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Corporate social responsibility assurance: how do South African publicly listed companies compare? B Ackers Department of Auditing School of Accounting Sciences University of South Africa Abstract As companies begin accounting for the triple bottom line, external corporate social responsibility (CSR) assurance provides stakeholders with assurance that CSR disclosures may be relied upon. In this way, companies may go some way towards avoiding their CSR efforts simply being perceived as greenwash or a public relations exercise. Several organisations currently provide this assurance, using different methodologies and standards. Using a content analysis, the annual and/or CSR reports of the top 100 South African publicly listed companies were investigated in respect of CSR assurance, and compared with international trends. Despite a slow response, the evidence suggests that CSR assurance prevalence is growing. It was found that despite its developing country status, the prevalence of CSR assurance by South African companies compared favourably with that of their counterparts in developed countries. In South Africa and the UK, the audit profession, led by the “Big 4” firms, is the dominant provider of CSR assurance. As the demand increases, the auditor’s role as a CSR assurance provider is expected to become increasingly more important, especially in South Africa, where the audit profession is highly regarded. This increased demand for assurance services will require the global audit profession’s paradigm to be re-examined to include competence in contextual accounting and auditing. Key words Accountability Assurors Assurance Auditing profession Corporate social responsibility (CSR)

Standards Stakeholders ISAE 3000 AA1000AS GRI G3

1 Introduction “… because of the growing pressure for greater corporate accountability, I can foresee the day when, in addition to the annual financial statements certified by independent accountants, corporations may be required to publish a social audit (report), similarly certified” (David Rockefeller of Chase Manhattan Bank in 1972, cited in Gray, Owen & Maunders 1987:ix). Meditari Accountancy Research Vol. 17 No. 2 2009 : 1-17

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Corporate social responsibility assurance: how do South African publicly listed companies compare?

The above statement made in 1972, at the very infancy of the movement advocating greater corporate social responsibility (CSR), points to companies possibly being required to publish audited social responsibility reports. This was an early prediction of the recent tendency, culminating in the global pressure for increased transparency and accountability that emerged during the 1990s. Even more relevant was the inference that, owing to pressure for greater corporate accountability, assurance about the completeness and integrity of CSR practices would be necessary. In order to achieve this, even in those early years, Rockefeller predicted that audit verification of CSR disclosures would be desirable. While the mandatory requirement for verified CSR reports is starting to emerge in a few isolated northern European countries, the global trend is for companies to adopt voluntary CSR reporting, offering varying degrees of assurance. Given the earth’s finite ability to sustain human life and the propensity for economic growth to increase consumption patterns, researchers are increasingly arguing that uncontrolled global economic growth is forcing companies to reconsider their business paradigm. It is becoming imperative for business to recognise its role in securing a sustainable future for humanity in order to contribute to efforts to avoid a pending socioeconomic and environmental crisis (Eccles, Pillay & De Jongh 2009). This increasing emphasis on corporate morality and accountability has seen companies grappling with the challenge of ensuring that future generations are not burdened with the residual fallout of unethical, amoral or unsustainable business practices. Elkington (1994) contends that companies should account for the “triple bottom line”, including measuring the ethical, environmental and social impacts of their operations. No longer are companies only accountable to shareholders for sustaining a viable financial return on their capital investment, but they are increasingly expected to act responsibly towards their broader stakeholders as well (Reuvid 2007:163). Around the world, companies are beginning to account for their economic, social and environmental impact on stakeholders. In this context, stakeholders include owners, financiers, employees, customers (both existing and prospective), suppliers, government and society at large (Reuvid 2007; ACCA 2005). Given the global growth of institutional investments (as represented by insurance, pension and mutual funds), the interests of investors and institutional investment beneficiaries are converging. The proverbial “man in the street” becomes both stakeholder and shareholder, albeit through indirect shareholding. As such, shareholders may merely represent a subset of stakeholders. Despite an increased demand for corporate accountability for the impact of their actions, or inaction, on society and the environment, the emerging dominant global practice is through voluntary disclosure. However, this increases the risk of companies only selectively disclosing information, placing them in a favourable light (Eccles et al. 2009:8). Stakeholder demands for comprehensive and transparent CSR-related disclosures and accordingly increased organisational accountability, raise concerns about the completeness, validity, accuracy and reliability of CSR disclosures. Teoh and Shiu (1990:75), however, suggest that many CSR disclosures are simply “window dressing” or “greenwashing”. Such companies are not necessarily good corporate citizens, but merely seek to improve stakeholder perceptions. Given the stakeholder requirement for balanced corporate reporting and the need to ensure the completeness and integrity of social and environmental disclosures, it is suggested that CSR disclosures be verified. It is argued that CSR assurance may improve 2

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report credibility and raise stakeholder confidence in the information provided. Manetti and Becatti (2008) illustrate this with their contention that the credibility gap characterising CSR reporting can be bridged by professional auditors providing CSR assurance. Similarly, Nitkin and Brooks (1998:1499) argue that sustainability auditing and reporting reflect the growing realisation that it is both necessary and desirable for companies to understand the impact of their operations upon stakeholders, including evaluating the full life-cycle consequences of products and services across international boundaries. They suggest that CSR assurance facilitates taking accountability beyond shareholders, to include stakeholders (1998:1506). A company seeking independent assurance demonstrates this commitment to corporate governance by opening the company to scrutiny of its management systems, while providing a mechanism to improve systems and increase performance. In this context, it is imperative that stakeholders have faith that the assurance is conducted with integrity, independence and impartiality and that the assurance provider has the requisite skills and knowledge to conduct the assurance engagement (CorporateRegister.com 2008:5). In response to this demand, a body of knowledge on CSR assurance is developing, providing a range of different assurance levels (Nitkin & Brooks 1998:1505). Nevertheless, despite CSR reporting steadily gaining momentum, the majority of reports are still not independently reviewed or assured. A CSR assurance statement is the published communication of a process, which should examine the veracity and completeness of a CSR report (CorporateRegister.com 2008:5-8). The first objective of this article is to determine international CSR assurance trends. The second objective is to compare South African CSR assurance practices with international trends. The third objective is to consider whether the CSR disclosures are enhanced by assurance reports. This article examines secondary data to determine the international trend towards CSR assurance practices. Using the annual and/or CSR reports of the top 100 publicly listed companies, the South African situation is compared with these international trends.

2 Methodology This article utilises secondary data obtained from two other studies, namely CorporateRegister.com and Manetti and Becatti (both of which were published during 2008), to determine global CSR assurance trends. These trends were then compared with primary South African data extracted from publicly available information during September 2008. The research approach considered existing literature, secondary data from other relevant research and primary data derived from a content analysis of the most recently available assurance statements contained in published annual and/or CSR reports of the 100 largest South African companies (in terms of market capitalisation) listed on the Johannesburg Securities Exchange (JSE). The determined international CSR assurance practice trends are compared with the prevailing South African situation. The rationale for the study was the emerging research question about the extent to which South African publicly listed companies have implemented CSR assurance, as measured against international trends. Moreover, the study considered the major CSR assurance providers, the dominant assurance practices, namely the frameworks utilised and the nature of the opinions disclosed, concluding with a discussion on the stakeholder implications. Meditari Accountancy Research Vol. 17 No. 2 2009 : 1-17

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3 Literature review The review of relevant literature introduced the theoretical framework on CSR and CSR assurance for the study reported on in this article.

3.1 Corporate social responsibility CSR involves operating in a manner that takes full account of the impact of a company on the planet, its people and the future (ICAEW 2004:4). The Brundtland Commission (1987, cited in ICAEW 2004:7) succinctly describes sustainable development “as development meeting the needs of the present without compromising the ability of future generations to meet their own needs”. The business case for CSR is that responsible companies will be more sustainable in the long term. Hence, because of stakeholder pressure, increasing attention is being focused on the social, environmental and economic aspects of business activity and performance, with some companies turning their CSR commitment into a selling point (Spencer [s.a.]). CSR does not mean the same thing to all people (Kirdahy 2007a). Confusion surrounding the CSR discourse is exacerbated by terms like global warming; carbon footprint; green products; greenhouse gas emissions (Fust & Walker 2007:2); triple bottom line; environmental, social and governance (ESG); sustainable development; sustainability; corporate governance; corporate responsibility; corporate citizenship; corporate social investment; corporate ethics; stewardship; or responsible business (Kotler & Lee 2005:2). For the purpose of this article, unless specifically required for purposes of differentiation, the generic term “CSR” is used. Similarly, CSR, like many dynamic business concepts, is constantly evolving and does not yet have a universally accepted definition or scope. Moreover, to some, CSR implies legal responsibility or liability; to others it means socially responsible behaviour in an ethical sense; to yet others it means causal responsibility; while some simply see it as benevolence or philanthropy. While some regard it as a mere synonym for “legitimacy”, others see it as some sort of fiduciary responsibility (Zenisek 1979:359). While companies are increasingly recognising the importance of managing corporate economic, social and environmental impacts, this view is not universally accepted. The divergent views on CSR (Kakabadse & Kakabadse 2007; Kotler & Lee 2005:2; Keasey, Thompson & Wright 2005:1-8; ICAEW 2004:7; Jenkins 2001:1-6) are depicted by Eells (cited in Zenisek 1979:360) as a continuum of behaviours ranging from irresponsible to responsible. At the one extreme, the traditional company argues that profit maximisation for the benefit of the owners is the sole legitimate purpose of business, whereas at the other extreme, the model of the social company recognises a wider stakeholder role and responsibility. Despite the infancy of the global sustainability drive, some companies are positioning themselves to benefit from CSR opportunities and to manage risks (Fust & Walker 2007:3). As stakeholder expectations increase, companies are considering corporate philanthropy and broader CSR decisions as business opportunities instead of weaknesses or risks. Kirdahy (2007b) suggests that companies producing the best results for both their books and society do not regard CSR as being a moral issue, but a strategic response to issues impacting on their business. CSR is no longer simply about companies handing over large cheques to “worthy” causes. Instead, the entire company becomes involved on a sustained basis, rather than merely being a highly publicised one-day event (PwC 2007). 4


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Despite appearing to be an oxymoron, effective CSR practices should ensure compliance with environmental standards and safeguarding natural resources, while exploring environmentally and socially conscious sustainability solutions that minimise risk, improving profitability through cost reduction, improved resource accessibility, marketing and recruitment (Fust & Walker 2007:7). However, Teoh and Shiu (1990:75) argue that CSR may simply be corporate “window dressing” or “greenwash”. Utting (2005:2), finds that large companies are becoming more proactive about CSR, by going beyond the moral or ethical arguments and recognising the solid CSR business case. He argues that the most dominant aspect of the CSR business case is the reduction of transaction costs, through risk and reputation management. Mervyn King (King Commission Chairman) contends that shareholders of large companies have changed from wealthy families, to financial institutions and pension funds, making investments on behalf of its investment beneficiaries, who are the ultimate shareholders (Temkin 2008). Since institutional investors really represent the interests of the proverbial “person in the street”, members of institutional funds are expected to start applying pressure on investment fund managers to avoid investing in companies with a poor sustainability record, or those perceived to be poor corporate citizens. In this regard, one could argue that there will be an increasing convergence of expectations from the public at large and from institutional investors. Given the concerns raised earlier in this article about potential greenwash or window dressing, the recurring concern that emerges relates to how assurance is obtained about the integrity, completeness and inclusivity of CSR disclosures.

3.2 CSR assurance The extent to which CSR disclosures are accepted, varies, with internal stakeholders (i.e. investors and employees) more readily accepting the disclosures, whereas other stakeholders tend to be more sceptical (CorporateRegister.com 2008:10). It is submitted that this could be overcome through robust assurance, enhancing report credibility and boosting stakeholder confidence about the disclosures, implying a rigorous verification process, according to a predefined methodology. While CSR assurance is increasing, the merits of CSR assurance still remain unresolved. On the one hand, companies use a variety of approaches to enhance the credibility of their reports, including stakeholder panels, well-known experts providing commentary, internally or externally conducted assurance. On the other, depending on the company, sector and nature, tone and style of the report, certain CSR reports may be perceived as being sufficiently credible without assurance statements (CorporateRegister.com 2008:10). In the latest version of its Sustainability Reporting Guidelines, the Global Reporting Initiative (GRI G3) recommends the use of external assurance for sustainability reports, in addition to any internal resources (GRI 2006:38). In order to differentiate, the term “auditor” is used to refer to professional accountants in the public practice of auditing, whereas “assuror” is used for generic referencing, including from other assurance providers. In this context, auditing profession refers to the role of the auditor as practised in the traditional accounting profession. Percy (1997:5-6) argues that the public believe that auditors have a broader responsibility than merely reporting on the annual financial statements (and should include the contextual information contained in the annual report). Meditari Accountancy Research Vol. 17 No. 2 2009 : 1-17

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The public expect auditors to adopt a responsible attitude to environmental and societal issues, producing an annual report that all stakeholders can rely on. Eccles et al. (2008:8) suggest that credible assurance mitigates the risk of companies saying how accountable they are, instead of representing the actual position. Some environmental reporting lacks credibility by certain external stakeholders owing to the “absence of credible external verification” (UNCTAD 1997:20), resulting in their recommendation that “externally verified third party opinions, based upon accepted and tested verification procedures” should be included. The Association of Certified and Chartered Accountants (ACCA 2007:9) too, supports the assurance of sustainability reports, challenging assertions that are unsupported by “convincing and reliable evidence”. While many companies discharge their CSR obligations by adopting voluntary codes of conduct, only effective monitoring and independent verification can provide assurance that a company meets certain ethical standards (Jenkins 2001:11, 25). To meet the expectations of independent CSR assurance, Manetti and Becatti (2008) contend that the role of the audit profession will evolve rapidly, following the issuance of the two dominant global standards dealing with CSR-related assurance, that is, ISAE 3000 and AA1000AS. The International Auditing and Assurance Standard Board (IAASB), the issuing agency of the International Federation of Accountants (IFAC), issued ISAE 3000, also known as “Assurance Engagements Other Than Audits or Reviews of Historical Financial Information”, in 2005. ISAE 3000 was intended to provide guidance to the audit profession on the principles and procedures for conducting nonfinancial assurance engagements. However, AA1000AS, launched by the Institute of Social and Ethical Accountability (AccountAbility) in 2003, is the only internationally recognised standard specifically designed to provide sustainability assurance (AccountAbility 2008). AA1000AS assurance addresses CSR report credibility, which is underpinned by the principles of completeness, materiality and responsiveness. AA1000AS, unlike ISAE 3000, which is intended to address the audit profession, is directed at anyone providing external verification services (Manetti & Becatti 2008). The GRI G3 provides a framework of principles for voluntary use by organisations reporting their sustainability performance. It is a reporting tool applied by reporting companies, not assurors. It does reference external assurance assessing compliance with the GRI Reporting Framework (including the reporting principles) in order to reach its conclusions (CorporateRegister.com 2008:20). Archel, Fernández and Larringa (2008:114) suggest that GRI compliance is more likely to be corporate image or reputation management, rather than as assurance of reporting quality. Assurance providers provide different levels of assurance with “negatively framed” or “limited-level” assurance opinions distinguishing an assurance process more restricted in scope than “positively framed” or “reasonable” assurance opinions. Positively framed assurance opinions are usually worded as follows: “in our opinion, the CSR report provides a fair and balanced representation of the CSR performance of the organisation”. Negatively framed assurance, however, is usually reported as “nothing has come to our attention to cause us to believe that the CSR performance is not fairly stated”. While negatively framed assurance provides less reliable assurance on disclosed CSR information than positively framed assurance opinions, uniformed stakeholders are usually unable to assess the extent 6


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of assurance provided in a meaningful way, even when the assurance basis is communicated in the assurance statement itself. This is primarily because of what may be perceived as merely semantic language differences, actually providing fundamental differences in levels of assurance (CorporateRegister.com 2008:6-10). The King Report on Corporate Governance (King III), issued on 1 September 2009, becomes effective from 1 March 2010. Of particular relevance, is the fact that principle 9.3 recommends that organisations not only disclose their corporate social responsibility impacts, but more importantly, that this should also be assured (IOD 2009). Bearing in mind that King III, like its predecessors, is a principles-based code of conduct, organisations are required to explain the reasons for noncompliance. Since companies listed on the JSE are required to apply the principles of the King Code, it is expected that CSR assurance disclosure is likely to increase over time. It is predicted that while stakeholders may accept explanations for not providing CSR assurance statements in the first few years, while companies establish their CSR assurance processes, they are unlikely to continually accept reasons for continual delays in applying all the principles.

4 Analysis and discussion of results The first objective of this article was to determine international CSR assurance trends. In order to achieve this, an analysis was conducted of secondary data derived from two international studies, by CorporateRegister.com and Manetti and Becatti, both of which were published in 2008. The CorporateRegister.com (2008:28, 42) study examined its database of over 17 000 CSR reports from 103 countries published between 1990 and July 2008, estimated to contain profiles more than 90% of all published CSR reports. Their study, “The CSR assurance statement report”, analysed all the most recently available CSR assurance reports, issued between May 2006 and May 2008, representing 650 assurance statements. In addition, the study undertook a detailed analysis of 18 assurance statements from each of the five countries producing the most CSR reports, that is, Australia, Germany, Japan, the UK and the USA. The Manetti and Becatti (2008) study, “Assurance services for sustainability reports: standards and empirical evidence”, performed an empirical analysis of 34 selected international assurance statements prepared according to the GRI G3 included in the GRI database on 31 December 2007. To meet the second objective of the article, namely comparing South African CSR assurance practices with international trends, primary data were gathered from a content analysis of the most recently available CSR disclosures of the top 100 JSE-listed companies (according to market capitalisation). Only 15 of these companies disclosed assurance statements, which were examined and compared with the results of the two international studies previously referred to. The third objective was to assess whether the CSR disclosures are enhanced by the presence of assurance reports. This was achieved through a content analysis of CSR assurance reports of the 15 Top 100 South African companies that provided CSR assurance.


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4.1 CSR assurance prevalence The first external CSR assurance statements were published as early as 1992. After 15 years of steady growth, about 650 CSR assurance statements were produced globally in 2007. Whereas globally in 1992, only around 7% of CSR reports contained assurance statements, by 2007 this figure had increased to 25%. This growth trend, which is expected to increase further as the discourse continues to evolve, is illustrated in figure 1.

Number of verification reports

Figure 1 External assurance statement growth

Source: CorporateRegister.com (2008:28)

Table 1

Comparison of all external CSR assurance statements produced during 1997 and 2007, per region 2007 Estimated number of CSR reports

Europe Asia Australasia North America South America Africa Cumulative

1997

Number of CSR assurance statements

%

Estimated number of CSR reports

415 98 55 30 28 18 644

30% 22% 28% 7% 20% 25% 24%

260 0 9 100 0 0 369

1384 446 197 429 140 72 2668

Number of CSR assurance statements 70 0 3 9 0 0 82

%

27% 0% 33% 9% 0% 0% 22%

Average annual growth rate of CSR assurance 17% 31% 27% 11% 22% 19%

Source: CorporateRegister.com (2008)

Table 1 shows that, while Europe, the most active CSR-reporting region (producing 52% of the world’s CSR reports), has the highest CSR assurance rate (i.e. 30%), North America, another significant reporting region, only has an assurance rate of 7%. This could partly be due to the litigious culture in the USA resulting in assurors being wary of the potential liability arising from providing CSR assurance. Europe leads the drive to establish CSR-report credibility through external assurance, by providing 64% of all CSR assurance statements produced internationally. Despite only

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issuing its first assurance statements in 1999, by 2007, Asia had become the second largest region for assurance statements producing 98 statements, with Japan being the most significant contributor (CorporateRegister.com 2008:23, 30, 34, 36). European CSR assurance statements represent approximately four times as many as Asia. Table 2

Prevalence of external CSR assurance in the top 100 companies in six countries

Percentage of top 100 companies with external CSR assurance statements

UK

USA

Australia

Japan

Germany

South Africa

57%

11%

12%

29%

11%

15%

Table 2 provides a detailed breakdown of the specific reporting countries in some of the reporting regions reflected in table 1, clearly illustrating the disproportionate acceptance of the perceived benefit of CSR assurance in the top 100 companies of some of the world’s most developed countries and South Africa. The table clearly illustrates that most of the UK’s CSR reports were externally assured, followed by Japan, compared to a significantly lower prevalence in the remaining countries (CorporateRegister.com 2008:33). By comparison with the developed countries, South Africa features strongly, having 15% of its top 100 companies including an external assurance report. Nevertheless, despite the relatively high CSR assurance rate in the UK, the trend reflected in figure 1, suggests that while the practice of CSR assurance is still limited, it does appear to be growing.

4.2 Standardised assurance frameworks Table 3

Comparative analysis of various “standards” referenced in assurance statements in different studies

Assurance “standards” referenced in assurance statements. AA1000AS ISAE 3000 GRI G3 One “standard” referenced Two “standards” referenced Three “standards” referenced

CorporateRegister.co m (n=90)

Manetti and Becatti (n=34)

South African study (n=15)

31% 37% 44% 28% 31% 5%

31% 37% 44% 53% 26% unknown

45% 73% 80% 27% 53% 20%

Altogether, the studies referred to in table 3, examined 139 CSR assurance statements. The CorporateRegister.com study examined the CSR assurance statements of 15 companies in each of the five reporting countries reflected in table 2. The Manetti and Becatti study examined 34 international CSR assurance statements drawn up according to the GRI G3 and included in the GRI database at 31 December 2007, whereas the South African study examined all the externally produced CSR assurance statements of the Top 100 South African publicly listed companies (n=15). Table 3 indicates that, despite the emergence of three dominant assurance frameworks, namely AA1000AS, ISAE 3000 and the GRI Guidelines, they are not mutually exclusive and appear to complement each other, as evidenced by the trend for assurors to reference multiple frameworks. Despite the relatively small absolute number of CSR assurance


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statements issued in South Africa, probably because of the size of the South African economy, especially when compared to the developed countries reflected in table 2, the South African statements indicate greater use of multiple frameworks. A possible reason for the same distribution of the three frameworks reported in the Manetti and Becatti as well as the CorporateRegister.com studies, is that these studies both examine international companies. By comparison, the South African study yielded markedly different distributions for AA1000AS, ISAE 3000 and GRI G3, when compared to the international trend. In the author’s opinion, the difference may be attributed to the present dominance of the audit profession in the South African CSR assurance environment (providing 80% of CSR assurance statements), together with the reality that non audit firm assurors tend to prefer referencing AA1000AS (as discussed later in table 4). Despite overwhelmingly being referenced in CSR assurance statements, GRI G3 guidelines are not an assurance standard and are intended as guidance for reporting companies, not assurors. However, the lack of assurance standardisation has resulted in a situation in which assurors may adhere to certain principles from one framework and others from another, without being fully compliant with either, yet referencing both. While this may appear to represent convergence, it lacks the necessary rigour required by many stakeholders (CorporateRegister.com 2008:13). Interestingly, despite the fact that the auditing profession developed ISAE 3000 for its members, the CorporateRegister.com study found that 10% of ISAE 3000 references were by specialist consultancies, 8% by certification bodies, with the remaining 82% being audit firms. Similarly, the South African study found that 6% of specialist consultancies and 94% of audit firms referenced ISAE 3000, again reflecting the South African CSR reporting company’s bias towards using audit firm assurors. The South African study found that one third of the “Big 4”1 audit firms referenced AA1000AS, in addition to ISAE 3000. However, without exception, every audit firm providing CSR assurance has effectively exempt itself from any liability resulting from any reliance being placed upon the CSR assurance statement, by any user, other than the engaging company. In this regard, the typical wording included in these CSR assurance statements is as follows: “Our responsibility in performing our assurance activities, is to the management of the company only and in accordance with the terms of reference as agreed with them. We therefore do not accept, or assume any responsibility for any other purpose, or to any other person or organisation. Any reliance any such third party may place on the report is entirely at its own risk.” Paradoxically, since one of the underlying principles of AA1000AS is stakeholder “responsiveness”, in the author’s opinion, no assuror should reflect AA1000AS compliance while simultaneously excluding the majority of stakeholders from placing any reliance on these CSR assurance statements. This disclaimer effectively undermines the fundamental objective of CSR report assurance, namely enhancing report integrity and credibility and boosting stakeholder confidence about the disclosures made. The IFAC (2008:119) defines an assurance engagement as “an engagement in which a professional accountant in public practice expresses a conclusion designed to enhance the degree of confidence of the intended users other than the responsible party about the outcome of the evaluation or measurement of a subject matter against criteria”. 1

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“Big 4” audit firms – Ernst & Young, PricewaterhouseCoopers, KPMG and Deloitte & Touché.


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Regulated by the International Standards on Auditing (ISAs), the global audit profession utilises the international framework for assurance engagements (IFAE) to distinguish reasonable from limited assurance engagements. Despite the objective behind both reasonable and limited assurance being to reduce assurance engagement risk to an acceptably low level, it is particularly appropriate when reasonable assurance is provided because of the risk being greater than for limited assurance. IFAE requires the auditor to express his or her conclusion in the positive form for reasonable assurance and in the negative form for limited assurance (IFAC 2008:137-138).

4.3 Assurance providers The CorporateRegister.com study (2008:24, 28, 33) reveals that over 350 different assurance providers were competing in the international CSR assurance market in 2007, illustrating the growth of CSR assurance. Broadly speaking, the diverse assurance providers may be classified into the following ten groups: □ academic institutions □ audit firms (the “Big 4”) □ audit firms (other) □ certification bodies □ generalist consultancies □ specialist consultancies □ independent advisory boards □ individuals □ government bodies □ NGOs. CorporateRegister.com found that since the inception of CSR assurance in 1992, the “Big 4” audit firms appear to be the dominant role players in the international CSR assurance arena, having issued 41% of the assurance reports, followed by specialist consultancies with 33%, certification bodies with 13% and other smaller role players together issuing 13%. Nevertheless, despite the existence of several different assurance providers, the global assurance market appears to be consolidating with the three dominant provider types growing their market share from 65% in 1997 to 89% by 2007 (CorporateRegister.com 2008:40). Table 4

Comparative analysis of assurors referenced in different studies

“Big 4” audit firms Specialist consultancies Certification bodies Other

CorporateRegister.com study (p. 40) 244 statements 40% 155 statements 24% 158 statements 25% data unavailable 11%

Manetti & Becatti study 71% data unavailable data unavailable 29%

South African study 80% 20% -

Table 4 shows that the “Big 4” audit firms were the dominant provider in all three studies, although frequency in the CorporateRegister.com study was significantly lower (40%) than the Manetti and Becatti (71%) and South African studies (80%). Interestingly, the “Big 4” audit firms are more dominant in the largest Global FT500 firms, having issued more than Meditari Accountancy Research Vol. 17 No. 2 2009 : 1-17

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56% of CSR assurance statements, compared to specialist consultancies and certification bodies with 22% and 12% respectively (CorporateRegister.com 2008:33). This is probably because of large companies either having the budgets to engage “Big 4” assurance providers, or the perceived reach and competence of the “Big 4” to conduct the engagement. Whereas Manetti and Becatti (2008) found that 71% of assurance statements were by the “Big 4” audit firms, the South African study showed that they were even more dominant having issued 80% of the assurance statements, with the remainder being provided by specialist consultancies. One possible reason for the “Big 4’s” disproportionate share of the CSR assurance market, is the reporting company’s desire for association with the strong brands and perceived integrity of the “Big 4” audit firms, particularly in South Africa where anecdotally, they are still highly regarded by the public. An emerging trend is fully integrated annual and CSR reports providing stakeholders with assurance about the necessary linkage between financial and nonfinancial CSR information disclosed by companies (CorporateRegister.com 2008:36). During 2007, the largest companies produced 93 integrated reports internationally (i.e. linking CSR assurance statements and financial audit reports). Producers of integrated reports are more likely to use the “Big 4” audit firms for both CSR assurance and financial statement auditing. Using the same provider for financial and nonfinancial information is more cost effective and logistically convenient. It is probable that companies currently producing both annual and stand-alone CSR reports, or even first-time reports, may integrate reports with both elements being assured by a “Big 4” audit firm assuror (CorporateRegister.com 2008:36, 37). No South African companies provided integrated assurance, possibly because of the smaller company sizes and the relative immaturity of the South African CSR assurance market.

4.4 Assurance conclusions and opinions The principal component of an assurance statement is the conclusion. In a sense, it is the point to which the entire statement leads. As discussed earlier, while “limited” and “reasonable” may clearly indicate different assurance levels, the subtle wording used in the conclusion blurs the fundamental difference. Table 5

Assurance levels per assurance provider

“Big 4” audit firms Specialist consultancies Certification bodies Overall

Positively framed “reasonable” assurance 14% 73% 92% 50%

Negatively framed “limited” assurance 83% 27% 8% 42%

No opinion or disclaimer 5% N/A N/A 8%

Source: CorporateRegister.com (2008: 16, 24)

Table 5 clearly reflects the tendency for the “Big 4” audit firms to provide limited assurance, whereas specialist consultancies and certification bodies tend to favour reasonable assurance. In this context, one should bear in mind that assurors may provide limited assurance for one aspect of the CSR report, reasonable assurance for another and even a disclaimer of opinion for yet another. N/A in the table indicates that the required data are not available. By contrast, Manetti and Becatti (2008) found that 59% of assurance

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statements provided limited assurance, 9% declared reasonable assurance on selected aspects of the CSR report, with the remaining 32% providing reasonable assurance on the entire CSR report. The higher rate of limited assurance reported in their study is probably because the majority of assurance reports in their study are from the UK, where the “Big 4” audit firms are the dominant assurance providers. The ICAEW2 suggests that the primary reason for audit firms providing limited assurance was the potential liability involved in providing assurance over factors, which the assuror was unable to measure effectively, and an undefined audit universe, exacerbated by the diverse expectations of the various stakeholders who may rely on the CSR assurance statement. In the South African study, 100% of specialist consultancies provide reasonable assurance. However, 67% of the “Big 4” audit firms provide limited assurance and 8% reasonable assurance, with the remaining 25% providing reasonable assurance for certain aspects of the CSR report, limited assurance for other aspects and disclaimers of opinion for yet others. The reason for 92% of the assurance statements providing limited assurance may be attributed to the dominance of the audit profession in South African CSR assurance. Unlike the “Big 4”, which are global partnership brands, it can be argued that specialist consultancies usually tend to provide reasonable assurance because of the reduced risk associated with a smaller enterprise and not being subject to ISA’s IFAE. According to GRI Chairman, Mervyn King (Van Gass 2008), the GRI and the “Big 4” accounting firms are working towards a standardised “holistic” reporting system for companies to report on contextual matters. He suggests that the new standard, which should be ready in about 10 years (i.e. by 2018), will allow readers to make more informed assessments. The “Big 4” agree that only reporting according to existing international accounting standards only presents part of the picture. In the interim, however, the standards and practices are expected to continue evolving, thereby improving triple bottom line reporting. Similarly, Alan Knight, head of standards at AccountAbility3, confirmed that the IFAC would commence with the rewrite of ISAE 3000 in December 2008, following the release of the revised AA1000AS in October 2008. These statements appear to signal recognition by the world’s accounting and auditing profession of the need to harmonise CSR reporting and assurance standards, which in turn should assist stakeholders to meaningfully interpret and compare the CSR disclosures.

5 Conclusion Given the dynamic nature of the global CSR discourse, the purpose of the study on which this article is based, was to first determine international CSR assurance practices and trends and, secondly, to examine the extent to which South African companies have adopted international practices to provide stakeholders with assurance about the integrity of their CSR disclosures. The first phase of this article was to consider the literature from the perspective of CSR and CSR assurance. Thereafter secondary data were utilised to establish international trends towards CSR assurance practices. Finally, the South African situation, based on primary data, was compared to these international trends. The literature study presented the case for companies to account for the economic, social and environmental impact of their operations. Since the CSR business case is still not 2 3

Private meeting between the author and representatives of the ICAEW during September 2008 Private meeting between the author and Alan Knight during September 2008


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universally accepted, the ambiguity surrounding CSR and the lack of a consistent application of CSR was considered. It was found that the primary reason for providing CSR assurance was to provide stakeholders with a degree of comfort that certain stakeholders could rely on CSR disclosures. The various CSR assurance frameworks were found to provide different levels of assurance, namely reasonable and limited assurance. However, the usefulness of CSR assurance statements by ordinary stakeholders is questionable since the uninitiated may not understand the implications of disclosures in CSR assurance statements, nor detect the subtle differences in CSR assurance reports providing different levels of assurance. Despite the growing trend towards providing stakeholders with assurance about the integrity of CSR disclosures, the evidence suggests that the underlying principle does not have universal acceptance, as illustrated by the few companies providing assured CSR disclosures. Similarly, the inconsistent application of assurance standards and the divergent assurance opinions were confirmed. Broadly speaking, the results of the South African study were favourable when compared with international CSR assurance trends. These trends include increased provision of CSR assurance, prevalence of limited assurance, inconsistent application of the frameworks and multiple assurors. Despite several different types of organisations providing CSR assurance, the audit profession (as represented by the “Big 4”), were found to be the dominant providers internationally, especially in the UK and South Africa. The evidence clearly reflects the increasing trend towards companies having their CSR disclosures assured. While this article has not considered the underlying reasons for companies engaging external assurors, the assumption is that companies have accepted their CSR responsibility and are prepared to account for the impacts of their operations. It is predicted that, as stakeholders’ demand for improved transparency and company accountability in respect of their economic, social and environmental impacts increases, external assurors will increasingly be engaged to provide assurance about the integrity and completeness of their CSR disclosures. Despite the prominence of the “Big 4”, as the provision of CSR assurance increases, the dominance of the auditing profession in the provision of CSR assurance will attract other audit firms (i.e. non-“Big 4”) to start providing CSR assurance services to supplement their declining revenue from conventional financial statement auditing. To maintain this dominance, the audit profession will require the training of additional auditors to become competent in order to provide for the anticipated increased demand for CSR assurance services. While this affords audit firms an opportunity to expand their portfolio of services, it also poses a challenge to develop the necessary skills to conduct CSR assurance engagements effectively. The increased demand for competent CSR auditors will require an expansion in the education and training regimen of auditors by the South African Institute of Chartered Accountants (SAICA), training institutions and universities. This will require a review of the existing curriculum and training requirements provided to both aspirant and practising auditors. Further research into the anticipated demand for skilled CSR auditors is recommended. In addition, research should also be conducted to assess the existing CSR auditor skills base and to develop a model to efficiently implement an effective education, training and development programme to meet the anticipated increased demand for competent auditors to provide CSR assurance services. 14


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In conclusion, in the medium to longer term, as the volume of the discourse grows louder, the CSR and CSR assurance landscape is expected to be fundamentally different to the prevailing situation. While David Rockefeller’s prediction of a statutory CSR assurance report may not be realised, stakeholder pressure may force companies to voluntarily increase their CSR assurance rates.

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