Corporate Sustainability Reporting: Investigation of Assurance Process, Assurance Characteristics and Assurance Frameworks Used

Abstract

This dissertation is on assured sustainability reporting. It has three parts that are titled as follows: Part 1. Planning Assurance Services for Sustainability Reporting: An Analysis of Cost versus Assurance in Audit Evidence, Part 2. The Development of Worldwide Assured Sustainability reporting, and, Part 3. Assurance on Sustainability Reports: A Study of Factors Influencing the Selection of an Assurance Framework. Of the above, Part 1 is complete and ready for submission to a journal and Part 2 has been accepted for publication in Australian Accounting Review. Part 1 investigates providing assurance on sustainability reporting and demonstrates how an evidential reasoning framework can enhance providing such a service. It develops a framework based on the Dempster-Shafer theory of belief functions for the purpose of audit program planning and cost analysis. A sensitivity analysis is used to demonstrate the value of the model based on seven scenarios. The cost to perform an audit procedure is assumed to increase exponentially with the increase in the targeted level of assurance and audit procedures are assumed to exhibit inherent limitations as to the maximum level of assurance they can be expected to provide. Results demonstrate as follows: i. the importance of the assurance provider selecting audit procedures that directly relate to the highest level assertions, ii. the effects of discovering during the audit that certain audit tests are less diagnostic than anticipated, iii. the effects of obtaining mixed audit evidence, iv. the effects of obtaining strong evidence that implies that certain assertions are not fairly stated and v. the effects of planning to provide different levels of assurance across assertions Each of these findings demonstrates the value of utilizing a formal evidential reasoning and cost minimization approach in providing assurance on sustainability reports. Part 2 investigates the development of assured sustainability reports (SRs) during this century's first decade. More specifically, it presents basic descriptive data on a sample of 148 SRs published in 2006 and 2007 and contrasts this sample with the sample discussed in Mock, Strohm, and Swartz (MSS 2007). The prior study examined a sample of 130 assured SRs issued between 2002 and 2004. Both samples provide information about the nature of sustainability reports, allowing us to investigate important questions such as which countries and industries are more likely to have an assurance statement, what levels of assurance are provided, and what factors affect the level of assurance provided. In addition to providing descriptive data relative to the above questions, we run logistic regressions where the dependent variable is whether a Big4 firm provided the assurance, for both periods being considered. Some important differences are observed related to whether the assurance provided applies to both the quantitative and qualitative assertions made in the report (significantly negatively associated with Big4 in the 2002-2004 period, but not significant in 2006-2007), whether the report uses symbols to identify assured statements (significantly positively associated with Big4 in the 2002- 2004 period, but not significant in 2006-2007), and whether the procedures used are disclosed (not significant in 2002-2004, but significantly positively associated with Big4 in 2006-2007). Part 3 examines the factors that influence the assurance provider in the selection of an assurance framework for the purpose of assuring sustainability reports where assurance is voluntarily sought by the organization issuing the sustainability report. These frameworks are not generally accepted and no authority mandates these frameworks. Audit-firm specific, client-company specific and country level factors are considered as explanatory variables. Multi-level modeling is used for analysis since companies are nested within countries. Analysis suggests that the following country levels factors have significant impact on the selection of the type of assurance frameworks (i.e. international frameworks or regional frameworks): level of disclosure, market capitalization and the level of carbon dioxide emissions. Further, analysis suggests that two client company characteristics also have a significant impact: whether a company has foreign operations, and, the level of growth opportunities. One of the important ways of adding credibility to sustainability reports published by companies is obtaining assurance on them (Simnett, Vanstraelen and Chua 2009). Hence, the type of assurance framework used (International versus Regional) may indicate assurance provider preferences. Use of international frameworks (ISAE3000 and AA1000AS) may indicate a trend towards standardization of assurance frameworks and ease of comparison. On the other hand, use of regional assurance frameworks may indicate a possible country-of-origin effect. Factors that influence the selection of assurance frameworks and the type of assurance framework selected are important because it offers insights into trends and opportunities that shape the growing assurance market in the sustainability area. This could aid companies, assurance providers, standard setting bodies and investors respond to a changing environment in a meaningful way.