view, it is, however, very difficult to envisage how more robust levels of

assurance can be brought about when the assurance provider is effectively

accountable to corporate management (the paymaster) and in the absence of any

countervailing power (Frank, 2001) to which he or she may have recourse in the

case of dispute. This has been an ongoing concern in financial auditing for many

years given that, despite shareholders legally appointing auditors, corporate

management effectively undertake this role with shareholders mostly rubber

stamping their recommendation thus leaving auditors at the mercy of management.

As others have pointed out, any dependence on the organisation by assurors could

lead to sensitive issues being ignored in the assurance processes (ODwyer, 2001)

with materiality being defined in narrow terms. The nature of these power relations

and their potential influence on the reporting process need greater in-depth

exploration and also bring us back to our concern for greater stakeholder

involvement and empowerment in assurance. If crucial governance issues and theintertwining of the very different concepts of accountability and value added

continue to be ignored then current efforts to standardise environmental and social

auditing practice will sow the seeds of their own failure and an ongoing expectations

gap will evolve.

We fully accept that our analysis above, while detailed and comprehensive, is based

on a specific sample, albeit that of recognised leading edge practitioners, and infers

levels of assurance based on statements released externally. In order to examine in

greater depth the complexities and challenges involved within these assurance

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processes we need to engage with assurance providers directly to obtain their

perspectives on the processes they undertake. Issues such as the assuror

appointment process, perceived threats to their independence, their relationship with

top management, the potential for conflict and their commitment to assuring

accountability need exploration. Given the assurance statements merely provide us

with some output on the nature of the work undertaken, we need to also investigate

assurers evolving relationships with management, the means by which assurance

statements are drafted and approved, assurers perceptions of their key

responsibilities and of the value they add to the credibility of the reporting process

from the perspective of key stakeholder groups.

6. References

AccountAbility, 1999. AA1000 Framework: Standard, Guidelines and Professional

Qualification. AccountAbility, London.

AccountAbility, 2003a. The State of Sustainability Assurance. AccountAbility, LondonAccountAbility, 2003b. AA1000 Assurance Standard. AccountAbility, London.AccountAbility, 2003c. AA1000 Assurance Standard Practitioners Note.

AccountAbility, London.AccountAbility, 2003d. Redefining Materiality: Practice and public policy for effective

corporate reporting. AccountAbility, London.

Ball, A., Owen, D. L. and Gray, R. H., 2000. External Transparency or InternalCapture?: The Role of Third Party Statements In Adding Value To CorporateEnvironmental Reports. Business Strategy and the Environment9 (1), 1-23.

CSR Network, 2003. Material World: The 2003 Benchmark Survey of GlobalReporting. CSR Network Limited, Bath, UK.

Dando, N., Swift, T., 2003. Transparency and Assurance: Minding the credibility gap.Journal of Business Ethics 44 (2) 195-200.

Doane, D., 2000. Corporate Spin: the troubled teenage years of social reporting. NewEconomics Foundation, London.

Elliott, R.K., 2002. Twenty-first century audit assurance, Auditing: A Journal ofPractice and Theory 21 (1), 139-146.

Fedration des Experts Comptables Europens (FEE), 2002. Providing Assuranceon Sustainability Reports. Discussion Paper, Fedration des ExpertsComptables Europens, Brussels.

Frank, T. 2001. One Market Under God: Extreme Capitalism, Market Populism andthe End of Economic Democracy. Secker & Warburg, London

Global Reporting Initiative (GRI), 2002. Sustainability reporting guidelines oneconomic, environmental and social performance. Global Reporting Initiative,Amsterdam.

Gray, R. H., 2001. Thirty Years of Social Accounting, Reporting and Auditing: What(If Anything) Have We Learnt? Business Ethics: A European Review, 10 (1), 9-15.

Gray, R.H., 2000. Current Developments and Trends in Social and EnvironmentalAuditing, Reporting and Attestation: A Review and Comment

23-Assurance Statement Quality in Environmental, Social and Sustainability Reporting a Cri

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