CSR ASSURANCE IN SENSITIVE SECTORS – A WORLDWIDE AN ALYSIS OF

FINANCIAL SERVICES INDUSTRY

Elies Seguí-Mas

Universitat Politècnica de València

Fernando Polo-Garrido

Universitat Politècnica de València

Helena María Bollas-Araya

Universitat Politècnica de València

Thematic area : h) Corporate Social Responsibility

Key words : CSR, sustainability, assurance, financial services.

19h

CSR ASSURANCE IN SENSITIVE SECTORS – A WORLDWIDE AN ALYSIS OF

FINANCIAL SERVICES INDUSTRY

Abstract

Corporate Social Responsibility (CSR) reporting and assurance has achieved a great

relevance, and the financial services industry is a CSR-sensitive sector, which needs to

increase user confidence in the credibility of their reported activities. Our aim is to

analyse assurance practices in this sector. Thus, we study what factors are associated

with the adoption of assurance and choice of assuror, and whether the type of

assurance provider affects characteristics of assurance. The findings indicate that the

financial services industry leads the adoption of assurance, which is associated with

the country and listing status, and different characteristics by type of provider.

VERIFICACIÓN DE LA RSC EN SECTORES SENSIBLES – UN A NÁLISIS MUNDIAL

DEL SECTOR DE SERVICIOS FINANCIEROS

Resumen

La presentación y verificación de informes de Responsabilidad Social Corporativa

(RSC) ha alcanzado una gran relevancia, y la industria de servicios financieros es un

sector sensible a la RSC, que necesita incrementar la confianza de los usuarios en la

credibilidad de sus actividades. Nuestro objetivo es analizar las prácticas de

verificación en dicho sector. Así, estudiamos qué factores están asociados con la

adopción de la verificación y la elección del tipo de verificador, y cómo éste afecta en

el proceso. Los resultados indican que el sector es líder en adoptar verificación, la cual

depende del país y de si la empresa cotiza, y que el proceso difiere según el tipo de

proveedor.

1. INTRODUCTION

Despite many studies that have aimed to conceptualise CSR, it is still a complex

evolving concept although the trend is focused on a firm’s responsibility with its

stakeholders (Sweeney and Coughlan, 2008). The stakeholder theory understands

companies as a part of a wider social system in which their commercial activities affect,

and are affected by, other stakeholder groups within society (Freeman, 1983).

Several authors have pointed out how the financial industry has been partly

responsible for the current crisis in regulatory failure and over-optimistic policies terms

(Davis, 2009; Fligstein and Goldstein, 2010). Thus, the crisis has brought vast social

impact costs, not only for the financial system, but also for taxpayers and recipients of

welfare subsidies (Herzig and Moon, 2013). The unfavourable situation experienced by

financial companies in this context has caused discredit in and distrust of society.

Consequently, CSR is necessary to generate and maintain trust (Rodríguez-Gutiérrez

et al., 2013), and it is an effective instrument that offers confidence to stakeholders as

the company is perceived as being responsible and trustworthy (Fernández and Souto,

2009).

The financial services industry is highly exposed to environmental and social risks, and

the need to increase user confidence in the credibility of their reported activities is great

(Simnett et al., 2009; Kolk and Perego, 2010). Therefore, in line with Sierra et al.

(2014), it is considered an industry that is ‘CSR-sensitive’.

Due to accountability pressures and the demand for transparency (Kolk, 2008),

sustainability or CSR reporting has proliferated in response to stakeholders’ concerns

about environmental and social issues, governance and responsibility (Kolk and

Perego, 2010; Simnett, 2012). Among other factors, risk and reputation management,

external pressure, moral reasons, and promotion of better investor relations and

corporate performance have traditionally determined reporting (Spence and Gray,

2007).

In order to ensure the homogeneity and quality of CSR reports, standards for reporting

were developed. The most commonly used is the GRI Sustainability Reporting

Guidelines from the Global Reporting Initiative (GRI). According to KPMG (2013), it has

achieved widespread adoption with 82% of the Global 250 (G250: the top 250

companies of the Fortune 500 Index) and 71% of the National 100 (N100: the top 100

companies in 16 countries where KPMG operates). In the GRI Database universe, the

financial services industry represented the highest percentage (14%) of published

reports in 2011 (GRI, 2011a). GRI also provide Sector Supplements to cover the needs

of specific industries, such as the financial services. Thus the Financial Services Sector

Supplement complements guidelines with interpretations and guidance as to how to

apply it in this particular sector, and it includes sector-specific performance indicators

(GRI, 2011b). In 2012, 34% of the GRI-based reports published by financial services

companies followed the sector supplement (GRI, 2013).

Nevertheless, researchers have criticised sustainability reporting because of lack of

accountability and transparency (Owen et al., 2000; Dando and Swift, 2003; Adams

and Evans, 2004), which have created a need for credible reported information in this

area, known as the so-called ‘credibility gap’. Consequently, stakeholders wish to be

sure that CSR reports are more than just public relations instruments (KPMG, 2006). In

line with this, Adams and Evans (2004) argued that voluntary assurance enhances the

credibility of such reporting.

The need for credibility has accelerated the development of relevant assurance

frameworks (FEE, 2004, 2006), such as the AA1000 Assurance Standard (AA1000AS)

from AccountAbility, and the International Standard of Assurance Engagements Other

Than Audits or Reviews of Historical Financial Information (ISAE 3000) from the

IAASB. Neither standard is conflicting nor a substitute, but both are complementary in

terms of providing comprehensive and robust assurance (Accountability and KPMG,

2005).

The 2013 KPMG Survey of Corporate Responsibility Reporting (KPMG, 2013) noted

that 59% of G250 companies and 38% of N100 companies use assurance as a

strategy to verify and assess their corporate responsibility information. According to

GRI (2013), among all the 2012 GRI-based reports, the percentage of external

assurance was 46% on a global scale and 50% in the financial services industry. This

shows that assurance represents the next stage of development of sustainability

reporting (ACCA, 2004).

Very few authors have assessed assurance practices in sensitive sectors like the

financial services sector, and this paper addresses this research gap. Thus our aim

was to develop an exploratory analysis about CSR or sustainability assurance in the

financial services industry. We firstly made a comparison between this industry and

other industries as to adoption of assurance and choice of assuror. Secondly, we

studied what determinants influence the decision to adopt assurance and to choose

assuror. Finally, we investigated whether assurance differ across assurance providers.

The paper proceeds as follows. First, we present a literature review on the field of

assurance on CSR reports. In the following section, we describe the sample and the

methodology employed. Afterwards we discuss the results of our analysis and we

present our conclusions.

2. LITERATURE REVIEW

The Financial Services Sector Supplement (GRI, 2011c) classifies the financial

services into four categories: retail banking, commercial and corporate banking, asset

management and insurance. These institutions strongly influence society by performing

their activities: they play the role of financial intermediaries in society pricing and

valuing financial assets, monitoring borrowers, managing financial risks, organising the

payment system and covering for the financial consequences of situations that people

try to avoid (Scholtens, 2009, 2011). The financial system performs a relevant and

positive role in economic development (Levine, 2004). As economic development is

directly related to human, social and environmental development, financial institutions

can also influence sustainable development. Unlike other industries however, this

impact can be mainly indirect because they ease the growth and development of other

companies and individuals (Scholtens, 2006).

According to Day and Woodward (2009), this is an industry of interest in the CSR and

organisational reporting context because of its size and the role it plays in easing

economic transactions for both companies and individuals. This is a sensitive sector

because of its influence on financial well-being and its large “social footprint”. As a

result, stakeholder groups are deeply interested in its activities (Simnett et al., 2009).

The financial crisis has brought about dramatic consequences for the economy and

society, and the financial industry has been accused of being responsible for it (Herzig

and Moon, 2011). One of the most serious consequences of this situation has been

loss of trust, which is caused by lack of transparency, which is one of the main

requirements to be promoted for more sustainable economic growth (Rodríguez-

Gutiérrez et al., 2013). It has increased stakeholders’ demand for accountability and

credible information, which has resulted in companies reporting their CSR.

CSR reporting is the process through which organisations communicate the social and

environmental effects of their economic actions to stakeholder groups within society

and to society at large (Gray et al., 1996). It has commonly been understood as a way

of ensuring the legitimacy of organisations, a tool to manage stakeholder relationships,

or a process to build good impressions and/or to hide conflicts (Spence and Gray,

2007). According to ACCA (2004), it is the main way through which companies can

show their corporate legitimacy to stakeholders.

Perego and Kolk (2012) confirmed the increasing number of CSR reports published by

multinational financial corporations in the last decade. In the same line, Simnett et al.

(2009) found that the financial industry was more likely to produce CSR reports.

However, CSR reporting is subject to concerns as regards to the completeness and

credibility of the information (Adams and Evans, 2004; Dando and Swift, 2003).

Enterprises disclose only appropriate information to gain corporate advantage and a

good reputation instead of looking for transparency and accountability for stakeholders

(Owen et al., 2000).

In accordance with Simnett (2012), provision of external assurance on the content and

structure of CSR reports improves the relevance, reliability and comparability of reports

and, therefore, enhances their overall credibility. Benefits of assurance are

stakeholders’ confidence in the quality of the sustainability information provided and/or

more stakeholder trust in the level of commitment to sustainability agendas. Thus

companies that wish to enhance the credibility of their reports and build their corporate

reputation are more likely to adopt assurance (Simnett et al., 2009).

Recent studies have investigated the factors that influence adoption of assurance.

Simnett et al. (2009) made an international comparison and found that the companies

located in stakeholder-oriented countries and stronger legal environments are more

likely to assure their CSR reports. They also identified that the companies that have

engaged in more visible industrial activity and those with a larger ‘social footprint’, like

the financial industry, are more likely to adopt assurance. Moreover, they pointed out

that large companies are more likely to have their reports assured. Kolk and Perego

(2010) analysed the behaviour of G250 firms and found that the likelihood of assuring

is greater for firms domiciled in stakeholder-oriented countries and countries with

weaker enforcement mechanisms. Zorio et al. (2013) underlined the inclusion in a

stock exchange as another determinant for the companies listed on the Spanish capital

market. Sierra et al. (2013) highlighted that the decision to adopt assurance depends

on company size, and is positively associated with ROA and negatively associated with

ROE and leverage in the case of IBEX-35 companies.

Similarly, determinants of choice of assuror have been analysed. The findings showed

that the likelihood of choosing a large accounting firm as an assurance provider is

greater for larger firms (Simnett et al., 2009; Kolk and Perego, 2010). Simnett et al.

(2009) found that companies with lower leverage are also more likely to choose a

member of the auditing profession, and that companies domiciled in stakeholder-

orientated countries are more likely to choose assurance from the auditing profession.

In contrast, Kolk and Perego (2010) affirmed that the likelihood of choosing a large

accounting firm as an assurance provider increases for the companies domiciled in

shareholder-oriented countries. Perego (2009) sustained that among the firms listed for

the 2005 ACCA Sustainability Reporting Awards, those domiciled in weaker legal

systems are more likely to choose a large accounting firm as assuror. According to

Sierra et al. (2013), the financial services industry significantly tends to hire auditors as

assurance providers, unlike Simnett et al. (2009). Zorio et al. (2013) also found that the

inclusion in a stock exchange is clearly significant.

Furthermore, some academics have studied the content of assurance statements and

have reported differences across assurors. O’Dwyer and Owen (2005) analysed the

assurance statements included in environmental, social and sustainability reports

short-listed for the 2002 ACCA UK and European Sustainability Reporting Awards, and

they found that accountants are more likely than consultants to indicate the assurance

level. They pointed out that accountants employed criteria that are generally stated as

reflecting emerging best practices, together with the underlying principles in

international standards, while consultants were the forerunners of using AA1000AS,

and the assurors who have used it provide a higher assurance level. Deegan et al.

(2006) investigated whether the UK and European assurance statements included the

key elements suggested by GRI and FEE, and found considerable variability in

presentation formats and contents across assurors. They highlighted that accounting

firms are more likely to identify assurance standards. Perego and Kolk (2012) indicated

that the most frequent adoption of standards among providers of the firms included in

the G250 is a combination of the AA1000AS, the ISAE 3000 and GRI guidelines, and

that accounting firms use the ISAE 3000 more frequently. Perego (2009) provided

evidence that Big-4 firms positively affect assurance quality in reporting format and

assurance procedures terms, but the quality of recommendations and opinions is

positively associated with non-accountants.

As far as we know however, no previous research works focused on assurance in the

financial services industry. Only Fonseca (2010) centred on a specific industry, the

mining industry. It is another ‘sensitive sector’ according to Sierra et al. (2014), who

found that the companies from Latin America that better favour adoption of assurance

belong to sensitive sectors.

Consequently, our study focussed on the financial services industry not only because

of its special link to CSR, but also because we considered it an interesting research

gap to examine. We explored whether a sensitive sector like the financial services

industry is more likely to adopt assurance than other industries. In the same context,

we analysed the determinants that influence the decision to adopt voluntarily

assurance on CSR reports and choice of assuror, and how assurance differ according

to provider type. Based on the literature, we posed the following research questions:

RQ1: As a sensitive sector, are there significant differences between the adoption of

assurance in the financial services industry and in other industries? Is the decision to

adopt assurance associated with the status of the country where the company is

located, company size, listing status and the use of the supplement sector in the

financial services industry?

RQ2: As a sensitive sector, are there significant differences between choice of assuror

in the financial services industry and in other industries? Is the choice of assurance

provider associated with the status of the country where the company is located,

company size, listing status and the use of the supplement sector in the financial

services industry?

RQ3: Does the type of assurance provider influence assurance in the financial services

industry?

3. METHODOLOGY

3.1. Sample and data collection

To collect data, we employed the GRI’s Sustainability Disclosure Database to look for

financial services companies worldwide that disclosed a GRI-based sustainability

report between 2012 and 2013. In accordance with GRI (2013), we selected only those

companies whose reports followed guidelines G3, G3.1 or G4, and we excluded ‘no-

GRI’ and ‘GRI-referenced’ reports. As shown in Table 1, CSR reporting is more

frequent in OECD countries, although the relative number of reporters slightly lowered

between 2012 and 2013, as opposed to the relative number of reporters in non-OECD

countries, which slightly increased. Most reports pertained to large companies,

although the percentage lowered throughout the period, in contrast to MNEs

(multinational enterprises) and SMEs (small and medium-sized enterprises). Regarding

listing status, listed companies represented the highest percentage among CSR

reporters, although it lowered over 2 years, unlike non-listed companies. Most

companies used the financial services supplement, and almost half the companies

adopted assurance. Table 2 reveals that it is more commonplace among companies

from OECD countries, large companies and listed companies, and most of them used

the sector supplement and opted for an accountant as assurance provider. Proportions

were similar over 2 years.

Table 1- CSR reporters (sample 1)

2013 2012 n % n %

Country status Non-OECD 157 41.5 133 41.0 OECD 221 58.5 191 59.0 Size SME 34 9.0 28 8.6 Large 273 72.2 238 73.5 MNE 71 18.8 58 17.9 Listed Non-listed 152 40.2 123 38.0 Listed 226 59.8 201 62.0 Sector supplement

Not used 94 24.9 102 31.5 Financial services 284 75.1 222 68.5

Assurance Non-adopter 194 51.3 172 53.1 Adopter 184 48.7 152 46.9 Total 378 100.0 324 100.0

Table 2- Assurance adopters (sample 2)

2013 2012 n % n %

Country status Non-OECD 68 37.0 45 29.6 OECD 116 63.0 107 70.4 Size SME 18 9.8 14 9.2 Large 133 72.3 115 75.7 MNE 33 17.9 23 15.1 Listed Non-listed 62 33.7 54 35.5 Listed 122 66.3 98 64.5

Sector supplement

Not used 35 19.0 34 22.4 Financial services 149 81.0 118 77.6

Assuror Non-accountant 55 29.9 42 27.6 Accountant 129 70.1 110 72.4 Total 184 100.0 152 100.0

3.2. Variables measurement

To achieve our purpose, we employed cross tabulations and Pearson’s chi-square test

to analyse whether the adoption of assurance and choice of assuror are significantly

associated with the financial services industry, country status, company size, listing

status and use of the sector supplement, and we checked whether the type of assuror

is significantly associated with the assurance scope, assurance level and assurance

standards.

We defined variables by adapting the GRI data legend (GRI, 2012). Thus, the

INDUSTRY variable refers to the industry in which the company operates. It takes the

value ‘0’ if the company does not operate in the financial services industry and a value

of ‘1’ if it does. The ASSURANCE variable indicates whether a company adopts

external assurance. It takes the value ‘0’ if the company is a non-adopter and ‘1’ if it is

an adopter. The ASSUROR variable indicates the type of firm that provides the

external assurance. It takes a value of ‘0’ if the assurance provider does not belong to

the accountant profession (including engineering firms and small

consultancies/boutique firms) and a value of ‘1’ when the assurance provider is an

accountant. The COUNTRY STATUS variable shows whether the country where the

company is located is an OECD member or not. It takes the value of ‘0’ if it is a non-

OECD country and ‘1’ if it is an OECD country. The SIZE variable follows EU

definitions of organisation size. It takes a value of ‘0’ for SMEs (fewer than 250

employees, with a turnover below 50 million € or with assets below 43 million €), ‘1’ for

large enterprises (more than 250 employees and more than 50 million € in turnover or

43 million € in assets), and ‘2’ for MNEs (large and multinational). The LISTED variable

refers to the listing status. It takes a value of ‘0’ if the company is not listed and ‘1’ if it

is. The SECTOR SUPPLEMENT variable indicates whether a company uses, or not,

the financial services sector supplement. It takes a value of ‘0’ if a company does not

use the supplement and ‘1’ if it does. The ASSURANCE SCOPE variables takes a

value of ‘0’ when scope is not specified, ‘1’ when scope specifies sections or

greenhouse gas only, and ‘2’ when scope is the entire report. The LEVEL OF

ASSURANCE takes a value of ‘0’ when the level is not specified, ‘1’ when it is

limited/moderate and ‘2’ when it is reasonable/high or a combination of both levels. The

ASSURANCE STANDARD variable takes a value of ‘0’ when no standard is used, ‘1’

when the AA1000AS is applied, ‘2’ when the ISAE 3000 is applied, and ‘3’ when they

are combined.

4. RESULTS

Findings in Table 3 refer to the adoption of assurance and are related to the sample of

CSR reporters (sample 1). As we can see, 48.7% of the GRI-based reports published

in 2013 by financial services companies underwent external assurance compared to

41.1% in other industries and to 42.1% on a global scale. Financial services companies

are more likely to adopt assurance than companies from other industries, whereby the

industry is significantly associated with assurance (p < 0.01). The relative number of

companies that adopted assurance increased from 2012 to 2013, but this increase was

higher in the financial services industry (1.8 points) than in other industries (0.2 points).

According to the results, 43.3% of the companies domiciled in non-OECD countries

adopted assurance in 2013 in comparison to 52.5% of companies from OECD

countries. Thus we found a significant association between country status and the

decision to adopt assurance (p < 0.10). Specifically, the companies located in OECD

countries are more likely to assure their CSR reports. We also found that differences

were more significant in 2012, when adopters represented 33.8% of the companies

from non-OECD countries and 56% of companies from OECD countries. In relative

terms, the number of assurance adopters rose by 9.5 points in non-OECD countries,

while it decreased by 3.8 points in OECD countries.

The percentage of assurance adopters in 2013 was higher for SMEs (52.9%) than for

large companies (48.7%) and MNEs (46.5%). However, no significant association was

found between company size and assurance (p > 0.10). Compared with 2012, the

relative number of adopters grew by 2.9 points for SMEs, 0.4 for large companies and

6.8 for MNEs. When differentiating between large companies (which include large and

MNEs) and SMEs, we found no significant association with assurance. Once again we

found no significant differences when separating MNEs and non-MNEs.

It is revealed that 54% of listed companies adopted assurance in 2013 in comparison

to 40.8% of non-listed companies. These differences are significant for adoption of

assurance (p < 0.05), whereby listed companies are more favourable to assuring their

CSR reports. Between 2012 and 2013, the relative number of adopters grew by 5.2

points among the listed companies and fell by 3.1 points among the non-listed ones.

The data show that the companies using the financial services sector supplement are

more likely to adopt assurance (52.2%) than those not using it (37.2%). It indicates a

significant association between both factors (p < 0.05). As regards 2012, it should be

noted that assurance went up among the companies that did not use the sector

supplement.

Table 3- Factors associated with assurance

2013 2012 Non-

adopter Adopter Total Non-

adopter Adopter Total

n % n % n % % % n % n % Industry Otherwise 1,46

9 58.9 1,026 41.1 2,495 100.0 1,352 59.1 934 40.9 2,286 100.0

Financial Services

194 51.3 184 48.7 378 100.0 172 53.1 152 46.9 324 100.0

Total 1,663

57.9 1,210 42.1 2,873 100.0 1,524 58.4 1,086 41.6 2,610 100.0

Pearson Chi-Square = 7.686; p = 0.006 Pearson Chi-Square = 4.284; p = 0.038

Country status Non-OECD 89 56.7 68 43.3 157 100.0 88 66.2 45 33.8 133 100.0 OECD 105 47.5 116 52.5 221 100.0 84 44.0 107 56.0 191 100.0 Total 194 51.3 184 48.7 378 100.0 172 53.1 152 46.9 324 100.0 Pearson Chi-Square = 3.094; p = 0.079 Pearson Chi-Square = 15.496; p =

0.000 Size SME 16 47.1 18 52.9 34 100.0 14 50.0 14 50.0 28 100.0 Large 140 51.3 133 48.7 273 100.0 123 51.7 115 48.3 238 100.0 MNE 38 53.5 33 46.5 71 100.0 35 60.3 23 39.7 58 100.0 Total 194 51.3 184 48.7 378 100.0 172 53.1 152 46.9 324 100.0 Pearson Chi-Square = 0.385; p = 0.825 Pearson Chi-Square = 1.523; p =

0.467 Listing status Non-listed 90 59.2 62 40.8 152 100.0 69 56.1 54 43.9 123 100.0 Listed 104 46.0 122 54.0 226 100.0 103 51.2 98 48.8 201 100.0 Total 194 51.3 184 48.7 378 100.0 172 53.1 152 46.9 324 100.0 Pearson Chi-Square = 6.331; p = 0.012 Pearson Chi-Square = 0.722; p =

0.396 Sector supplement

Not used 59 62.8 35 37.2 94 100.0 68 66.7 34 33.3 102 100.0 Financial services

135 47.5 149 52.5 284 100.0 104 46.8 118 53.2 222 100.0

Total 194 51.3 184 48.7 378 100.0 172 53.1 152 46.9 324 100.0 Pearson Chi-Square = 6.558; p = 0.010 Pearson Chi-Square = 11.024; p =

0.001

In Table 4, we present findings related to the choice of assuror, which refer to the

sample of assurance adopters (sample 2). In 2013, 70.1% of the companies from the

financial services industry preferred accountants to apply assurance compared to

59.2% of companies from other industries and to 60.8% on a global scale. Therefore,

financial companies are more likely to choose an accountant as an assurance provider,

whereby a significant association exists between the industry and the assurance

provider (p < 0.01). From 2012 to 2013, the number of assurances carried out by

accountants increased in all industries, although this number was lower in relative

terms in the financial services industry (2.3 points).

Most assurance adopters located in non-OECD countries (72.1%) opted for a

professional accountant to assure their CSR reports. Similarly, adopters from OECD

countries preferred accountants to carry out external assurance (69%). Yet regardless

of country status, most companies chose accountants as assurance providers in 2013.

In line with this, we did not find a significant association between country status and

choice of assuror (p > 0.10). With regards to 2012, the percentage of companies that

opted for accountants lowered, especially in non-OECD countries. So, there are fewer

differences between countries, and companies show certain movement towards non-

accountant providers.

Table 4 – Factors associated with assurance provider

2013 2012 Non-

accountant Accountant Total Non-

accountant Accountant Total

n % n % n % % % n % n % Industry Otherwise 419 40.8 607 59.2 1,02

6 100.0 393 42.1 541 57.9 934 100.0

Financial Services

55 29.9 129 70.1 184 100.0 42 27.6 110 72.4 152 100.0

Total 474 39.2 736 60.8 1,210

100.0 435 40.1 651 59.9 1,086 100.0

Pearson Chi-Square = 7.847; p = 0.005 Pearson Chi-Square = 11.361; p = 0.001

Country status Non-OECD 19 27.9 49 72.1 68 100.0 10 22.2 35 77.8 45 100.0 OECD 36 31.0 80 69.0 116 100.0 32 29.9 75 70.1 107 100.0 Total 55 29.9 129 70.1 184 100.0 42 27.6 110 72.4 152 100.0

Pearson Chi-Square = 0.196; p = 0.658 Pearson Chi-Square = 0.935; p = 0.333 Size SME

6 33.3 12 66.7 18 100.0 3 21.4 11 78.6 14 100.0

Large 40 30.1 93 69.9 133 100.0 32 27.8 83 72.2 115 100.0 MNE 9 27.3 24 72.7 33 100.0 7 30.4 16 69.6 23 100.0 Total 55 29.9 129 70.1 184 100.0 42 27.6 110 72.4 152 100.0 Pearson Chi-Square = 0.212; p = 0.899 Pearson Chi-Square = 0.362; p = 0.834 Listing status Non-listed 14 22.6 48 77.4 62 100.0 11 20.4 43 79.6 54 100.0 Listed 41 33.6 81 66.4 122 100.0 31 31.6 67 68.4 98 100.0 Total 55 29.9 129 70.1 184 100.0 42 27.6 110 72.4 152 100.0 Pearson Chi-Square = 2.385; p = 0.123 Pearson Chi-Square = 2.208; p = 0.137 Sector supplement

Not used 9 25.7 26 74.3 35 100.0 9 26.5 25 73.5 34 100.0 Financial services

46 30.9 103 69.1 149 100.0 33 28.0 85 72.0 118 100.0

Total 55 29.9 129 70.1 184 100.0 42 27.6 110 72.4 152 100.0 Pearson Chi-Square = 0.360; p = 0.549 Pearson Chi-Square = 0.030; p = 0.864

MNEs better favoured accountants (72.7%) than large companies (69.9%) and SMEs

(66.7%) in 2013. However, company size was not significantly associated with choice

of assuror (p > 0.10). Compared with 2012, the relative number of accountant providers

dropped by 11.9 and 2.3 points for SMEs and large companies, respectively, while it

rose by 3.1 points for MNEs. When separating large companies (including large and

MNEs) and SMEs, no significant differences were noted as regards choice of

assurance provider. Similarly, when differentiating between MNEs and no-MNEs, no

significant association was observed.

In view of the results presented, 77.4% of the non-listed companies moved towards

professional accountants in 2013 compared to 66.4% of the listed companies. We

found no significant association between listing status and choice of assuror (p > 0.10).

In comparison to 2012, the number of external assurances carried out by accountants

increased in both listed and non-listed companies. However in relative terms, it went

down to 79.6% in non-listed companies and down to 68.4% in listed ones.

Regarding the use of the financial services sector supplement, no significant

association between this factor and the choice of assuror was observed (p > 0.10). The

relative number of assurance engagements performed by accountants rose from 2012

and 2013 among the companies that did not use the sector supplement, unlike those

using the supplement.

Next results refer to the associations between type of provider and features of

assurance (scope, level and standards).

As shown in Table 5, among the assurance engagements carried out by accountants,

53.5% aimed to assure the entire report, 37.2% focused on specified sections and

9.3% did not specify scope. Similarly, among the assurance engagements performed

by non-accountants, 54.5% focused on the entire report, 32.7% on specified sections

and 12.7% did not define scope. The proportions were similar, so we did not find a

significant association between provider type and scope (p > 0.10). Between 2012 and

2013, the number of assurance engagements that did not define scope declined,

especially among accountants, whereas the growth of the assurance engagements that

aimed to assure entire CSR reports was stronger for non-accountants (11.6 points),

and the rise in those which focused on specified sections was more noticeable among

accountants (13.6 points). When testing the differences between the assurance

engagements that defined scope or did not, none were significant. Similarly, when

excluding assurance engagements where scope was not specified and comparing the

other two categories, we found no association.

Table 5 - Assuror * Assurance scope

Not specified Specified sections

Entire report Total

n % n % n % n % Panel A: 2013

Non-accountant

7 12.7 18 32.7 30 54.5 55 100.0

Accountant 12 9.3 48 37.2 69 53.5 129 100.0 Total 19 10.3 66 35.9 99 53.8 184 100.0 Pearson Chi-Square = 0.662; p = 0.718 Panel B: 2012

Non-accountant

12 28.6 12 28.6 18 42.9 42 100.0

Accountant 29 26.4 26 23.6 55 50.0 110 100.0 Total 41 27.0 38 25.0 73 48.0 152 100.0 Pearson Chi-Square = 0.674; p = 0.714

Table 6 reveals that 57.4% of the assurance engagements performed by accountants

in 2013 indicated a limited/moderate level, while 20.2% specified a reasonable/high

level or a combination of two levels. Among the assurance engagements carried out by

non-accountants, 41.8% declared a limited level and 14.5% the reasonable level or a

combination. These results indicate a significant association between provider type and

assurance level (p < 0.05). Between 2012 and 2013, the relative number of limited

assurances increased by 6.1 points for non-accountants, while it went down in 11.7 for

accountants. However, the relative number of reasonable or combined assurances

dropped by 14.1 points for non-accountants, while it rose by 6.6 points for accountants.

When testing differences as to whether the level was specified or not, we found that

accountants were more in favour of defining the level, while it was also significant.

Table 6 - Assuror * Level of assurance

Not specified Limited/moderate

Reasonable/High or Combination Total

n % n % n % n % Panel A: 2013

Non-accountant

24 43.6 23 41.8 8 14.5 55 100.0

Accountant 29 22.5 74 57.4 26 20.2 129 100.0 Total 53 28.8 97 52.7 34 18.5 184 100.0 Pearson Chi-Square = 8.416; p = 0.015 Panel B: 2012

Non-accountant

15 35.7 15 35.7 12 28.6 42 100.0

Accountant 19 17.3 76 69.1 15 13.6 110 100.0 Total 34 22.4 91 59.9 27 17.8 152 100.0 Pearson Chi-Square = 14.094; p = 0.001

As we can see in Table 7, almost half the assurance engagements performed in 2013

did not refer to any standard (44.6%), the use of the AA1000AS was more frequent

among non-accountants (29.1%), the ISAE 3000 was more widely used by accountants

(42.6%) and standards were combined in very few engagements (9.8%). Differences

between assurors were significant with regards to the application of assurance

standards (p < 0.001). Accountants used mainly the ISAE 3000, while non-accountants

applied the AA1000AS more, although they were more likely to not use standards. The

combination of standards was slightly more common among accountants. Compared

with 2012, the use of the ISAE 3000 rose, the application of the AA1000AS fell among

non-accountants, but increased among accountants, and the combination of standards

grew among all the providers, while the relative number of accountants who did not use

standards considerably declined, unlike the number of non-accountants which went up.

Table 7 - Assuror * Assurance standard

Not used AA1000 AS ISAE 3000 Combination Total n % n % n % n % n % Panel A: 2013 Non-accountant

32 58.2 16 29.1 2 3.6 5 9.1 55 100.0

Accountant 50 38.8 11 8.5 55 42.6 13 10.1 129 100.0 Total 82 44.6 27 14.7 57 31.0 18 9.8 184 100.0 Pearson Chi-Square = 33.346; p = 0.000 Panel B: 2012 Non-accountant

23 54.8 15 35.7 1 2.4 3 7.1 42 100.0

Accountant 60 54.5 6 5.5 40 36.4 4 3.6 110 100.0 Total 83 54.6 21 13.8 41 27.0 7 4.6 152 100.0 Pearson Chi-Square = 33.969; p = 0.000

5. CONCLUSIONS

This research has attempted to study whether the fact of being a company from a

sensitive sector is associated with the adoption of assurance and choice of assuror. It

also analysed whether these decisions are associated with the factors country status,

company size, listing status and use of sector supplement. Moreover, we attempted to

find differences among assurance across assurors.

The findings indicate that most financial services companies that disclosed a GRI-

based report in 2013 were large and listed companies from OECD countries, most

used the financial services sector supplement and almost half adopted assurance.

Similarly, most assurance adopters were large and listed companies domiciled in

OECD countries, used the sector supplement and chose mainly accountants as

assurance providers.

As to our first research question, significant differences were found between the

financial services industry and other industries with regards to adoption of assurance.

As a sensitive sector, its likelihood of assuring reports is greater than in other

industries, which is consistent with Simnett et al. (2009). It also shows the willingness

of companies to be accountable and to enhance their credibility towards their

stakeholders. We found that the status of the country where companies are located,

listing status and use of the sector supplement were significantly associated with the

decision to adopt assurance. Specifically, companies from OECD member countries

better favour assuring their reports, which is in line with Kolk and Perego (2010) and

Simnett et al. (2009), who found the country level factor to be a determinant of adoption

of assurance. The results also showed that listing status is positively associated with

assurance, which coincides with Zorio et al. (2013), but not with Castelo et al. (2014).

We also observed that the companies using the financial services sector supplement

are more likely to consider assurance. However, we found no association with

company size, unlike Sierra et al. (2013) and Simnett et al. (2009).

To answer our second research question, similarly to Sierra et al. (2013), we found that

the companies belonging to the financial services industry are more likely to choose an

accountant as an assurance provider. However, no significant associations appeared

between choice of assuror and country status or company size, which goes against the

findings posited by the existing literature, e.g., Simnett et al. (2013) or Perego (2009),

who established that the country level factor and size affect the selection of assuror.

Nor did we did find a connection between the assuror and listing status, unlike Zorio et

al (2013), or an association with use of the sector supplement.

Finally, in response to the third and last research question, we found that different

characteristics of assurance are inherent to the assurance provider type, which is in

line with Deegan et al. (2006). As regards the level of assurance, we found a significant

association with the assuror, which is due to the fact that accountants are more likely to

specify the assurance level than non-accountants, as pointed out by O’Dwyer and

Owen (2005). Yet even though accountants applied mainly the limited/moderate level,

there were no significant differences seen between the limited/moderate level and the

reasonable/high level or a combination of both. We also confirm that provider type is

connected with use of assurance standards. More accountants specified the standard

used, which is consistent with Deegan et al. (2006). According to O’Dwyer and Owen

(2005) and Perego (2009), non-accountants extensively use the AA1000AS approach,

which shows a greater interest in stakeholders as this standard is based on their

inclusivity and responsiveness to their concerns, and also on identifying material issues

to them. In contrast, accountants use mostly the ISAE 3000 approach. However, no

significant association between provider type and assurance scope was observed.

In conclusion, the financial services industry leads adoption of assurance compared to

other industries, which is a reflection of concern on demands of transparency and need

for credibility. Nonetheless, reports are continually being added to the GRI Database,

so the results are dynamic and constantly evolving (GRI North America, 2014).

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