michael nugent. sustainability reporting an external audit perspective michael nugent ifac
TRANSCRIPT
Michael Nugent
Sustainability Reporting An External
Audit Perspective
Michael Nugent
IFAC
9 July 2006
Overview
Why sustainability reporting and why assurance?
What assurance are we talking about?
IFAC & IAASB
Assurance Framework & ISAE 3000
Limitations and other approaches
9 July 2006
Overview
Why sustainability reporting and why assurance?
What assurance are we talking about?
IFAC & IAASB
Assurance Framework & ISAE 3000
Limitations and other approaches
9 July 2006
ICAEW Survey May 2007Institute of Chartered Accountants in England and Wales
Investor confidence in audited financial information
200 fund managers
25% manage > £ 50 billion
9 July 2006
Heading
Subheading
Bullet 1
Bullet 2
9 July 2006
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Subheading
Bullet 1
Bullet 2
9 July 2006
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9 July 2006
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Subheading
Bullet 1
Bullet 2
9 July 2006
One interpretation
1. Long term sustainability = biggest concern
2. Not only financial information is used by analysts
3. Management comment and analysis is valued
4. Externally assured information is reliable
Therefore, if a company publishes externally assured, non-financial information about long-term sustainability that includes management’s views, it will be used by many analysts, and used with confidence
9 July 2006
Overview
Why sustainability reporting and why assurance?
What assurance are we talking about?
IFAC & IAASB
Assurance Framework & ISAE 3000
Limitations and other approaches
9 July 2006
What “assurance” are we talking about:1. Very broad?
Anything that affects stakeholders’ confidence in an entity’s actions/impacts/products/services
E.g., for consumers: “Clearly assurance is not something that is delivered by any one mechanism, but something that consumers themselves construct, often subconsciously, from the different messages they receive about a company and its products and the different degrees of trust they have for the information sources”
AccountAbility “What assures consumers”
9 July 2006
What “assurance” are we talking about:2. Related to sustainability reports?
Anything that affects stakeholders’ confidence in the quality of an entity’s sustainability report?
“Organizations use a variety of approaches to enhance the credibility of their reports. Organizations may have systems of internal controls in place, including internal audit functions, as part of their processes for managing and reporting information. These internal systems are important to the overall integrity and credibility of a report”
Global Reporting Initiative 2006 Guidelines (“G3”)
9 July 2006
What “assurance” are we talking about:3. External assurance – GRI G3
“published conclusions on the quality of the report and the information contained within it”
“conducted by groups or individuals external to the organization who are demonstrably competent in both the subject matter and assurance practices”
“implemented in a manner that is systematic, documented, evidence-based, and characterized by defined procedures”
“assesses whether the report provides a reasonable and balanced presentation of performance, taking into consideration the veracity of data in a report as well as the overall selection of content”
9 July 2006
Accounting for Good: the Global Stakeholder Report
Pleon Kohtes Klewes GmbH –
2005 world-wide survey
Readers
Expectations/satisfaction
Corporate Social Responsibility reports
9 July 2006
Accounting for Good: the Global Stakeholder Report
“… an ‘official’ verification statement (e.g. by a professional accountant) in ‘non-financial’ reporting is still a hot issue, much dependent on the credibility of the assurors. There is now a clear majority of international stakeholders who want CSR reports to be ‘verified by a professional assurance or verification body’”
“Formal verification has also gained first place among the factors contributing to credibility. Possibly, the general crisis of the verification industry in the wake of the Enron / Arthur Anderson scandal has been largely overcome.”
9 July 2006
Overview
Why sustainability reporting and why assurance?
What assurance are we talking about?
IFAC & IAASB
Assurance Framework & ISAE 3000
Limitations and other approaches
9 July 2006
International Federation of Accountants
155 member bodies2.5 million professional accountants“to protect the public interest by encouraging high quality practices by the world's accountants”Standards for:
(External) Auditing and Assurance
Public sector accounting
Education
Ethics
9 July 2006
International Auditing & Assurance Standards Board
18 members Full-time chair and 7 full time technical staffMulti-stakeholder involvement:
Non practitioner members (moving to 50%)
Consultative Advisory Group
Public Interest Oversight Board
Transparent due process:Meetings open to the public
Official observers from regulators
Agenda papers on website
Full public exposure
Standards etc free on website
9 July 2006
International Framework for Assurance Engagements
Audits and reviews of historical financial information
ISA 100+ International Standards on
Auditing
ISA 2000+ International Standards on
Review Engagements
Other assurance engagements
ISAE 3000 International Standard on Assurance
Engagements
International Standard on Quality Control (ISQC 1)
Corp. Gov. Etc, etc, etcInt. ControlSustainability
IFAC Code of Ethics for Professional Accountants
9 July 2006
Overview
Why sustainability reporting and why assurance?
What assurance are we talking about?
IFAC & IAASB
Assurance Framework & ISAE 3000
Limitations and other approaches
9 July 2006
Framework for Assurance Engagements
1. Three party relationship2. Appropriate subject
matter3. Suitable criteria
Benchmark
Not just individual judgment
Report quality, not level of performance
4. Sufficient appropriate evidence
5. Written assurance report
Reasonable assurance
Limited assurance
9 July 2006
ISAE 3000
Requirements for, e.g.:Ethics – the CodeQuality controlEngagement acceptance
PlanningSuitability of criteriaProfessional skepticismRisk and materialityObtaining evidence
Using experts
DocumentationReporting
9 July 2006
ISAE 3000 and sustainability
ISAE 3000 generic standard: “Assurance Engagements Other Than Audit Or Review Of Historical Financial Information)
Sustainability Experts Advisory PanelGRI Guidelines “G3
National standards, particularly Royal NIVRA
Considering: Sustainability-specific assurance standard
Carbon disclosure assurance standard
9 July 2006
Professional accountants as sustainability assurors
Individual/firm attributes:Entrance hurdles – education and experience
Continuing professional education requirements
Code of Ethics
Quality control:
Engagement level (ISA 220)
Firm level (ISQC 1)
Profession level (e.g., peer review)
Multi-disciplinary approachSolid grounding in the assurance process
Rigorous assurance standard - ISAE 3000
Subject matter knowledge - experts
9 July 2006
Overview
Why sustainability reporting and why assurance?
What assurance are we talking about?
IFAC & IAASB
Assurance Framework & ISAE 3000
Limitations and other approaches
9 July 2006
Limitations
Financial experts, not sustainability expertsNegative assuranceSuitable criteriaRecommendationsIs the right information being reported, not just is the reported information right (i.e., relevance as well as reliability) Completeness
The most difficult area, even when have good criteria
Determining what is material is difficult given the diversity of readers and their needs
Negative assurance appropriate for completeness?
ISAE 3000 use by others
9 July 2006
Accounting for Good: the Global Stakeholder Report
9 July 2006
Accounting for Good: the Global Stakeholder Report
“The most important forces boosting credibility are:the completeness of reporting with regard to material sustainability issues,openly addressing weaknesses, unsolved problems and conflicts,statements of third parties in a report,formal external verification, andthe general public image of the company and the public assessment of its material sustainability performance.”
9 July 2006
Overview
Why sustainability reporting and why assurance?
What assurance are we talking about?
IFAC & IAASB
Assurance Framework & ISAE 3000
Limitations and other approaches
Sustainability Reporting An External
Audit Perspective
www.ifac.org