Education

Getting a nod from external experts

Rajib Kumar Debnath | Updated on August 04, 2013 Published on August 04, 2013

Companies are getting their sustainability reports assured by reputed external agencies to demonstrate transparency and reliability.

Independent assurance helps build confidence that a report has captured all material issues pertaining to stakeholders, and that the data reported is reliable. While business entities have been releasing audited financial statements, there is growing pressure from stakeholders to demonstrate transparency on environmental and social practices.

Hence, to instil confidence and assure the integrity and credibility of the non-financial information released, companies are increasingly getting their social responsibility/ sustainability reports verified externally. According to Verdantix, an independent sustainability-focused analyst firm, globally, the Big Four financial accounting firms (Deloitte, KPMG, PwC and EY) are leading the market in sustainability assurance services. Other lead players include DNV and Bureau Veritas. Professional accountants are bound by a strict code of ethics, and are subjected to regular assessment by regulators. Hence, they are committed to offering high-quality services to businesses.

Besides, a sustainability report with a clean assurance conclusion from a professional accountant has added credibility. “Our research found that sustainability risks tied to corporate reputation and compliance are on the increase. So Chief Financial Officers are increasingly getting more involved in the selection of assurance providers. This is one reason why firms increasingly buy sustainability assurance from the Big Four audit firms,” said the study’s author, James Beresford of Verdantix.

Growing regulatory and stock exchange sustainability reporting requirements across the globe including India (refer to the Business Responsibility Reporting mandate by SEBI for the top 100 companies), coupled with review of sustainability reports by credit rating agencies, have acted as a trigger for companies to get their sustainability reports assured by reputed external agencies to demonstrate transparency and reliability.

In the choice of auditors, companies are increasingly realising that the auditor’s expertise, primarily on sustainability and environmental, health, safety and social (EHS&S) legal matters is paramount. The next criterion for selection is the level of experience in the most acceptable form of assurance standards. Cost of assurance ranks the last in importance.

Sustainability being in its infancy in India, and with regulatory mandates pouring in, a growing number of corporates here are looking at quarterly reviews, rather than a review on the completion of a full financial year. The reviews focus on EHS&S compliance matters, so that gaps, if any, could be addressed well in advance — which in turn could help produce a clean assurance statement at the close of the reporting period.

The sustainability market largely follows two standards for assurance — International Standard on Assurance Engagements (ISAE) 3000, and AA1000AS standard. ISAE 3000 is presently the most widely used assurance framework, since it enables an objective, evidence-driven assurance practice, and is binding on members of the International Federation of Accountants. It primarily exhibits the characteristics of materiality, relevance, completeness, reliability, neutrality and understandability.

It also provides a choice of two levels of assurance:‘Limited’ — a high-level review; and ‘reasonable’ — an in-depth process in which the auditors provide an opinion that the data is reliable. Due to the rigorous process involved, it has been adopted in some jurisdictions (such Netherlands) as a national standard.

The AA1000 Assurance Standard evaluates and provides conclusions primarily on the nature and extent of adherence to the principles of inclusivity, materiality and responsiveness, and its statement provides a description of findings as to the quality of the report, underlying management systems/ accountability processes and competencies.

Amidst the ongoing debate on the standard of AA1000AS, several companies across the globe, and in India (such as Bharat Petroleum Corporation Limited, PepsiCo India Holdings, Tata Consultancy Services, Hindalco Industries Limited and Bharti Airtel Limited) have begun to of incorporate the requirements of both ISAE 3000 and AA1000 Standards in their sustainability assurance process.

The author is Director, Deloitte Touche Tohmatsu India Pvt Limited

Published on August 04, 2013
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