AssurAnce
sustainability briefing paper 3
in partnersHip WitH
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AccountAnts And sustAinAbility
AssurAnce
Accountants have a crucial role to play in ensuring that
sustainability assurance enables users of their statements to gain
confidence in reported information and make better, informed
decisions.
assurance is needed to convince structures and practices are increasingly
stakeholders that information provided being challenged by non-financial issues,
by an organisation is credible, reliable and that new models of non-financial
and relevant. accountants, through their assurance present the industry with both
professional scepticism, rigorous approach opportunities and challenges. Central to
and technical skills, have a crucial role many of these new models of assurance
to play in ensuring that sustainability is a greater consideration of stakeholders’
assurance enables users of their statements interests and concerns.
to gain confidence in reported information
and make better, informed decisions.
it is increasingly accepted that today’s
financial reporting and audit is failing
to provide information on many of the
“
drivers that create business value. this the current systems of
is in part because many business drivers reporting and auditing
are ultimately non-financial, such as company information will need
customer service and climate change. as to change – towards the public
non-financial issues become increasingly release of more non-financial
important for strategic decision making information…customised to
and organisational evaluation, the need the user, and accessed far more
for assurance on full corporate disclosures frequently than is currently done.
relating to sustainability, as well as it is time, therefore, for all global
assurance relating to performance on capital markets stakeholders
particular issues, will increase. accountants involved to launch a process that
must recognise that traditional assurance
”
will lead to the development
of a new business reporting
model
Serving Global Capital Markets and the Global
Economy: A View from the CEOs of the International
Audit Networks november, 2006
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AssurAnce of sustAinAbility
reporting
sustainability (report) assurance has grown over the past decade
and although it remains a relatively niche market, it is a rapidly
growing area of interest to accountants.
non-financial reporting has grown with the there are indications that there will be
recognition that an understanding of non- strong growth in asia in coming years as it
financial issues is crucial to understanding has become the second largest region for
what really contributes to value creation. assurance, and further growth is predicted.
However, as with annual accounts, effective in contrast, in north america where
non-financial reporting needs more than reporting is well established, reporters are
good metrics and standardised reporting far less likely to include external assurance.
formats. What it takes is the credible and
accurate communication of what is material unlike in financial audit, accountants do not
to stakeholders, in ways that enable them have a monopoly on providing sustainability
to base decisions and actions on the most assurance and in many markets were not
appropriate information, provided in a the first movers. Certification companies
timely manner. it is now accepted that non- and boutique providers have a significant
financial issues can be material. therefore, share in some markets. Despite this,
the need to assure that they are presented accountants now have a significant and
properly is growing. growing share of the global sustainability
“
reporting assurance market. the current
independent assurance estimate of the accounting companies’
provides evidence to report global market share is 40%, rising to 56%
users that: for the global 500 largest companies,
• the right things are in the according to Corporateregister.com. Many
report – that all major issues leading accounting practices are investing
relevant to stakeholders are in this area as they acknowledge the future
included impact it will have on their work.
• the things in the report
non-financial assurance is not just about
”
are right – that data is
reliable and claims are dealing with different issues, but also about
not exaggerated” addressing new audiences and embracing
new techniques and processes. sustainability
Chris tuppen, chief sustainability officer – bt assurance has grown over the past decade
and although it remains a relatively niche
although the global trend is increasing, the market, it is a rapidly growing area of
use of external assurance for sustainability/ interest to accountants. in 1998 just over
Csr reports varies significantly across 100 reports had sustainability assurance but
regions. this is largely due to the different according to Corporateregister.com’s 2008
stages of maturity in sustainability reporting publication Assure View, almost 800 did in
and assurance. the practice was developed 2007 – representing approximately 25%
in europe and this region has the most of all sustainability reports. KpMg’s 2008
mature sustainability reporting, and as a corporate responsibility survey indicates that
consequence, a strong presence in the formal assurance is now present in 40% of
assurance market. g250 reports.
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AssurAnce on specific elements
of performAnce informAtion
Assurance can also be obtained on specific single issues as well as entire
reports. these issues include auditing labour standards, health and
safety data, water use and in particular, greenhouse gas emissions.
assurance is often seen as part of the in addition to the two cases highlighted,
corporate level reporting cycle, where the there are numerous other gHg reporting
full range of issues are considered, but and trading schemes globally, often with
assurance can also be obtained on specific different assurance needs. these include
single issues. these issues include auditing the Dutch nOX emissions trading scheme
labour standards, health and safety data (ets), the California Climate action
and water use. greenhouse gas (gHg) registry in California, the Ontario nOX
emissions are a particular growth area for and sO2 program, JV ets in Japan and
non-financial assurance, and this presents the new Zealand ets. there is also an
the accounting industry with an enormous evolving framework of standards specifically
opportunity. there are an increasing developed for gHg verification, notably
number of mandatory and voluntary gHg isO 14064-3:2006 which provides
reporting and trading schemes. all of these guidance for those conducting or managing
schemes depend on reliable and accurate the validation and/or verification of gHg
emissions disclosure for their effectiveness. assertions. the ifaC carbon accounting
there are a host of different types of gHg standard is the forthcoming assurance
disclosures that can require assurance, standard on assuring carbon emissions
from the inventory of carbon emissions information, being developed by iaasb, as
to the extent of carbon offsets and clean there is currently no accounting standard for
development mechanisms, and even the carbon emissions. this will probably look
financial impact of carbon trading schemes. at emissions information in the form of an
there is still no generally agreed framework organisation’s ‘carbon inventory’. it will also
for this, but as carbon reduction schemes include guidance on assurance of carbon
become more common the need for audit offsets and is likely to be of assistance to
and assurance will increase. financial statement auditors addressing the
value of emission trading rights.
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uK carbon reduction commitment scheme Australian national greenhouse and
energy reporting scheme
the uK Carbon reduction Commitment (CrC) scheme
is a mandatory emissions trading scheme due to begin the australian national greenhouse and energy reporting
in 2010. it will be compulsory for large commercial scheme applies to facilities producing more than 25 kt
and public sector organisations using more than 6,000 CO2 equivalent per annum or aggregate emissions of more
MWh/year of half-hourly metered electricity. emissions than 125 kt CO2 equivalents. Companies must provide
will need to be measured and reported annually and a report covering the greenhouse gas emissions, energy
proper data management systems and accurate carbon production, and energy consumption from the operation
assessments will be critical to CrC compliance, as there of facilities during a financial year. if the policing authority,
will be penalties for inaccurate reporting of emissions. the greenhouse and energy data officer, has reasonable
the scheme will be enforced through self-certification of grounds to suspect an issue of non-compliance, the
emissions, backed up by an independent risk-based audit company may be required to appoint an external auditor
regime of around 20% of organisations. However, in reality to ensure compliance with the act and regulations, in
there may well be numerous organisations looking to third addition to possible fines.
party assurance to give them greater credibility of their
reporting.
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ApproAches to
sustAinAbility AssurAnce
While verifying that information in a sustainability report is accurate is
crucial for stakeholders to be able to use the information presented, it is
not the only issue for those interested in sustainability assurance.
at present there are two key global
Country Assurance Description
standards for sustainability assurance: Standard/Guidance
isae 3000 and aa1000as (2008). isae
3000 is the standard most widely used netherlands royal niVra COs this standard is based on isae 3000, but
by accountants. it has been adopted in 3410n is focused more specifically on assurance
some jurisdictions as a national standard of sustainability reporting. it states that the
and many firms with transnational audits objective of an assurance engagement relating
to a sustainability report is an examination
have agreed to apply it directly on a global
of the information in the report to determine
basis. aa1000as is a multi-stakeholder
whether it meets the relevant reporting criteria.
standard for use beyond the accountancy the perspective of the intended users of a
profession. Many accountants are using the sustainability report is central to assurance
two together and these examples are often engagements according to the Dutch standard.
seen as best practice (see page 7). there is also a standard on the use of experts and
the two standards should be used together.
While verifying that information in a
germany generally accepted the iDW assurance standard provides
sustainability report is accurate is crucial
assurance principles for guidelines for the acceptance and performance
for stakeholders to be able to use the the audit or review of of engagements to audit or review sustainability
information presented, it is not the only reports on sustainability reports, for reporting on such engagements and for
issue for those interested in sustainability issues (iDW ass 821) the composition of the assurance report consistent
assurance. the material sustainability with the professional responsibility.
issues vary significantly by entity, and so
sustainability assurance should therefore sweden far srs standard this is used by accounting firms providing
revr 6 “independent sustainability assurance for swedish companies. it
also look at whether it is reporting on
assurance of voluntary was the first national standard in the world when
the right issues. assurance which goes separate sustainability it was issued in 2004. the standard was updated
beyond simple verification is increasingly reports” in 2006 to comply with isae 3000. During
recognised as value adding. the increased 2007 far srs started a new project to develop
use of aa1000as which is now being a standard to provide a positive statement on
referenced in 36% of assurance statements sustainability reports (“reasonable assurance”).
(up from 10%) among the 100 biggest
france guidance pratique professionnelle relative au rapport du
companies in each market considered by
Commissaire aux Comptes sur certaines
the KpMg Corporate responsibility survey
données ou informations environnementales et
2008, is further evidence of the testament sociales ou sur les procédures d’établissement
to these drivers. de ces données ou informations, contenus
dans le rapport rendant compte en matière de
in addition to isae 3000 and aa1000as développement durable.
there are several other national assurance (the text of this guidance only exists in french. this is seen as
informal guidance only)
standards and guidelines, the table on
the right gives an introduction to some of italy CnDC asseverazione e Developed in 2006 and includes general
these. report di sostenibilità” principles for carrying out external assurance on a
(sustainability report sustainability report.
assurance)
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isAe 3000 AA1000As
the majority of the iaasb standards are for audits and the aa1000 assurance standard is a principles-based
reviews of historical financial information, however, it standard that provides an approach specifically aimed at
also produced isae 3000 (international standard on full sustainability assurance. it addresses the underlying
assurance engagements 3000) in 2004 as a standard management and reporting systems and processes as well
for non-financial assurance engagements. it is a generic as the reported information. aa1000as (2008) provides
standard that outlines basic procedures for an accountant a methodology for assurance providers to evaluate and
to follow. it may therefore be used to support non-financial provide conclusions on:
assurance engagements of many kinds. it is used by many
accountants as a basis for assurance on Csr/sustainability - type 1 - the nature and extent of adherence to the
reports. aa1000 accountability principles
the isae 3000 has comprehensive procedures for
- type 2 – the nature and extent of adherence to the
evidence gathering processes, assurer independence
aa1000 accountability principles and the quality of
issues and other areas. it requires the level of assurance
the information publicly disclosed on sustainability
to be stated based on the risk of the engagement. a
performance.
‘limited’ level assurance engagement conclusion must
be stated in negative language whereas a ‘reasonable’
the accountability principles are:
level assurance engagement must be stated positively.
Whilst this language is accepted by traditional users of
inclusivity (foundation principle): for an organisation that
corporate information, some stakeholders find the use of
accepts its accountability to those on whom it has an
negative language confusing. a limited assurance process
impact and who have an impact on it, inclusivity is the
must be at least sufficient for the practitioner to obtain a
participation of stakeholders in developing and achieving
meaningful level of assurance as the basis for a negative
an accountable and strategic response to sustainability.
form of expression.
isae 3000 sets out in detail the characteristics of criteria Materiality: Materiality is determining the relevance
for them to be suitable for assurance. assurance criteria and significance of an issue to an organisation and
exhibit the following characteristics: its stakeholders. a material issue is an issue that will
influence the decisions, actions and performance of an
1. relevance: relevant criteria contribute to conclusions
organisation or its stakeholders.
that assist decision-making by the intended users.
2. Completeness: criteria are sufficiently complete when
responsiveness: responsiveness is an organisation’s
relevant factors that could affect the conclusions in the
response to stakeholder issues that affect its sustainability
context of the engagement circumstances are not omitted.
performance, and is realised through decisions, actions
Complete criteria include, where relevant, benchmarks for
and performance as well as communication with
presentation and disclosure.
stakeholders.
3. reliability: reliable criteria allow reasonably consistent
evaluation or measurement of the subject matter including,
where relevant, presentation and disclosure, when used in
similar circumstances by similarly qualified practitioners.
4. neutrality: neutral criteria contribute to conclusions that
are free from bias.
5. understandability: easy to understand criteria contribute
to conclusions that are clear, comprehensive, and not
subject to significantly different interpretations.
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current trends in sustAinAbility
AssurAnce
there are three emerging trends in sustainability assurance:
the use of stakeholder panels, integrated assurance and
corporate feedback on assurance statements.
Stakeholder panels for assurance majority of these integrated reports still
stakeholder panels comprising an invited provide two assurance statements, a
panel of interested parties to undertake traditional financial audit statement and
assurance are used by some reporting a statement that covers the sustainability
organisations to enhance and in some information. basf are an exception,
places replace more formal assurance. producing a single assurance statement
such panels are a way of involving external in 2007, which covered financial and
stakeholders in the assurance process and elements of non-financial information. as
tend to focus heavily on the ‘are the right the number of assurance statements and
things included?’ element of assurance the market share of accountancy firms
rather than the verification of data. there is significantly higher for these types of
are concerns on the role of stakeholder reports, the anticipated growth of this
panels for a number of reasons, including trend could mean new opportunities for
the perceived or real lack of rigour in this accountants.
process and the independence of panel
members. However, a well arranged panel Corporate feedback on assurance
can augment or enhance assurance if it statements
has the remit to question, criticise and a more recent trend noted in reports
investigate and contains members with published in 2008, most notably bat and
auditing experience. Holcim, was the willingness of the reporting
entity to respond to the sustainability
Integrated Assurance assurance statement. in some cases this
a recent corporate reporting trend, was to articulate their explanation where
particularly in europe but also in places the assurance statement had highlighted a
such as brazil, is to produce integrated limitation, in others it was to respond more
annual financial and sustainability reports. positively to the findings of the statement
these reports present a wide range of and make commitments for improving
sustainability issues in the same document a particular aspect during the coming
as traditional financial and narrative year. this feedback is symptomatic of the
disclosures. this development is seen use of sustainability assurance as part
as a way of elevating key sustainability of the internal learning process, as well
issues into the mainstream readership of as the external communication process.
annual reports, because these issues can leading reporters increasingly want to be
have a material impact on performance. challenged by their assurance providers and
the number of these reports and by responding in this way allows for reporting
consequence the number of assurance and assurance to be part of a transparent,
statements in these reports is still low, continuous improvement process.
perhaps just 100 globally in 2007. the
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the future of AssurAnce
it is clear from the information in this paper
that standards and assurance practices
are evolving. this evolution is not just in
the hands of the accountancy profession
because of its very nature this is becoming
a multi-disciplinary process that will involve
many teams with different professional
skills. accountants have a big opportunity
to shape the future landscape, but must
be aware that to a larger degree than in
financial reporting they will need to work
with professionals far beyond the traditional
walls of their profession.
in the long term there is a need for a new
blueprint that creates a reporting and
assurance model which is stakeholder
focused, principles based, integrated
(financial and non-financial), applicable
internationally, easy to understand and
economically efficient for business.
accountants have an enormous role to play
in creating this model for the future.
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role of the AccountAnt
accountants are in a good place to lead the because of the assurance-specialist
development of non-financial assurance; knowledge of assurance and often their
but this is, and will continue to be, hand command of extensive international
in hand with other professions. those standards, the accountant is particularly
with a background and understanding well placed to contribute to the assessment
of non-financial impacts, which can of risk, based on an understanding of the
be as wide ranging as sustainability, client’s circumstances including related
environment management, human rights, control systems. Knowledgeable assurance
community affairs, health and safety and providers can also be of enormous use
carbon management, are in a position to the internal management of reporting
to question the choice of materiality and organisations as well as to external users of
responsiveness by a corporate. their statements. in the future, accountants
would be expected to articulate the
Working together, accountants can apply differences between stakeholder panels
their training, experience and knowledge and full assurance to clients, and in
of accepted standards in assurance to some instances these panels and formal
multi-disciplinary teams which would assurance providers need to work alongside
benefit from the inclusion of sustainability each other.
professionals and other stakeholders. the
rigour applied during the assurance process accountants are well placed to link financial
and levels of accepted professional value and non-financial assurance within their
(which includes integrity and transparency) standard practices. However to fully
brought by accountants to non-financial understand the implications of providing
assurance, will support confidence non-financial assurance, accountants
levels in report audiences; particularly should be building their knowledge of
if sustainability reports sit outside the social, environmental and sustainability
mainstream financial annual report of a issues and supporting the development
corporate. of internationally accepted measurement
and reporting standards. Working in
partnership with professionals in this
sphere will ensure that non-financial
reports which are assured have been
given the due care needed to provide
readers with confidence that all concerns
such as materiality, risk management and
future proofing have been addressed and
recognised quality standards met.
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references
accountability (aa1000, assurance, stakeholder panels)
aCCa (reporting and assurance)
iaasb (assurance, links to financial audit, carbon accounting and assurance)
isO (greenhouse gas Verification)
pWC (research on assurance and stakeholder panels working together)
KpMg (Corporate responsibility survey 2008, Assurance)
Department for environment food and rural affairs (Defra), 2007, EU Emissions Trading
Scheme: Guidance on Annual Verification
european Co-operation for accreditation (ea), 2006, ea-6/03 EA Guidance for
Recognition of Verification Bodies under EU ETS Directive
federation des experts Comptables europeens (fee), 2006, Key Issues in Sustainability
Assurance: An Overview
the european sustainability reporting association
Corporateregister.com (Assure View, 2008 publication)
Author aCCa, accountability and KpMg
Publisher aCCa uK
Date May 2009
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