Sustainability assurance as a driver of change for the auditing profession
Anton Du Toit (Monash South Africa, wholly owned by Monash University)
Abstract
Some of the large external auditing firms are currently providing assurance on sustainability reports,
dealing with the triple bottom line. A literature review provides evidence that not nearly enough
literature (and underlying research) is available on the competencies of assurance providers. Some
competencies like language and semantics skills and the ability to use mathematics or econometric
models to assist in predicting the future have not yet been explored even at grassroots level. A
content analysis of assurance reports indicates large variations in the use and interpretation of
international guidelines for providing sustainability assurance.
It is becoming clear that a focus on financial data by the large companies in the world is not
sufficient any longer. This means that the role which the traditional external auditor of financial
statements plays is in a process of being diminished. The question is whether the external auditor is
able/competent to provide evidence on other data than financial data (for example, by providing
sustainability assurance). Sustainability data covers many aspects which are not covered at all in the
education and training of an external auditor. There are many competitors in the sustainability
assurance business. Consultancy firms and other assurance providers might very well take over this
market if the auditing profession does not act pro-actively.
This paper will explore the possibility of the external auditor extending his/her scope of work to
include sustainability assurance at an acceptable level. Many factors need to be considered, such as
education and training (and the need to include logic, language, semantics and technical aspects on
the triple bottom line), disclosure of competencies, the philosophy of auditing and its postulates and
the possibility of enhancing/modifying current related auditing standards to an acceptable level
without creating an expectation gap.
This paper will address the need to use sustainability assurance as a driver of change in the auditing
profession in order to become competitive once again and in order to widen its scope to address the
needs of the international business society.
Key words
assurance provider/auditor
audit of non-financial information
auditing profession
competencies of assurance provider
corporate governance
philosophy of auditing
postulates of auditing
standards on assurance
sustainability assurance
sustainability reporting
Correspondence details
Anton du Toit
Academic Director: Accounting
Monash South Africa
P/Bag X60
Roodepoort 1725
South Africa
Phone:
Fax:
E-mail:
Web:
+27(0) 11-950 4216
+27(0) 18-293 3689
anton.dutoit@buseco.monash.edu
www.monash.ac.za
1
1.
Introduction
1.1
Background
The external audit profession had to face many changes in the past century or two. The drivers of these
changes are very briefly summarised by Matthews (2006):
…aside from the largely exogenous but enormously important computer revolution, the causes of
the changes in auditing techniques detailed … were basically economic and a function of the
changes among the auditor’s clients – the growth in their size before 1980 and the growing
internationally competitive environment thereafter. The audit profession is, of cause, part of the
financial services sector, and, as might be expected of a service industry, the conduct of the audit
process responded to the needs of the paymaster.
Some factors influencing change in the auditing profession is quoted above, and the question arises if the
auditor is currently facing a new challenge – a new driver for change. This paper explores the possibility that
sustainability assurance might be the next big driver for change.
For many years during the previous century, large companies and corporations produced and published only
one kind of report – the annual report, which includes the annual financial statements, audited by an external
and independent auditor, usually belonging to and accredited by a professional body which belongs to IFAC
(International Federation of Accountants). Most of the financial disclosures are using the International
Financial Reporting Standards (IFRSs) as a benchmark (UNCTAD 2006).
Due to corporate failures and many other reasons, a focus on corporate governance took place in the 1990s
and, amongst others, the Cadbury report was published in the United Kingdom in 1992 (Masocha &
Weetman 2005) and the King report in South Africa in 1994 (IoD 1994).
The 1990s saw a steady increase in companies and corporations also reporting on the triple bottom line (the
social, environmental and economic dimensions of their performance). Some reports were (and some still
are) included in the financial reports or annual report, while stand-alone reports also started to emerge,
carrying various descriptions like sustainability reports, CSR (Corporate Social Responsibility) reports,
social reports, environmental reports, corporate accountability reports, and a few more (ACCA 2004, Du
Toit 2007a). For purpose of this paper, these will be collectively called “sustainability reports”. Also note
that disclosure of corporate governance compliance and practices has also increased in the last decade or two
(in most instances still included in the annual report).
Many international companies are voluntary subscribing to the GRI (Global Reporting Initiative) guidelines
of 2006 in providing sustainability reports (covering the triple bottom line of economic, social and
environmental reporting).
Assurance is given on some of these reports and none on the others. Where assurance is given, it is usually
done by the traditional external auditor of the financial statements, or by external consulting companies.
Assurance is sometimes provided by an ad hoc panel of experts. It may also be done by internal audit (ABI,
as quoted by ICAEW 2004b). For the remainder of this paper, assurance on sustainability reports will be
called “sustainability assurance”. The main focus of this paper is the external auditor providing sustainability
assurance, and the terms “auditor” and “audit firm” refer to the external auditor or external audit firm.
External consulting companies, verification firms and panels of experts will be called “other assurance
providers” as opposed to the external auditor as assurance provider.
Verification of environmental and social reporting is necessary for it to be credible. As in financial
accounting, it must be done by competent and independent auditors who were not involved in the production
of the environmental and social accounts (UNCTAD 2004). It represents at least a commitment of financial
and intellectual resources to the reporting process (CorporateRegister.com Limited 2008).
2
According to Ballou, Heitger and Landes (2006), a sustainability report’s quality and usefulness may easily
be reduced if no independent assurance report is issued thereon. Aspects of sustainability reports are
auditable because they are quantitative and verifiable. There are, however, also many qualitative statements
about risk management and performance and quantitative measures that are not reliable enough to audit. The
reports are, therefore, mostly limited in scope.
Internationally, assurance providers are guided by AA1000 Assurance Standard of AccountAbility and/or by
the ISAE 3000 standard of the IAASB (International Auditing and Assurance Standards Board), which both
recommend that the assurance provider should be competent and report this.
In many countries in the world, a bigger focus than the financial information of corporations emerged in the
past decade. In the United Kingdom, a business review (BR) is required by the Companies Act of 2006. In
the United States, the Sorbanes-Oxley Act was passed in 2002, establishing an oversight board for the
auditing profession after the Enron, Worldcom and other scandals. This board is called the Public Company
Accounting Oversight Board (PCAOB). This act also provides more requirements for management to report
on internal controls and to sign off accounts (IFAC 2004).
From the above, it is becoming clear that a focus on financial data by the large corporations or companies in
the world is not sufficient any longer. This means that the role which the traditional external auditor of
financial statements plays is in a process of being diminished. This is also evident form the fact that many
small companies and corporations are not subject to a statutory audit any longer (in many countries, like the
United Kingdom (Chambers 2006)). Auditors are slowly moving towards the field of providing assurance on
matters other than financial statements, according to Chambers (2006). The question is whether the auditor
is able/competent to provide evidence on other data than financial data (for example, by providing
sustainability assurance). Sustainability data covers many aspects which are not covered at all in the
education and training of an auditor. There are many competitors in the sustainability assurance business.
Other assurance providers like consultancy firms might very well take over this market if the auditing
profession does not act pro-actively.
1.2
Problem statement
With the audit of financial statements and the related financial information, there was never a real need or
reason for the auditor to give assurance on prospective instead of historical data (except for some limited
assurance as to going concern), or to give assurance on non-financial data. For reasons like these, the
auditor, in academic education and mostly in on-the-job training, never acquired skills and competence in
giving assurance about the future, or in assessing triple bottom line data and non-financial data, or in
semantics in order to assess non-financial language and wording.
As an example, a literature review done by Du Toit (2007b) provides evidence that not nearly enough
literature (and underlying research) is available on the competencies of assurance providers, and more
specifically from the audit profession. Some competencies like language and semantics skills and the ability
to use mathematics or econometric models to assist in predicting the future have not yet been explored even
at grassroots level.
Furthermore, a content analysis of assurance reports done by Du Toit (2007b) indicates large variations in
the use and interpretation of international guidelines for providing sustainability assurance.
The above is an indication that the profession is indeed changing into becoming sustainability assurance
providers, but that the profession still lacks the necessary research on the philosophy of auditing and on the
practical implications for making this change.
3
1.3
Objectives and methodology
This paper will, firstly, explore the possibility of the auditor extending his/her scope of work to include
sustainability assurance at an acceptable level. It will explore the philosophy of auditing and its postulates to
determine if it should in fact be done by the auditor.
Secondly, should the answer be positive (to perform sustainability assurance) or seemingly an attainable
goal, many factors (practical implications) need to be considered, and the auditing profession should
organise itself in order to do it properly. Factors to be considered are, amongst others, education and training
(and the need to include language, logic, semantics and technical aspects on the triple bottom line);
disclosure of competencies; and the possibility of enhancing/modifying current related auditing standards to
an acceptable level without creating an expectation gap (or enlarging the expectation gap).
This study forms part of the pre-study for a doctorate degree and a number of empirical research studies still
need to be done, but the basic research for this study is on the philosophical level, making it interdisciplinary. This study is performing an analysis of trends and changes that are happening and thus contains
mainly an exploratory literature survey, as well as a limited review of contents of sustainability reports and
assurance reports, in order to build strong deductive arguments.
Being conceptual rather than empirical, this paper makes observations and assertions, the latter in particular
being amenable to further research, especially of an empirical nature (courtesy of Chambers (2006)).
This paper excludes any deep analysis of the reasons and drive behind sustainability reports and their related
assurance. It also excludes market needs and market perceptions. The need for corporate governance, for
sustainability reporting, and for providing sustainability assurance have been established in many research
papers and documents.
This paper will thus address the need to use sustainability assurance as a driver of change in the auditing
profession in order to become competitive once again and in order to widen its scope to address the needs of
the international business society.
2
LITERATURE SURVEY
2.1
Brief history of the auditing profession
Before starting to explore a new possible driver of change in the auditing profession, it is indeed necessary
to find out if the auditing profession is actually able to change. In exploring the history of auditing,
Matthews (2006) found the following:




The bookkeeping audit was the first identifiable stage of auditing in Britain, ranging from the late 1800s
to the 1960s. This was characterised by the auditor performing quite a number of the accounting work
for the client and then performing an audit of vouching and checking postings and castings.
Labour of accounting firms became more expensive in the 1950s – articled clerks started to earn a
salary. Furthermore, the audit clients became larger in size. During 1960 to 1980, it started a decline in
the accounting function of the auditor and the rise of the balance sheet. Greater reliance was placed on
statistical sampling and testing, adopting audit manuals and having a larger reliance on internal controls
and the systems approach.
The greatest single change in auditing came with the technological revolution embodied in the electronic
computer. The advocates of auditing through the computer (instead of around it), seemed to gain the
upper hand in the late 1960s.
Since 1980, growing commercial pressures meant that audit firms have had to cut their costs, and one
then sees the rise of risk assessment and reliance on analytical review (two rather cheap processes). It
4
seems that materiality did not come fully into its own, together with risk and analytical review, until the
1980s.
The above is a very brief summary of what happened in Britain. Britain followed more or less what
happened in the United States (Matthews 2006), and many countries in the world followed the British
developments (e.g. Australia and South Africa).
Changes are also developing in the area of how financial and non-financial information is communicated to
the investment community, according to Henry (2008). She continues to state that the technological changes
which are evident from the growing acceptance of Extensible Business Reporting (XBRL), and which are
converging with the rapidly embracing International Financial Reporting Standards (IFRS), should spark
change in the auditing profession. She argues that XBRL and sustainability reporting will impact the
convergence equation as there will be less focus on historical accounting issues and more proactively a focus
on strategic reporting. This change in focus will also change the role of auditors.
It is the view of Sheridan (2008), chief executive of the Institute of Chartered Accountants in Ireland (ICAI),
that the profession has an ability to respond to broader societal and economic change. He regards this ability
as a hallmark of the profession. He states that the profession should continue to adapt if it wants to survive.
2.2
The postulates of auditing
The well-known eight tentative postulates of auditing as defined by Mautz and Sharaf (1961) are:








Financial statements and financial data are verifiable. Without verifiable financial data, auditing has no
reason to exist. It is about logical statements and finding evidence and the procedures of verification.
There is no necessary conflict of interest between the auditor and the management of the enterprise
under audit. This does not mean conflict of interest is impossible, but no necessary conflict need to exist.
The auditor should assume that management is honest and not involved in fraudulent activities.
The financial statements and other information submitted for verification are free from collusive and
other unusual irregularities. If the auditor does not work from this assumption, a very extensive audit
program would be the result.
The existence of a satisfactory system of internal control eliminates the probability of irregularities. The
word “probability” as opposed to “possibility” is important in this sense. This postulate highlights the
importance of internal control to the auditor.
Consistent application of generally accepted principles of accounting results in the fair presentation of
financial position and the results of operations. The auditor needs a standard for judging the fairness of
financial statements. Without this, the audit opinion would become very personal and would be of
almost no value.
In the absence of clear evidence to the contrary, what has held true in past for the enterprise under
examination will hold true in the future. The assertions of the past should hold true for the future (or at
least for the current audit). Without this postulate, the extent of an auditor’s responsibilities and his
obligation to forecast the future would not have limits.
When examining financial data for the purpose of expressing an independent opinion thereon, the
auditor acts exclusively in the capacity of an auditor. Where other services are performed during the
audit, they must be regarded as secondary. The main focus point here is independence of the auditor.
The professional status of the independent auditor imposes commensurate professional obligations,
which include due care, service before personal interest, and the standard of professional proficiency.
These postulates were analysed and evaluated extensively in the years since 1961. For example, one
researcher has evaluated the postulates of Mautz and Sharaf, Krogstad and Flint and came to the conclusion
that only the following three postulates are acceptable (Lubbe 1981):

Financial statements and information are verifiable.
5


An auditor must be consistent in his performance and actions.
The primary objective of auditing is reporting.
An obvious problem with the postulates of Mautz and Sharaf and many after them is the omission of an
audit risk model and the concept of materiality. This is easy to say in hindsight, but these factors should
nevertheless be considered when audit theory or audit philosophy is discussed.
In discussing the theory and philosophy of auditing as stated above, one should remember that the concept
financial information is a key concept and that non-financial information was not even considered until
recently. For that reason, sustainability reporting now has to be considered from a foundation or
philosophical basis in order to progress towards the discussion of a change in the auditing profession.
Before the philosophy and postulates are revisited, a literature survey is performed on the most important
aspects of sustainability reporting and assurance and the relevant standards.
2.3
Sustainability reporting and standards
In 1994, John Elkington coined the term triple bottom line (Elkington 2004) or abbreviated as TBL. It
focuses companies and corporations on the economic, environmental and social value that they add or
destroy (Elkington 2004). It is all about accountability, and these three dimensions are certainly dimensions
of the concept of sustainability (Henriques 2004), which has become the latest accepted term in this regard.
Henriques (2004) also argues that the original financial bottom line is not replaced by the economic bottom
line of this model, but is included in it.
It is, however, important to realise, for the sake of the arguments in this paper, that the sustainability concept
or the triple bottom line concept is about having non-financial information in addition to the traditional
financial information, which was always disclosed in the annual financial statements. This trend leads to an
integration of financial and non-financial disclosure, according to White (2005).
Users of financial statements have access to a range of financial and non-financial information. Respondents
in a study by IFAC (International Federation of Accountants) in March 2008 were supportive of including
more non-financial information in financial reports. Respondents felt that companies needed to improve
their reporting on corporate social responsibility issues and environmental issues. This was done in an
independent global survey of IFAC (2008) among the participants in the financial reporting supply chain.
A study of Orens and Lybaert (2007) found (and confirmed the results of some other studies) that financial
analysts have to rely on non-financial information such as future activities of the company or realisation of
acquisitions by the company. It was also found that the disclosure of non-financial forward-looking
information has a positive influence on the accuracy of earnings forecasts of analysts.
Sustainability reporting is also about stakeholder reporting, which requires an integrated approach (IoD
2002). There are internal stakeholders like management, shareowners, employees, etc., as well as external
stakeholders in the community and in society and those involved in environmental or “green” issues,
according to Du Toit (2007a). The external stakeholders include potential investors, revenue services, the
media, ethical and green pressure groups, suppliers, etc.
The Global Reporting Initiative (GRI) defines sustainability reporting as “the practice of measuring,
disclosing, and being accountable to internal and external stakeholders for organizational performance
towards the goal of sustainable development” (GRI 2000-2006). The most dominant reporting framework,
guidelines and principles are those published by the GRI – these standards can be considered as generally
accepted (Ballou, Heitger & Landes 2006). The latest are the G3 guidelines published in August 2006.
The GRI Guidelines are for voluntary use by organisations for reporting on the economic, environmental,
and social dimensions of their activities, products, and services based on reporting principles (KPMG 2005).
6
According to KPMG (2005) 660 companies reported on the GRI basis in 2005. This number has now grown
to 2,470 (GRI 2008). It is still only done by 32% of 2 500 reports surveyed by www.CorporateRegister.com
(2008).
The KPMG International Survey of Corporate Responsibility Reporting 2005, also reports a steady increase
in sustainability reporting since 1993, and 52% of the G250 (the top 250 companies of the Global Fortune
500) and 33% of the N100 (the top 100 companies in 16 countries analyzed by KPMG) issued separate
sustainability reports in 2005, compared with 45% and 23% in 2002 (KPMG 2005).
There is increasing pressure for mandatory sustainability reporting. Countries like France, South Africa and
Denmark requires a degree of sustainability reporting as part of the stock-market listing requirements
(ACCA 2004). In the United Kingdom, a business review (BR) is required by the Companies Act of 2006. In
the United States, the Sorbanes-Oxley Act was passed in 2002, establishing an oversight board for the
auditing profession.
Independent assurance of sustainability reports forms the focus of this paper and will be explored further
below. The number of reports with an assurance statement was 30% for the G250 and 33% for the N100
(KPMG 2005). In the report of CorporateRegister.com (2008) CR Reporting Awards, 29% of the
sustainability reports included an external verification statement. The major accounting firms still dominated
the assurance market in 2005, when 58% of all corporations surveyed by KPMG, made use of major
accounting firms and the rest made use of certification bodies, technical expert firms, specialist firms and
other (KPMG 2005).
The audit profession is certainly experiencing change in the kind of services it provides, and sustainability
reporting (and corporate governance) is playing a major role in this change, as is evident from a study by the
ICAEW (2004b), indicating all the services the auditor could perform (summarised):








Developing corporate policies to address increased transparency and pressure to extend the boundaries
of responsibility.
Auditors could provide assurance on the application of supply chain standards.
Assist in reviewing the application and results of the stakeholder engagement process.
Review operating controls enabling businesses to comply with (ethical) codes.
Providing timely information about relevant environmental and social issues, referring to other experts
where necessary.
Providing support for emission trading schemes.
Enhancing sustainable development and progressing towards a generally accepted framework for
sustainability accounting and reporting. The goal would be that non-financial information could be
reported to the same standards as financial information, internally and externally.
Assurance processes strengthens the credibility of information. If the accounting profession does not rise
to the challenge, this service of assurance is likely to be filled by other disciplines than the auditing
profession.
The ICAEW report (2004b) concludes that external assurance reports is a role for which the accountancy
profession is pre-eminently qualified, building on initiatives such as the IAASB framework and ISAE 3000
and working with other disciplines.
2.4
Sustainability assurance and standards
The GRI Sustainability Reporting Guidelines embraces three different application levels for sustainability
reports for corporations, titled as C, B and A. “The reporting criteria found in each level reflects an
increasing application or coverage of the GRI Reporting Framework. An organization can self-declare a
“plus” (+) at each level (ex., C+, B+, A+) if they have utilized external assurance” (GRI 2000-2006).
External assurance is not a mandatory requirement, but it is recommended by the GRI.
7
In the past few years, two global assurance standards have been released to guide the work of many
assurance providers. These are ISAE 3000 and AA1000 (KPMG 2005). ISAE 3000 is the International
Standard on Assurance Engagements, published by the International Auditing and Accounting Standards
Board (IAASB) of IFAC. Its title is “Assurance Engagements other than audits or reviews of historical
financial information”, effective for accounting firms for all statements issued after 1 January 2005 (SAICA
2005). It should ensure that an assurance engagement is performed with professional rigor and independence
(KPMG 2005). It caters for both reasonable assurance engagements and limited assurance engagements
(SAICA 2005).
The AA1000 AS (Assurance Standard) was published by AccountAbility, the Institute of Social and Ethical
AccountAbility in March 2003. Stakeholder engagement is an integral part of the assurance process in
AA1000 AS, and it covers the full range of an entity’s disclosure and performance, based on materiality,
completeness and responsiveness.
In practice, the use of these two standards by assurance providers tends to result in different types of
statements. ISAE 3000, largely focused on the information in the report, places greater emphasis on the
company reporting its limitations and weaknesses. For limited assurance engagements … it also prescribes a
negative form of conclusion in the statement. AA1000 AS requires assurance providers to report their
findings against the three core criteria. This results in a narrative statement, highlighting both strengths and
weaknesses in report content as well as underlying management systems and the company's responsiveness
to stakeholder concerns” (KPMG 2005).
Two other assurance standards provide more information about the current progress and thoughts in the
auditing profession. The one is the German standard in draft format, called “Draft IDW Assurance Standard:
generally accepted assurance principles for the audit or review of sustainability reports (Draft IDW AsS
821)” (IDW 2005). The other one is the statement of NIVRA (Koninklijk Nederlands Instituut van
Registeraccountants) called “3410N Assurance engagements relating to sustainability reports” (NIVRA
2007).
The philosophy of a subject like auditing should find its first disclosure in the standards for the profession.
For this reason, the postulates of Mautz & Sharaf (1961) are now provided in a table format and the contents
of the four standards are then analysed to find any evidence of a philosophical approach or application in
these standards. This is done in Table 1.
TABLE 1 – Comparison of the four main standards on sustainability assurance with the postulates of
auditing.
Postulates of
Mautz &
Sharaf (1961)
Main features:
IDW AsS 821
(IDW 2005)
3410N (NIVRA 2007)
ISAE 3000 (SAICA
2005)
AA1000 AS
(AccountAbility 2003)
Provide for either
or both of audit of
sustainability
reports (reasonable
assurance) and
review of them
(limited assurance)
Provide for either or both of
audit of sustainability
reports (reasonable
assurance) and review of
them (limited assurance)
Provide for either or
both of audit of
sustainability reports
(reasonable assurance)
and review of them
(limited assurance)
Principles:

Materiality to
stakeholders.

Entity must completely
identify and understand
material aspects.

Responsiveness to
stakeholders.
Fully inclusive for
stakeholders.
Various levels of assurance
catered for.
8
Postulates of
Mautz &
Sharaf (1961)
1. Financial
statements and
financial data
are verifiable
(logic,
evidence and
procedures).
IDW AsS 821
(IDW 2005)
3410N (NIVRA 2007)
ISAE 3000 (SAICA
2005)
AA1000 AS
(AccountAbility 2003)
The subject matter
of the report must
be clearly
identifiable and
capable of
consistent
assessment.
Suitability of
criteria is discussed
(described in 5
below).
Verifiability
actually mentioned
as a criterion for
reliability report
content.
For audit: sufficient
appropriate
evidence must be
found.
Substantive
procedures to be
performed are
listed.
Audit evidence and
audit assertions are
discussed.
Before accepting an
engagement, make sure that
adequate assurance
evidence can be obtained.
Adequate evidence to support
the information in the
sustainability report must be
provided for the auditor to
evaluate.
Evidence might include
quantitative and qualitative
information about historical
performance, as well as about
assessing the feasibility of
targets and other
commitments. Some overall
procedures are briefly
mentioned.
2. No
necessary
conflict of
interest
between the
auditor and the
management
of the
enterprise
under audit.
—
—
The appropriateness of
the subject matter should
be assessed.
Appropriateness means it
must be identifiable and
capable of consistent
evaluation or
measurement against
criteria. It also means
that the information can
be subjected to
procedures for gathering
sufficient appropriate
evidence to support a
reasonable assurance or
limited assurance
conclusion, as
appropriate.
Subject matter can be
financial or non-financial
performance or
conditions, physical
characteristics, systems
and processes or
behaviour (as per the
framework of 2005).
Audit risk and
materiality is used.
Representations should
be obtained from
management (the word
assertion is not used).
Substantive procedures
should be performed.
—
3. The
financial
statements and
other
information
submitted for
verification
are free from
collusive and
other unusual
irregularities.
Serious deficiencies
in the reporting
system should be
reported (also in 4
below).
For a review
engagement,
mention is made of
enquiries from
management about
irregularities.
Before accepting an
engagement, verify that it is
justifiable to assume that
management is acting in
good faith.
Auditor will act according
to regulations when finding
evidence of fraud.
If information contain
material errors, auditor to
perform additional
procedures.
Risk analysis should be
performed, including
inherent risks and internal
control risks.
Tests of control and
substantive procedures are
listed.
Written representation to be
obtained from management.
Steps to obtain adequate
assurance evidence
described.
Auditor to verify that the
documents and data provide
adequate substantiation.
9
Professional scepticism
towards reliability of
documents and
representations.
Identify factors
indicative of fraud.
Impartiality towards the
stakeholders to be disclosed
in the assurance report.
Public statement of
independence and
impartiality to be made by
auditor of conflict-of-interest
policies and ongoing or
potential financial or
commercial relationships
with the entity.
Under materiality, the
guidelines expect the auditor
to form an opinion on the
materiality of omissions and
misrepresentations in the
report, as well as on
shortcomings of
completeness. Discuss these
with entity and might include
in assurance report.
Postulates of
Mautz &
Sharaf (1961)
4. The
existence of a
satisfactory
system of
internal
control
eliminates the
probability of
irregularities.
IDW AsS 821
(IDW 2005)
3410N (NIVRA 2007)
ISAE 3000 (SAICA
2005)
AA1000 AS
(AccountAbility 2003)
Auditing the
reporting system –
steps and principles
are described.
Serious deficiencies
should be reported.
Internal control risks must
be assessed, and if the
auditor wishes to rely on
internal controls, he should
obtain sufficient evidence
concerning their operating
effectiveness.
Consider inherent
limitations of internal
control.
Tests of control should
be performed.
5. Consistent
application of
generally
accepted
principles of
accounting
results in the
fair
presentation of
financial
position and
the results of
operations.
Criteria (also called
the assurance
engagement
objectives) are
described as
relevance,
suitability,
reliability (calling
for verifiability as
well), neutrality and
understandability.
Criteria also include
those established by
the GRI and other
entities.
The only reference
remotely linked to
this postulate, is
that the entity’s
ability to continue
as a going concern
should be assessed
and reported if it is
endangered.
Ascertain if the criteria used
by management are suitable.
Assess the reporting
materiality.
GRI guidelines are listed as
reporting criteria that can be
used (in the application
notes to 3410N).
The criteria to be used
must be suitable and
available to the intended
users. Suitable criteria
have the characteristics
of relevance,
completeness, reliability,
neutrality and
understandability (as per
the auditing framework
of 2005). Criteria can
also be developed.
No mention of the GRI.
The auditor to consider the
robustness of systems and
procedures underpinning the
production and application of
the sustainability report.
Suggestions for
improvements in
sustainability reporting
should form part of the
assurance report.
Criteria agreed upon between
auditor and entity.
Materiality is the key
principle involved here.
—
Auditor to consider
subsequent events.
—
The only reference
is that the
conclusions reached
must be free from
bias.
Disclosure is not
required.
Professional
responsibilities are
highlighted and
emphasized.
Competencies
required are simply
described in the
sense that the
auditor must have
the specific
knowledge and
experience to
perform a proper
engagement.
Disclosure is not
required.
Independence should be
verified before accepting an
engagement.
Disclosure is not required.
Independence is very
important and threats in
this regard should be
dealt with.
Disclosure is not
required.
Before accepting, make sure
he has the expertise.
Expertise of auditor or team
required in:

Auditing

Subject matter
examined

Management and
information systems

External reporting and
reporting standards.
Multidisciplinary team can
be used.
Expertise described in more
detail in the application
notes to 3410N.
Disclosure is not required.
Quality control should
comply with the ISQC1
standard.
Engagement accepted
only if team possess the
necessary professional
competencies.
Recommended to
disclose the
qualifications and
experience of the team in
the assurance report.
Independence from the entity
to be disclosed in the
assurance report.
Public statement of
independence to be made by
auditor declaring
independence.
The auditor’s competencies
to be disclosed in the
assurance report. Individual
competencies should include
professional qualifications,
assurance experience, and
area of expertise.
Organisational competencies
include adequate assurance
oversight (like an Assurance
Committee ensuring high
standards), adequate
understanding of the legal
aspects, and proper
infrastructure.
6. In the
absence of
clear evidence
to the
contrary, what
has held true
in past for the
enterprise
under
examination
will hold true
in the future
(assertions).
7.
Independence
of the auditor.
8. The
professional
status and
obligations of
the
independent
auditor
(including
competencies
and skills)
10
The standard is specifically
designed to be aligned to the
GRI guidelines.
In a unique way, NIVRA (2007), describe the differences between the audit of historical financial
information and the audit of sustainability information – unique in the sense that it is not done in the other
statements, and it gives a background on the discussion of the postulates of auditing:








Quantitative information in sustainability reports is not measured in monetary terms, but in units that are
mutually independent.
This quantitative information can usually not be derived from a closed accounting system. Strong
reliance is placed on stand-alone information.
The qualitative information in sustainability reporting is of equal significance as the quantitative
information.
Internal control systems or systems providing sustainability information are generally not as robust as
the systems for historical financial information (e.g. providing fewer guarantees of completeness and
accuracy).
The readers of the sustainability report are usually a wider and less homogenous group of users.
The reporting criteria of a sustainability report are more recent and less developed.
There is not yet a statutory obligation for the audit of sustainability reports.
The wording of the conclusions in the assurance report cannot yet be standardised in the form of
uniform texts.
Note that the last word about assurance standards has not yet been spoken. The FEE (Fédération des Experts
Comptables Européens) is the representative organisation for the accountancy profession in Europe, and the
FEE has issued an FEE Discussion Paper called “Key Issues in Sustainability Assurance – an Overview” in
June 2006. It makes statements like the following (FEE 2006):
FEE believes that assurance on sustainability reporting is complex and the degree of public interest
is such that standard setters should implement requirements over and above those of ISAE 3000 in
areas not addressed by ISAs, or where the matter is so important that reference to an ISA
requirement does not provide sufficient certainty.
2.5
Competencies, education and training
Many companies question it if audit firms have the required skills and knowledge to perform the task of
sustainability assurance. If one considers the levels of expertise of external auditors or auditing firms in the
traditional financial attestation role (and professional auditors’ intense technical training and education in
financial matters), doubt is raised by Du Toit (2007b) as to the expertise or competencies of the auditing
firms in producing sustainability assurance reports if expertise in the following fields is not present:



Language and semantics. Non-financial information includes not only numbers, but also paragraphs of
text. In multinational corporations, reports and interviews in various languages are combined
(consolidated) to produce the final sustainability report. If the auditor is to express assurance on these
reports, he/she or someone in the team or firm (or external consultants) should have high-level language
and translation skills.
Historical data analysis. Traditionally, the auditor looks at historical data when a financial audit is
performed (he/she is trained and educated in this regard). Sustainability reporting also includes historical
data, but the word sustainability in itself means that a forward-looking or predictive focus is present in
such a report. The risk associated with assurance on reports trying, in part, to predict the future, is
extremely high for the auditor wishing to be an assurance provider. This is more specifically true when
the auditor is reviewing qualitative data as part of the assurance engagement.
The various technical areas of environment, safety and health. Although this might seem like a short and
simple requirement, the relevant expertise lies in the fields of many professional people like doctors,
engineers, nurses and environmentalists.
11
A standard called “The Examination of Prospective Financial Information”, issued first as ISA810 and later
as ISAE 3400, became effective in July 1994. It seems that no development has taken place to consider the
competencies, education and training of the auditor or assurance provider offering this kind of examination
since then.
It is important to note that narrative reporting in financial statements is becoming extremely important,
taking into account that the directors’ report in the United Kingdom should now include a narrative style
Business Review (BR) that should include financial and non-financial key performance indicators (KPIs);
principal risks; employee, environmental and management issues; and trends and factors likely to influence
future performance (PricewaterhouseCoopers 2008 and KPMG 2007). Although not fully audited or
verified, the auditor should state whether the information in the directors’ report is consistent with the
financial statements (KPMG 2006a). To use this requirement as per the Companies Act of 2006 in the
United Kingdom as an example, it certainly implies that the auditor should be more skilled in language and
semantics than in the days when numbers and financial data made out the largest part of the audited
information.
The BR also adds pressure to the disclosure of forward-looking information (KPMG 2008). Although not
yet required by legislation, it might be seen as best practice.
Concerning the various technical areas mentioned above, one should consider what is required in the
currently available guidelines for assurance providers, who must understand the business operations as well
as the environmental and social issues of a reporting entity. This can be done by using multidisciplinary
teams (UNCTAD 2004). Assurance should, therefore, be provided by competent groups or individuals
external to the organisation (GRI 2000-2006). To give an example: the development of standards for
environmental management systems (EMS) was done by other professionals, such as engineers (ICAEW
2004b).
AA1000 AS and ISAE 3000 both address some aspects of assurance quality, such as the need for
appropriate knowledge and skills in the assurance provider, as well as the importance of independence
(KPMG 2005). According to ISAE 3000 (SAICA 2005:paragraph 9):
The practitioner should accept (or continue where applicable) an assurance engagement only if the
practitioner is satisfied that those persons who are to perform the engagement collectively possess
the necessary professional competencies.
This paragraph is quoted directly because it contains the only sentence in the standard dealing with
competencies. This requirement is supported by the FEE (Fédération des Experts Comptables Européens –
the European Accounting Association) when it states that the assurance report is important and that users
(readers) should be informed about the independence of a practitioner and how the practitioner has sufficient
competence for issuing the assurance report (FEE 2006). This can be clearly interpreted as a need to disclose
the practitioner’s competencies.
The only complete set of competencies found, are those of IRCA (International Register of Certificated
Auditors), who issued the Criteria for Certification as a Sustainability Assurance Practitioner in January
2007. IRCA operates in partnership with AccountAbility, which is viewed as an “other assurance provider”
for purpose of this paper. As described in Table 1, a summary of the areas of expertise is at least provided in
statement 3410N (NIVRA 2007).
Another partnership between AccountAbility and the international accounting body ACCA (The Association
of Chartered Certified Accountants) resulted in an excellent research report (ACCA 2004) called ‘The future
of sustainability assurance’. Some references to competencies are found in this report.
IRCA provides a professional qualification in sustainability assurance. As the qualifications (there are
various levels) are based on experience and competencies, IRCA had to describe them (IRCA 2007). IRCA
(2007) asserts that it has been particularly difficult to define the technical competencies and explains that the
12
competencies stated will continue to evolve from one year to the next. IRCA also acknowledges individuals’
experience in the field as part of the certification process. This indicates that this area has not yet been
properly researched.
It is beyond the scope of this paper to provide a detailed description of all the expertise required. The
following summary (list) of the competencies of the ‘Lead Sustainability Assurance Practitioner’, which
should be more or less on the same level of what can be expected of an external audit firm IRCA (2007),
would be sufficient for the purpose of this paper:




An understanding of Sustainability Assurance, including accounting and data review procedures and
auditing practise;
An understanding of and ability to apply and to embed techniques and processes of stakeholder
engagement and to assess and assure against these principles;
An overall understanding of sustainable development encompassing:
o
Social and ethical issues
o
Environmental issues
o
Economic issues; and
The ability to make informed professional judgements on an organisation’s sustainability performance.
In a study performing a literature survey and content analysis of actual sustainability assurance reports, Du
Toit (2007b) found the following:




Auditors and auditing firms have no minimum standards describing their competencies when performing
sustainability assurance engagements.
The nature, depth and minimum levels of competencies required by the assurance provider (in particular
the auditor) have barely been researched and research is silent on the language skills required for a
sustainability assurance engagement, as well as on the competency to be able to predict the future within
certain parameters or to be involved in prospective financial information.
The ISAE 3000 statement used by auditors specifically recommends disclosure of the practitioner’s
professional competencies, yet the majority of the assurance reports analysed in the content analysis
does not refer to competencies. Some do not even refer to ISAE 3000 or to any other set of standards or
guidelines. This may lead to uncertainty for the reader of the sustainability report, not knowing
according which standards were applied or which skills and competencies were present in performing
the assurance engagement.
Some assurance providers (including auditors) provide reasonable assurance instead of limited
assurance, implying that complete audits of the relevant sustainability reports were performed. He
describes this as a dangerous situation, as it will be very difficult to prove which audit procedures were
followed in assuring a prediction of the future which is an inherent part of sustainability reports.
A very important aspect of the competence to analyse and to audit is logical skills and logic. This was
identified as long ago as in 1961 by Mautz and Sharaf (1961), calling it the mother discipline of auditing.
Training in logic is conspicuously absent from accounting curricula, according to Nelson, Ratliff, Steinhoff
and Mitchell (2003). Nelson et al (2003) performed a study in which it was found that training in formal and
informal logic assisted auditing students to avoid critical thinking errors in real-world case studies. It is thus
important to start including a strong course in logic in university education syllabi.
2.6
Hurdles
One should bear in mind, however, that there are various hurdles or barriers to be overcome if the profession
wants sustainability assurance to grow and to become one of the mainstream services it can provide. Some
of these hurdles are:

Complexity of the data to be verified (Blyth 2005).
13







3
Cost considerations are a factor to be taken into account (Blyth 2005). If one considers only some of the
performance indicators, it is clear that they require extensive testing by the auditor, for example,
electricity consumption, business air travel in distance, CO2 emissions, etc.
Resistance to change is regularly found not only in the auditing profession, but also in the academic
institutions. Furthermore, bureaucratic red tape at both professional and academic institutions causes
changes to be made very slowly.
With the risk of making an unfounded statement, it seems that financial information is still regarded as
more important than non-financial information by both the auditing profession and the business world.
The auditing profession’s ability or willingness to make proper, founded and principled changes in
standards, where the economic factors are not the only factors, but where philosophy of a subject area
also plays a role, is doubtful.
The skills and expertise currently available in audit firms is raising doubt for many companies as to their
ability to perform sustainability assurance (Blyth 2005).
The potential for liabilities created by providing sustainability assurance is large, and will become larger
as the need for and use of non-financial information in making business decisions (like investment
decisions) become larger.
Although very much at the philosophical level, the verifiability of some non-financial data remains an
issue, as is illustrated in the above section containing quotes from sustainability reports. Blyth (2005)
describes it as a commonly mentioned obstacle that the “issues covered in sustainability reports are not
amenable to verification”.
BRIEF SURVEY OF SUSTAINABILITY AND ASSURANCE REPORTS
This section contains some brief extracts from sustainability reports and from assurance reports of some of
the GRI registered reports that indicate a higher level of assurance than limited assurance. This was not done
on a statistical basis and the reports were examined with the single view of highlighting and emphasizing
some of the issues raised in the literature survey.
Firstly, some statements made in the sustainability reports form clear examples of the predictive nature of
these reports, as well as the focus on non-financial matters, as well as the need for language skills and
semantics skills among providers of assurance (these are direct quotes in order to emphasize the importance
of the narrative descriptions found). The reader should also ask the critical question of how to audit
statements like these or provide assurance on them.
Endesa Chile SA (2007) makes the following statements:
It is a firm wager, so we will continue to promote renewable energies and their development
opportunities both in Chile and the region.
We shall therefore continue to work with enthusiasm and professionalism, as we have done until
now, with special emphasis on the feed-back of communication with those different segments,
making us, to the extent possible, respond to the needs of each of them.
The following statements were made by ABN Amro Holding NV (2007), in its 2006 report that came second
in the CRReportingAward’07 (CorporateRegister.com 2008):
In 2007 we will finish incorporating the requirement for an ESE risk policy client assessment into
the bank’s new ‘Client Take-on Process’, and make this an integrated part of the ‘Client Life Cycle’
process.
We expect further growth in 2007.
14
Climate change remains of the utmost importance and is one of ABN AMRO’s major global
sustainability themes. The way governments and societies choose to address this challenge today
will have a profound impact on current and future generations.
Increasing awareness and interest among both retail and institutional investors means the future for
sustainable investments is bright.
This report contains forward-looking statements with respect to ABN AMRO’s financial
condition, operational results and business, and some of the plans and objectives with respect to
these items. By their nature, forward-looking statements involve risk and uncertainty because
they relate to events, and depend on circumstances, that will occur in the future. There are a
number of factors that could cause actual results and developments to differ materially from
those expressed or implied by these forward-looking statements.
Rabobank Group (2007) makes the following statements in the 2006 report:
Judging by the signals we receive from society and the political arena, we expect that the aim of
achieving sustainable development in the agricultural sectors, not only in the Netherlands but also
in the rest of Europe, will gain momentum in the years to come.
Significant growth is expected in 2007. In 2007, Rabobank will introduce a nationwide climate
mortgage.
KPMG Sustainability B.V. expressed the following opinion on the Rabobank Group (2007) sustainability
report (referring to the reporting principles of materiality, responsiveness and completeness of AA1000 AS
(AccountAbility 2003)):
Based on our procedures, we conclude that the Report is reliable in all material respects, based on
the reporting principles set out on page 8.
In ABN Amro Holding NV (2007), Ernst & Young lists the assessment of the significant estimates and
calculations made in the preparation of the sustainability report as one of the procedures followed.
This section concludes with the author’s comments about the excellent assurance report of the winner of the
Credibility through Assurance award in the CRReportingAwards’07 (CorporateRegister.com 2008), which
was Ernst & Young in the BP p.l.c. (2007) sustainability report:





It clearly sets out the responsibility of management to prepare the report.
It clearly sets out its own responsibility to perform the assurance activities and that this responsibility is
towards management only.
It refers to all the standards and guidelines. It includes AA1000 AS and ISAE3000, as well as reference
to the GRI G3 reporting guidelines.
It sets out all the steps that have been performed in the assurance engagement.
It clearly sets out (and explains) the level of assurance, in the following excellent way (effectively
closing any expectation gap):
Our evidence gathering procedures have been designed to obtain a limited level of assurance on
which to base our conclusions. The extent of evidence gathering procedures performed is less
than that of a reasonable assurance engagement (such as a financial audit) and therefore a lower
level of assurance is provided.


The conclusions reached are provided in terms of the principles in AA1000 AS and in relation to the
GRI G3 guidelines.
An opinion is expressed on the C+ application level of the GRI G3 Guidelines.
15



Particular aspects for improvement of the report are listed.
A statement of independence is made.
The team is described as been drawn from their global environment and sustainability network, which
undertakes similar engagements to that one.
The last statement is actually the only one which is not quite complying with the recommendation that the
competencies should be included in the assurance report. No mention is made of competencies or skills,
except for the description of the team that might perhaps be regarded as a statement to this effect.
4.
ANALYSIS OF FINDINGS
It is clear from the history of auditing that the auditing profession is certainly a robust profession, making
changes when necessary. There is, however, some uncertainty as to the dynamic nature of the audit
profession. There is certainly strong growth in sustainability reporting and in sustainability assurance, so the
auditing profession needs to take action and make decisions on sustainability assurance. If one considers the
results of the literature survey and the review of contents, it is clear that the profession did start to act, but
certain aspects should perhaps be addressed on a global basis.
The philosophy of auditing is not yet apparent in the three standards (IDW AsS 821, 3410N and ISAE 3000)
of the auditing profession dealing with sustainability assurance (compared to the standard of the “other
service providers”, they are also silent on aspects like principles of sustainability reporting) as is evident
from the following findings:










No postulates or principles are specifically provided as a foundation or framework for these standards.
Some postulates and principles are dealt with, such as independence of the auditor and the availability of
criteria or principles for testing fair presentation, but they are treated as mere steps in the process and not
as a framework or foundation.
Non-financial subject matter or information is mentioned only in ISAE 3000, and not in the other two
standards. This is a step in the right direction. The basis for some good philosophical arguments about
sustainability assurance is found in the application notes of 3410N (NIVRA 2007).
All three standards are silent on the need to have no conflict of interest between the auditor and
management.
Audit risk and materiality are sometimes mentioned, but there is no description of a risk model and the
basic foundations of making use of risk and materiality. It seems as though the word “materiality” is
avoided, probably because it is used as a strong principle in AA1000 AS (AccountAbility 2003).
The three standards touch on verifiability of data, calling it appropriateness of subject matter, adequacy
of assurance evidence, etc., but no consistency is found amongst the three standards, with only one
standard actually mentioning verifiability (but not explaining it in much detail). Issues covered in
sustainability reports are not amenable to verification, according to Blyth (2005). He gives an example:
dioxide emissions might be tangible and quantifiable, but the same cannot be said about aspects like
social inclusion, employee development, and neighbour relationships of the client.
Assertions are described (sometimes called “representations”) but still not explained in sufficient detail.
Audit evidence and subject matter is described and may be regarded as sufficiently explained. These are
linked to some tests of controls and substantive procedures that are sometimes described.
Irregularities, deficiencies, errors and fraud are very briefly mentioned and no real standard is set or
postulate formulated.
All three discusses the internal controls (or reporting system) and reliance on them and risk relating to
them, but no objectives are set for internal controls in this sense or for more exact ways of dealing with
risk.
ISAE 3000 (SAICA 2005) makes no mention of a specific sustainability reporting framework or
guidelines like the GRI, as is the case in the other two standards. The characteristics of suitable criteria
are properly described in two standards and approach the concept of a postulate or an assurance
16




philosophy. These are: relevance, completeness (called suitability in the one standard), reliability,
neutrality and understandability.
The forward-looking aspect or prospective nature of some non-financial information is almost totally
ignored in these three standards and this forms one of the most important and critical areas in
sustainability reporting and assurance.
A standard called “The Examination of Prospective Financial Information”, issued first as ISA810 and
later as ISAE 3400, became effective in July 1994. It seems that no development has taken place to
consider the competencies, education and training of the auditor or assurance provider since the
publication of ISA810 in 1994 (followed by ISAE 3400).
Competencies are mentioned and are even described in 3410N (NIVRA 2007), but the philosophy
behind the correct competencies or expertise are not addressed. Language and semantic skills, skills in
assisting with auditing prospective information and logical skills are not addressed at all. A lot can be
learned from the IRCA (2007) competencies, and perhaps the reluctance in making use of that may be,
once more, the fact that IRCA represents the “other assurance providers” and not the auditors. Although
recommended in ISAE 3000 (SAICA 2005), competencies are not required to be disclosed in the
assurance report (except in AA1000 AS of AccountAbility (2003)).
There are hurdles and barriers to be overcome, as described above and in paragraph 2.6
The review of the contents of some sustainability reports in section 3 above clearly supports the need to deal
with prospective date and information as well. Almost all the quotes listed there are future predictions or
prospects or expectations. Some of them are borderline cases of making actual promises, like:
We expect further growth in 2007. (ABN Amro Holding NV 2007)
… the future for sustainable investments is bright. (ABN Amro Holding NV 2007)
Significant growth is expected in 2007. (Rabobank Group 2007)
No changes have taken place in the accounting syllabi to address the need for the competencies of the “new
generation” auditor — the auditor performing financial audits as well as sustainability assurance. The largest
need would seem to be the language skills and the ability to audit and express an opinion on narrative
reports.
5.
CONCLUSION AND CLOSURE
If the profession should regard sustainability assurance as a driver of change for the future, it should first
ensure that there are principles according to which it should be done. It cannot be a simple economic shortterm decision. Should it then be found to be philosophically sound, the audit profession (via the professional
bodies and IFAC) should act quickly and also try to counteract any resistance to change by professional
bodies – with active marketing and advertising of the new trends amongst members, road shows,
development of standards, talks and agreements with other assurance providers, etc. Accounting academics
can also play a big role in affecting change in a profession, e.g. by doing research and by changing
accounting and auditing syllabi to reflect new changes such as sustainability reporting and assurance.
The objectives of this paper have been reached:

It was found that the auditor could extend his/her scope of work to include sustainability assurance, but
that the philosophical framework or foundation for sustainability and non-financial information has not
yet been developed to an appropriate level (this is supported by the ICAEW (2004b) as set out in 2.3
above). This might be addressed by some of the recommendations made below.
17

The practical implications for proper, founded provision of services in sustainability assurance are
varied and involve quite a number of studies and work to be performed, as are detailed below and as
briefly introduced in the above paragraph.
The conclusion is that the auditor could/should become more involved in sustainability assurance, but that
the recommendations and field for future studies should at least be addressed as soon as possible. There are
three large areas of concern that should be addressed:



Better sustainability assurance standards (and sustainability reporting standards) should be set, based on
a properly defined philosophy and/or postulates.
The competencies, education and training of the auditor as assurance provider should be addressed.
Research in the various areas identified in this paper (and in other research studies) should be performed
in order to facilitate and enable better standards and better education and training.
The recommendations that follow are organised in these three areas of concern (in paragraphs 5.1 to 5.3).
5.1
Better standards based on philosophy
Proper studies should be undertaken to ensure that the views and perceptions of assurance providers,
sustainability assurors and the readers (investors, shareholders, stakeholders) of sustainability reports are
properly documented and that these are fed into an international process for setting new or better standards.
This is supported by KPMG (2006b), stating that there should be greater consistency in reporting and
assurance through standards such as G3, ISAE 3000 and AA1000 AS. The ICAEW (2004b) also proposes
(in not so many words) a possible future assurance standard on sustainability reporting. Blyth (2005)
expresses the hope that globally accepted standards for sustainability assurance emerge.
The following recommendations are made:



Meetings and workshops should be held where the auditing profession, accounting bodies, “other”
assurance providers and accounting academics should meet in order to get projects established and
started with regards to:

Facilitating research in this area (also set out in 5.3 below), starting with the postulates and
philosophy of sustainability assurance, covering at least all the aspects raised in paragraph 4 above
(such as prospective data, verifiability of data, non-financial information, narrative texts and
competencies to assess them).

Practical issues should be addressed and an objective should be a common set of standards for
sustainability reporting on the one hand (mentioned here because the contents of these reports have
an influence on its verifiability) and for sustainability assurance on the other hand.

Research that should be done on a global basis should also include the identification and
codification of best practices in sustainability assurance. The auditors currently providing
sustainability assurance should be involved in this process. An example would be to properly
analyse reports like that of Ernst & Young in the BP p.l.c. (2007) sustainability report.
Once the issues mentioned above are solved and codified, generally accepted sustainability standards
should be issued for use by auditors and “other” service providers in this field.
Auditors should demonstrate that they are well equipped for providing sustainability assurance (ICAEW
2004b), where the profession has much to offer in coordinating multi-disciplinary teams. It is
recommended that vast resources for research, road-shows and promotions are set aside by the auditing
profession to accelerate the pace of change.
According to the ICAEW (2004b) there are strong arguments why auditing standard setters and auditing
practitioners should take the lead in providing sustainability assurance. A strong point in this regard is also
the audit profession’s essential characteristics of integrity, objectivity and compliance with ethical codes.
18
If one considers such a new set of standards, one should bear in mind that there would be great benefits in
having consistent standards for financial statement audits and sustainability assurance, according to the
ICAEW (2004b). Many environmental and social factors, for example, are relevant for the statutory auditor.
Furthermore, some of the sustainability information is already included in the financial statements.
5.2
Competencies, education and training
Once standards are changed or improved, proper training and education should take place. With the growth
in the sustainability “business”, more short courses, graduate courses and post-graduate courses should be
established to supply the growing demands. It means that curriculums and syllabi prescribed or
recommended by the profession to tertiary educators should be changed to reflect the current needs as
described in this paper.
The following recommendations are made:






5.3
Auditing firms should ensure that they do have the competencies and expertise available in assurance
teams, specifically including competencies regarding stakeholder engagement and sustainable
development (social, environmental and economic), as well as language skills (Du Toit 2007b).
Furthermore, the auditor involved in forward-looking or prospective information, where the
sustainability report acts as a forward looking radar, dealing with new and emerging issues as well (not
just rear view mirror), should ensure that he/she has the competencies to deal with prospective data
(KPMG 2006b).
Logical education and training should form part of the syllabi of the auditor and assurance provider, as
described in more detail in 2.5 above).
Care should be exercised in providing assurance on non-financial information where predictions and any
future intentions of clients are disclosed. Extreme caution should be exercised when performing full
audits providing reasonable assurance.
Auditing firms and their staff should consider registration at IRCA and disclosing this fact in the
assurance report, or the auditing profession (perhaps via IFAC) should describe the required
competencies in a document like ISAE 3000, or in its successor, and compliance with this standard
should then be disclosed in the assurance report. If not, the auditing firms should disclose or better
disclose their competencies and/or those of their staff or team of experts in the assurance report.
Auditing firms should be even more careful in such disclosure of competencies if a reasonable assurance
report is provided.
If reasonable assurance is provided (and perhaps even limited assurance), it would be advisable to
include a statement to the effect that company (client) position statements describing expression of
opinion, belief, aspiration, expectation, aim or future intention provided by the company are excluded
from the auditor’s scope of assurance. (This was, for example, done by Ernst & Young in the Reliance
Industries Limited (2007) report).
Currently done by only some of the assurance providers, all assurance providers should at least make
reference to the internationally recognised AA1000 AS and ISAE 3000 in their report.
Research opportunities
It is already clear from the above discussions and analyses that there are still vast opportunities for research
in the sustainability assurance field. These should, however, not be regarded as opportunities only, but also
as prerequisites for the profession in moving forward (as was explained in 5.1 and 5.2 above).
The following research opportunities exist:

The postulates and philosophy of sustainability assurance should be properly researched to serve as a
basis for the development of new standards as contemplated in 5.1 above. Just like the new frontiers that
were opened with the publication of the auditing postulates by Mautz and Sharaf in 1961, new frontiers
should be opened by this research in the field of sustainability assurance.
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
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







5.4
An empirical survey of at least the Big 4 auditing firms in the competencies they actually have when
issuing an assurance report.
The competencies regarding language and semantics need to be researched.
The logical/logic competencies of assurance providers need to be researched.
The competencies required regarding involvement with statements about the future should be
researched. Sustainability in itself implies the future.
Development of a framework of competencies for auditing firms in sustainability assurance. This
framework could later become part of a standard.
Research into the perceptions and expectations of large investors on sustainability assurance.
Research into the technical competencies required to be involved in environmental, social or economical
sustainability assurance.
Much can be learned from other assurance providers like consultants and teams of experts, and research
should be done on this topic as well.
Extensive studies should be performed and proper co-operation between various professional and
regulatory bodies should be enabled in order to get to an international standard or benchmark for
assurance reporting on sustainability. It would be in the best interest of the accounting/auditing
profession to ensure that other assurance providers are not getting an unfair advantage due to “easier”
standards or rules of compliance.
Research as to the linkages between financial and TBL reporting on the one hand and improved
economic, environmental and social sustainability on the other and how the impact of reporting might be
measured (ICAEW 2004a). Measurement also implies the possibility of providing assurance on
measurable data.
Research on the limits of the types of information on which auditors can provide reasonable assurance
and report publicly. It should be explored and researched as to how the auditor reporting that meets the
needs of investors and others should emerge through either market forces or significant regulatory
intervention (ICAEW 2004a).
Closure
There is certainly a growing need for assurance services, according to Chambers (2006). He states that the
economic growth of emerging economies and the development of globalisation will keep on expanding the
requirements for assurance. He asks the question whether the various kinds of assurance providers will come
together at a professional level. The possibility of forums exists, where different assurance specialists do the
work under coordination of a forum. Furthermore, he concludes that narrative reporting is becoming more
important and that one could expect a movement to ensure the audit of narrative reports. This could also
include long form, discursive assurance reports by the external auditor instead of the current short audit
opinions (Chambers 2006).
The biggest barrier to providing expanded assurance services beyond the traditional audit or review of
historical financial statements may well be the profession itself and not the marketplace, according to
Thesberg (1996).
In the field of sustainability assurance one has to consider a scenario such as a new Enron or Worldcom
scenario arising in 5 or 10 or 20 years. Suppose that can then be traced back to some weak standards in
sustainability assurance or non-compliance thereof, how will the market react? Will the auditing profession
again be forced to change by ways of laws and regulations?
According to Du Toit (2007b), consultancy firms and panels of experts might very well take over the market
for sustainability assurance if the external auditing profession does not act proactively. This is supported by
the ICAEW (2004b) stating that the service of assurance is likely to be filled by other disciplines than the
auditing profession if the profession does not rise to the challenge. This paper makes a strong case for using
sustainability assurance as a driver of change in the auditing profession in order to become competitive once
again and in order to widen its scope to address the needs of the international business society.
20
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