ASSURANCE: the front line against global warming Prof Roger Simnett.
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Transcript of ASSURANCE: the front line against global warming Prof Roger Simnett.
ASSURANCE:
the front line againstglobal warming
Prof Roger Simnett
Content of presentation
Accounting and auditing standard-setters: where are they positioned in relation to developing standards on sustainability (community, environmental, social) information?
Review sustainability information currently being reported and assured
Identify possible future directions for the reporting and assurance of sustainability information
Developing sustainability reporting standards
Those charged with developing accounting standards are reluctant to produce standards around sustainability
Some developments by other standard-setting bodies; some voluntary disclosure by individual entities
The most comprehensive framework is that of the Global Reporting Initiative (GRI)
Issues around developing auditing standards
Difficult for the auditing profession to audit disclosures if we do not have generally accepted reporting disclosures for sustainability (“suitable criteria”)
Audit standard-setters are reluctant to be involved in setting suitable criteria
Audit of sustainability information has been seen as something of a periphery service
What are auditing standard-setters doing?
International Auditing & Assurance Standards Board (IAASB) established the Sustainability Expert Advisory Panel (SEAP) in 2004
Primary charge: liaise with the GRI to have revised GRI Guidelines ( “G3”) generally accepted by the auditing community as suitable criteria. (G3 released October 2006)
Also charged with:
advising IAASB on developing guidance for assurance on sustainability reports, and
working with national standard-setters on developing national assurance standards
How effective has SEAP been?
Questionable:
No current voice on IAASB and limited resources
Membership of SEAP is an issue. Includes sustainability assurance experts from all around the world, but they have no great voice in auditing standard-setting
Certainly had some influence on GRI G3
Have worked with the Dutch on their assurance standards (released October 2006)
Have been asked in last couple of weeks to prepare brief for IAASB regarding guidance
World snapshot: sustainability reports by nation
0
100
200
300
400
500
600
Au
str
ali
a
Ca
na
da
Fra
nc
e
Ge
rma
ny
Ita
ly
Ja
pa
n
Sth
Afr
ica
Sw
itze
rla
nd
UK
US
General purpose non-financial reports
Assured reports
World: sustainability reports by year
0
100
200
300
400
500
600
700
800
20
02
20
03
20
04
General purpose non-financial reports
Assured reports
World: who assures sustainability reports?
0
50
100
150
200
250
300
350
400
Auditing profession
Other
Audit professionals assuring sustainability reports
0
10
20
30
40
50
60
70
80
90
100D
elo
itte
To
uc
he
EY
KP
MG
PW
CReports assured
Where to from here?
Now GRI G3 has been released, anticipate more entities will produce stand-alone sustainability reports
Partly because of improvements in GRI G3 Partly a result of world-wide events and
movements Will see greater voluntary disclosure within financial
statements
Will see separate initiatives to collect and disseminate information
Expect greater demand for assurance
Future directions for stand-alone reports
Not quite mainstream. Suitable criteria still an issue.
To avoid criticisms of greenwash, significant difficulties with two assertions:
Completeness: Have we covered all the issues when we are not even sure who the report is intended for? (boundaries) e.g. concerns of different stakeholders may include diverse areas such as labour practices, environmental emissions and use of resources, social impact of business practices
Accuracy: Different units of measure. Causes various difficulties, including what is material misstatement?
Developing assurance standards
Many hurdles:
Who are the stakeholders receiving the reports?
Should the same level of assurance apply to all assertions of management? (e.g. completeness)
something the profession has never contemplated before
Material misstatement
What if dual reporting, and one party is not an accounting firm?
not bound by our standards / code of ethics?
A way forward…
Assurance on comprehensive sustainable reports is difficult…
… but can be done
First, tackle the easier assurance elements
Major issues: specific environmental issues (Stern report, Gore initiative, many other initiatives). Focus on generally agreed specific issues addresses concerns of management cherry-picking issues.
World-wide: Global Carbon Emissions
Carbon emissions can be disclosed and disclosures can be verified. Assertions of completeness and accuracy can be addressed
Evidenced by practice of global carbon trading, as in some parts of the world, and as outlined in Stern Report
Can work hand-in-hand with other initiatives such as Global Carbon Disclosure Project (GCDP). In Australia, 53% of ASX100 companies responded to GCDP 2006 questionnaire, and 4 provided information. Self-reporting seen as a limiting factor.
How to make this issue mainstream?
Include disclosure as footnote to financial statements, rather than separate reports or databanks
Total carbon emissions
for this year for the past year additional qualitative information
Assurance on this footnote is then provided by audit report to financial statements
Assurance can be provided under new form audit report under “other reporting responsibilities”
Specific environmental issue in Australia: Water Usage
Can verify completeness and accuracy
Similar reporting and assurance procedures as proposed for carbon emissions
For both issues, disclosures could possibly commence on a voluntary basis
Assurance is provided as part of financial statement assurance
Assurance standard-setters can provide specific guidance if required
Advantages of this approach
Brings sustainability/environmental issues into the mainstream
Will lead directly to greater shareholder andinvestment community attention
Meets immediate societal concerns. Surveys show taxpayers willing to pay more in taxes and shareholders willing to sacrifice short-term profits for a sustainable future
Accountability and credibility of disclosures=> greater likelihood of corporate initiatives to reduce emissions / usage which achieves aims of government & society
Disadvantages of this approach
Additional costs of data capture and disclosure and additional costs of assuring (some companies are already capturing and disclosing related information)
Cherry-picking of issues (although cherry-picking by someone other than management)
Only a small sample of the many issues necessary to address long term sustainability can be included
Which companies would voluntarily disclose this information? (this in itself is a signal to the market)
A new day is dawning
Environmental information flows are quickly evolving
The accounting and assurance professions need to move in a coordinated fashion and with speed in order to play a major role in this area. This has direct societal benefits.
Will this be an opportunity lost to our profession and our society?