Assurance Engagements Research Articles

New Insights in Auditing: New Insights in Assurance Engagements on Greenhouse Gas Statements (II)

New Insights in Auditing: New Insights in Assurance Engagements on Greenhouse Gas Statements (II)

New Insights in Auditing: New Insights in Assurance Engagements on Greenhouse Gas Statements (I)

New Insights in Auditing: New Insights in Assurance Engagements on Greenhouse Gas Statements (I)

Developing approaches to the sustainability assurance

Subject. This article discusses the approaches to assurance of sustainability information disclosed in various types of corporate reporting. Objectives. The article aims to assess the prospects for enhancing trust and confidence in sustainability information due to issuing the proposed Exposure Draft International Standard on Sustainability Assurance (ISSA) 5000, General Requirements for Sustainability Assurance Engagements. Methods. For the study, I used analysis, synthesis, comparison, generalization, and abstraction. Results. Based on the study of the international practices of disclosure and confirmation of information in the field of sustainable development and consideration of the essence of the proposed Exposure Draft International Standard on Sustainability Assurance (ISSA) 5000, General Requirements for Sustainability Assurance Engagements, the article assesses the prospects for applying this Standard in Russian practice. Conclusions. The requirements of the proposed Exposure Draft of the first profession-specific standard, which lays the foundation for the development of the ISSA-series standards system to express a certain degree of confidence by practitioners regarding the reliability of information on various aspects of sustainable development generated in accordance with a particular reporting system, develop a methodology for confirming information on sustainable development. The Standard can be directly applied or become the basis for the development of Russian standards for confirming information in the field of sustainable development presented both in the sustainability report and in other types of corporate reporting other than financial statements. The article contributes to improving awareness of all stakeholders about trends in the field of verification of information in the field of sustainable development.

The Risk of Technology Dominance in Using Digital Decision Aids in Assurance Engagements—Evidence from a Survey among Danish Auditors

SYNOPSIS Accounting firms continue to develop digital decision aids (DDAs) that reinforce consistent use of firms’ audit methodology and provide assurance for meeting regulator expectations. Firms actively promote use and reliance on DDAs, but relying on such systems risks over-reliance, impacting decision quality and heightening technology dominance. Surveying 725 Danish auditors, we sought to determine the level of reliance practicing auditors have on DDAs and understand how auditors experience these potentially deleterious effects in the field. Results show auditors rely more on DDAs when auditors are inexperienced, task complexity is high, there is familiarity with the DDA, and/or there is cognitive congruence. Junior auditors rely significantly more on DDAs than senior auditors, whereas auditors indicating low usage rely significantly less on DDAs. Overall, senior auditors and auditors not heavily using DDAs have deskilling concerns and are less positive on junior auditors’ as well as the profession’s skill development when using DDAs. JEL Classifications: M15; M41; M42.

Comments on Exposure Draft for Proposed ISSA 5000, sustainability assurance engagements by the Auditing and Assurance Standards Committee of AFAANZ

AbstractThe Exposure Draft for Proposed International Standard on Sustainability Assurance (ISSA) 5000 has been issued by the International Auditing and Assurance Standards Board (IAASB) because there is increasing demand by stakeholders for assurance of sustainability information. Our recommendations include: (i) a more flexible approach to ethics and quality management instead of the requirements for standards that are at least as demanding as the accounting profession's standards; (ii) more differentiation between the requirements for limited as opposed to reasonable assurance and (iii) more cautious use of the term materiality and clearer definitions of the different materiality concepts to avoid potential confusion.

Evaluating the Use of International Standards for Assurance Engagements by Nonaccounting Practitioners

SUMMARY When last revising the International Standard for Assurance Engagements (ISAE) 3000, the International Auditing and Assurance Standards Board (IAASB) determined that it is in the “public interest” for all competent practitioners (including nonaccounting practitioners) to use the ISAEs. The IAASB imposed conditions on such use, that an engagement’s underpinning ethics and quality control frameworks should be disclosed in the assurance report. Although this explicit determination may encourage wider use of ISAEs by nonaccounting practitioners, the conditions imposed may also act as a deterrent. Using a pre-post design on 2,282 international assurance engagements undertaken by nonaccounting practitioners, we identify increased use of ISAEs and greater disclosure of underpinning ethics and quality control frameworks, although some breaches remain. We further find that switches to ISAEs by nonaccounting practitioners have resulted in enhanced transparency of assurance procedures and independence in the assurance report and an increased share of the assurance services market.

Sustainability assurance and corporate environmental accountability

AbstractThis study explores the institutional field of sustainability assurance in South Africa to explain how this emerging practice, largely embedded in the mature field of auditing, operates. Employing the institutional pillars approach to analyze data obtained from in‐depth interviews, archival sources, and documentary reviews, the study shows mechanisms by which governing norms of the sustainability assurance field in South Africa are maintained despite a conspicuous gap between the desired purpose of sustainability assurance and its actual practice. Building on prior research on capture of sustainability assurance field, we identify an institutional outcome of total—that is, managerial and professional—capture conditioned by (1) malleability of the objective and scope of sustainability assurance engagements and (2) inadequate regulative pillars that failed to manage the multiple and competing interests in the sustainability assurance field. We show that total capture enabled maintaining field norms of sustainability assurance that cater for the interests of assurors and clients with limited regard to enhancing corporate environmental sustainability. The study contributes to the literature by highlighting the institutional outcome of embedding the emerging practice of sustainability assurance in an established field of auditing in a setting with weak regulative pillars.

Non-financial information assurance: a review of the literature and directions for future research

PurposeThis study aims to review the literature on non-financial information (NFI) assurance including external assurance of sustainability reports (SRA) and integrated reports (IRA). The objectives are as follows: provide an overview of academic research; understand the nature of NFI assurance engagements by organising the literature around the five key elements of an assurance engagement; develop a framework for understanding NFI assurance; and provide directions for future research.Design/methodology/approachThe study undertakes a structured literature review of 179 articles published from 1999 to 2023.FindingsThe review identified 324 researchers located in 35 different countries who published 179 articles on SRA and IRA. The researchers, their locations, journals, methods, theories and themes are examined. The literature is structured around the definition of an assurance engagement including a tripartite arrangement, subject matter, a suitable criterion, sufficient appropriate evidence and a written assurance report. A framework for understanding NFI assurance is offered. Avenues for future research, structured around the five elements of an assurance engagement, are presented.Practical implicationsResearchers will benefit from an overview of the literature and guidance on areas for future research. Lecturers can use the findings to develop content for their auditing courses. Reporting managers will benefit from a better understanding of this new form of assurance. Regulators can use this study’s insights to better inform the development of laws and corporate governance codes mandating NFI assurance. Standard setters can use these findings to guide the emergence of the new assurance standards. Assurance practitioners may use this research to inform practice.Social implicationsThe findings may prove useful in addressing capture, which deters NFI assurance from enhancing disclosure credibility and fulfilling its transparency and accountability role. This is to the detriment of the wider society.Originality/valueThe consolidation of the literature around the five key elements of an assurance engagement is unique. The framework devised offers useful insights into the dynamics of assurance generally and NFI assurance more specifically. The study is timely given the new European Union regulations on NFI reporting and assurance and the work of the International Audit and Assurance Standards Board in developing a specialist NFI assurance standard.

Technology and Evidence in Non-Big 4 Assurance Engagements: Insights from the COVID-19 Pandemic

SUMMARY We interviewed 30 assurance professionals in the United States regarding how and to what extent non-Big 4 firms incorporated technologies into assurance engagements during the COVID-19 pandemic. Informed by technology acceptance models, our findings show that the pandemic played an accelerator role, prompting an open attitude toward experimenting with technologies in assurance engagements. This experimentation increased perceptions of the usefulness of technology in engagement efficiency, given easier and faster evidence gathering. However, the readiness and security of clients’ systems remain barriers in evidence gathering. Assurance professionals perceive technology as useful in producing better quality evidence evaluation, with usage stymied by challenges related to source data integrity, naive use of tools, and distrust of outputs limiting the extent of change in evidence evaluation. Our study indicates more modest technology gains in evidence evaluation than in evidence gathering during the pandemic due to barriers with higher stakes, often tied to assurance conclusions.

Audit of non-financial reporting: what standard should be used?

A business entity of whatever kind seeks to operate in long-term perspective by achieving the strategies set out by it, including the strategies pertaining to social justice, environmental protection, friendly use of natural resources and their renewal. It is also a matter of the society’s concern. It is for this reason that non-financial reporting for sustain­able development, provided by business entities, is demanded by users. The verification of non-financial information is assigned to independent auditors. Although auditors use the International Standard 3000 “Assurance Engagements Other Than Audits or Reviews of Historical Financial Information” for the verification purposes, the International Standard 3410 “Assurance Engagements on Greenhouse Gas Statements” can also be applied for specialized spheres. When non-financial information is submitted together with financial re­porting, the International Standard 720 (revised) “The auditor’s responsibilities relating to other information” will be applicable. On the request of international donor organizations, an auditor is allowed to use the International Standard 4400 “Agreed-upon procedures engagements”. Given that the International Standard 3000 is the most demanded among the auditors, the International Auditing and Assurance Standards Board provided a guid­ance on its application. The phases of non-financial reporting audit and their content were clarifi ed on the basis of the International Standard 3000. The choice of an international standard depends on the conditions of an engagement and relies on the professional judg­ment of an auditor. Irrespective of a chosen standard, an auditor bears the responsibility for the assessment of published non-financial reports for sustainable development. Real­izing the responsibility before users of non-financial reporting, an auditor must assure the quality of his services in keeping with the requirements of the International Standard on Quality Management (ISQM 1). The working document of an auditor “Quality assessment of assurance engagements other than audits or reviews of historical financial information (non-financial reporting)” was elaborated, which would help assure the internal control of auditing at engagement level. This document is standardized and can be used in the auditing practice.

Comments of the AFAANZ Auditing and Assurance Standards Committee on the Proposed Standard on Assurance Engagements over GHG Emissions Disclosure

AbstractThe New Zealand External Reporting Board (XRB) issued for public comment a standard on Assurance Engagements over GHG Emissions Disclosure. The Auditing and Assurance Standards Committee of AFAANZ prepared a submission, based on the findings reported in published research, responding to a number of the questions asked by the XRB. This technical note presents the formal submission made to the XRB.

Використання можливостей внутрішнього аудиту при оцінюванні якості трудових відносин та процесів формування і розвитку кадрового потенціалу суб’єктів господарювання

The purpose of this study is to specify the specifics of internal audit in the field of labor relations and human resources, taking into account the current requirements of the International Standards for the Professional Practice of Internal Auditing, and to substantiate the main types of engagements to be performed by internal auditors. It is substantiated that the engagements performed by internal audit are actually represented by two large groups: assurance engagements and consulting services. These trends correspond to the development of the content of the audit (transition to a broad interpretation and transformation into an assurance engagement) and a fundamental change in the role of the audit - a combination of the advisory and assurance functions. The author proposes to define internal audit in the field of labor relations in order to be fully in line with international standards, which is proposed to be considered as an independent, objective activity to provide assurance on the compliance of labor processes (human resources, personnel management) with the established evaluation criteria and advisory services that should benefit the organization, increase its value and improve its performance. The purposes that can be set for the internal audit service in the field of labor relations and human resources are highlighted and possible evaluation criteria and their limitations are identified. The distribution of functions and responsibilities in the performance of assurance engagements by the internal audit service is specified. The presented developments should form the basis of such a document as the internal audit charter, since the Atributes Standards of the International Standards for the Professional Practice of Internal Auditing (Section 1000 – Purpose, Authority, and Responsibility) stipulate that the purpose, authority, and responsibility of the internal audit function should be formally defined in the internal audit charter. It is substantiated that the development of such a document detailing the types of engagements to be performed by the internal audit service in the field of labor relations and human resources potentially possible for a particular enterprise is an important area for further research.

Використання можливостей внутрішнього аудиту при оцінюванні якості трудових відносин та процесів формування і розвитку кадрового потенціалу суб’єктів господарювання

The purpose of this study is to specify the specifics of internal audit in the field of labor relations and human resources, taking into account the current requirements of the International Standards for the Professional Practice of Internal Auditing, and to substantiate the main types of engagements to be performed by internal auditors. It is substantiated that the engagements performed by internal audit are actually represented by two large groups: assurance engagements and consulting services. These trends correspond to the development of the content of the audit (transition to a broad interpretation and transformation into an assurance engagement) and a fundamental change in the role of the audit - a combination of the advisory and assurance functions. The author proposes to define internal audit in the field of labor relations in order to be fully in line with international standards, which is proposed to be considered as an independent, objective activity to provide assurance on the compliance of labor processes (human resources, personnel management) with the established evaluation criteria and advisory services that should benefit the organization, increase its value and improve its performance. The purposes that can be set for the internal audit service in the field of labor relations and human resources are highlighted and possible evaluation criteria and their limitations are identified. The distribution of functions and responsibilities in the performance of assurance engagements by the internal audit service is specified. The presented developments should form the basis of such a document as the internal audit charter, since the Atributes Standards of the International Standards for the Professional Practice of Internal Auditing (Section 1000 – Purpose, Authority, and Responsibility) stipulate that the purpose, authority, and responsibility of the internal audit function should be formally defined in the internal audit charter. It is substantiated that the development of such a document detailing the types of engagements to be performed by the internal audit service in the field of labor relations and human resources potentially possible for a particular enterprise is an important area for further research.

Technology and Evidence in Non-Big 4 Assurance Engagements: Insights from the COVID-19 Pandemic

Technology and Evidence in Non-Big 4 Assurance Engagements: Insights from the COVID-19 Pandemic

‘Are We Good? Or Do We Need to Keep Going?’: Evidence Sufficiency in Assurance Engagements

‘Are We Good? Or Do We Need to Keep Going?’: Evidence Sufficiency in Assurance Engagements

Интегрированная отчетность: история, верификация, перспективы

The article is devoted to the study of integrated reporting as a dynamically developing part of corporate reporting. Public non-financial reporting is defined as a set of indicators reflecting the goals, approaches and performance of corporations on significant issues of social responsibility and sustainable development. Despite the identified similarities between various approaches to disclosure of non-financial information, the hallmarks of integrated reporting are integrated thinking underlying the management structure, commitment to the environmental agenda, and demonstrating the ability of an economic entity to generate value in the short, medium and long term. The objectives of the study are to identify the historical stages in the development of integrated reporting in the Russian Federation, to determine the method of verifying such reporting, which causes the greatest confidence among stakeholders, and to identify the prospects for reporting non-financial nature in the format of integrated reporting. The work used general scientific principles and methods of research: induction and deduction, synthesis and analysis, logical linking, systematization of the theoretical foundations and practice of presenting non-financial information by economic entities included in the MOEX (Moscow exchange index) and MCXSM (middle and small capitalization index) indices. In the course of the work carried out, it was revealed that not all companies that list their shares on the Moscow exchange publish non-financial information, and companies that place non-financial statements do this in the form of a sustainable development report, integrated reporting, social report, environmental report or social environmental report. The scientific novelty of the study lies in the development of the author’s periodization of the stages of development of integrated reporting in the Russian Federation; development of audit stages for integrated reporting based on the International Standard for Assurance Engagements, as well as taking into account the specifics of the structure and principles of disclosure of non-financial information; formation of a SWOT-analysis matrix of integrated reporting in terms of information on sustainable development. The results obtained in the course of the study are of theoretical and applied importance and can be used as a basis for preparing an integrated reporting package; the plan and program for the audit of non-financial information, as well as when substantiating the decision to place integrated reporting in the public space. The direction of further research is the structure of the package of integrated reporting, taking into account the peculiarities of the functioning of the ecosystems of an economic entity, as well as the development of a SWOT-analysis matrix for integrated reporting in terms of information on ecology and social.

ANALYSIS OF INDEPENDENT ASSURANCE STATEMENTS: BIST SUSTAINABILITY INDEX

Purpose- Assurance engagements are conducted to increase the confidence of decision makers in this information by auditing the non-financial information about companies by an independent institution. Companies disclose their non-financial information in their sustainability reports or integrated reports, and if they have received assurances from independent audit firms for this information, they also include independent assurance statements in these reports. The purpose of this study is to determine whether companies included in the BIST Sustainability Index (XUSRD) have an independent assurance statement regarding non-financial performance indicators, and to examine the content of these statements, if any. Methodology- For this purpose, the year 2020 sustainability reports and integrated reports of 65 companies included in the BIST Sustainability Index were examined, and the independent assurance statements included in these reports were analyzed using the content analysis technique, one of the qualitative analysis methods. Findings- As a result of the research, 22 (34%) of the 65 companies included in the BIST Sustainability Index have an independent assurance statement from independent audit firms. It has been determined that the companies received an independent assurance statement 36.4% are manufacturing, 36.4% are financial institutions, the remaining 27.2% is in wholesale and retail trade, electricity, gas and water and construction and public works sectors. All 22 companies with independent assurance statements received limited assurance. It is among the findings that 2 (9%) of these companies received assurance only for environmental indicators, 9 (41%) for environmental and social indicators, 11 (50%) for environmental, social and economic indicators. In addition, all of the independent audit firms that give an independent assurance statement consist of three big audit firms within the big four. It has been found that there are 2 statements in which only the ISAE 3000 standard is used in the assurance engagement, 17 statements that the ISAE 3000 standard is used with the ISAE 3410 standard, 2 statements that the ISAE 3000 standard is used with the ISO 14064-3 standard, and 1 statement that the ISAE 3000 standard is used with the AA1000 standard. Conclusion- It has been seen that even in the BIST Sustainability Index, which includes companies traded on Borsa Istanbul with a high level of sustainability performance, companies do not demand much assurance. Assurance statements that guide decision makers about the accuracy of non-financial information are an indicator of the transparency of companies. The assurance of this information by the companies will increase the reliability and reputation of the companies. Keywords: Non-financial indicators, independent assurance statements, BIST Sustainability Index JEL Codes: M40, M42.

International standards in the provision of audit-related services

This article discusses international standards that establish the procedure for providing audit-related services. The key role in the system of this group of international standards is played by the international standards of assurance engagements, the international standards of review checks, and the international standards of related services recognized and in force in the Russian Federation. Taking into account the provisions of Russian regulatory acts and international standards, the types of audit-related services are defined: services that provide reasonable assurance, services that provide limited confidence, and services that do not provide confidence. The subject of the task, within the framework of related services of the corresponding type, and the main features of the provision of such services are also disclosed.

The choice of incumbent financial auditors to provide sustainability assurance and audit services from a legitimacy perspective

PurposeSustainability assurance services are carried out in a competitive market where a wide range of assurance providers operate without the need for any specific professional qualifications, competencies or skills. Assurance providers have heterogeneous professional backgrounds and experiences that lead to substantial diversity in sustainability assurance quality levels. This paper aims to provide an understanding of sustainability assurance quality. From a legitimacy perspective, the authors focus on the choice of assurance providers by exploring why a company voluntarily chooses an incumbent financial auditor to jointly provide audit and sustainability assurance services. The authors argue that to avoid the legitimacy threats undermining stakeholders’ confidence in the sustainability information disclosed, companies should only choose their incumbent financial auditors to provide sustainability assurance services when these auditors possess the professional attributes associated with sustainability assurance quality.Design/methodology/approachThis study develops regression models for an international sample for 2007–2016, where the authors analyze why a company voluntarily chooses an incumbent auditor to jointly provide audit and sustainability assurance services from a legitimacy theory perspective.FindingsEvidence confirms that the choice of incumbent auditors as assurance providers is more likely when these providers are more specialized in the industry. The authors also find that independence does not play a significant role in this decision. Therefore, an assurance provider’s industry specialization can be understood as an attribute that is associated with sustainability assurance quality and one which limits the legitimacy threats caused by a lack of sufficient sustainability knowledge.Practical implicationsGiven that companies have complete freedom when choosing their assurance providers, the selection of a high-quality incumbent auditor is an indirect measure of social commitment and a mechanism to improve public trust. The results confirm that it is fundamental for firms to understand the situations when choosing an incumbent financial auditor to provide sustainability assurance services is the best way to ensure firm legitimacy while obtaining higher sustainability assurance quality due to the spillover effect. This paper provides useful evidence for firms and managers who can become aware that the legitimacy threat associated with the auditing profession’s questionable competence to conduct efficient sustainability assurance engagements can be reduced if they hire an incumbent financial auditor with greater industry specialization. For assurance providers, the results are especially useful, as they should know that companies will be more likely to choose their incumbent financial auditor when that auditor possesses certain professional attributes, like industry specialization. The ability to assimilate and exploit the knowledge gained through auditing activities can be improved even more by specialization, which enhances sustainability assurance quality.Social implicationsFrom a social perspective, stakeholders perceive industry specialization as an indicator of the professional skills necessary to increase both the real and perceived quality of sustainability assurance services, thereby limiting the legitimacy threat arising from a lack of sustainability knowledge. The evidence also provides valuable results for regulatory bodies, as it shows that firms are not able to address the legitimacy gap caused by stakeholders’ perceptions that incumbent financial auditors can easily be controlled by companies. Thus, doubts arise as to whether this joint provision undermines auditor independence. Precisely, these doubts about assurance provider independence can erode public confidence in assurance and devalue the quality of the service. The results of this paper highlight the need to strengthen regulation on sustainability reporting and assurance. The advances and relevance of sustainable development in recent years and in future agendas require a firm commitment to sustainability reporting and assurance of quality, reliability, integrity and confidence.Originality/valueFirst, this study contributes to recent empirical studies that focus on the role of sustainability assurance services in the legitimation process of corporate sustainability reporting. However, while that research analyzes how the legitimacy theory explains the voluntary adoption of sustainability assurance, this paper adds to the literature by presenting evidence about why certain incumbent auditors are appointed to carry out sustainability assurance services. Second, this paper contributes to the sustainability assurance quality literature. Third, unlike previous studies that have regressed various client-specific and institutional factors that influence firms’ decisions to choose assurance providers, this study contributes to the research by providing knowledge about a set of professional features that may explain the decision model of assurance providers selection from a legitimacy perspective.

Examining the extent of and determinants for sustainability assurance quality: The role of audit committees

AbstractThis study examines the extent of and determinants for sustainability assurance quality. Data comprise sustainability assurance statements published by the top 100 listed companies in Australia and New Zealand from 2017 to 2019. The findings indicate that Australian companies lead their New Zealand counterparts in sustainability assurance. Although sustainability reporting has risen, assurance rates remain significantly low. Accountants dominate the market, and companies prefer to use their own auditors for sustainability assurance work. Sustainability assurance quality is poor and does not vary significantly among Australian and New Zealand companies. Low‐quality sustainability assurance plays a limited role in mitigating potential stakeholder–agency conflicts. The regression analysis indicates that audit committee characteristics such as members' independence, industry/market expertise, and attending meetings enhance sustainability assurance quality, whereas audit committee size has no affect. These findings suggest that audit committee characteristics such as independence, industry expertise, and regular meeting attendance have the potential to reduce stakeholder–agency conflicts by improving the quality of sustainability statement assurance. Our findings build on the sustainability assurance literature by exploring current trends in sustainability assurance practices in Australia and New Zealand where corporate governance codes have been recently revised. Further, these findings are timely given recent changes in standards (International Standard on Assurance Engagements [ISAE] 3000 and Global Reporting Initiative [GRI]). Our study contributes to the audit committee literature and sheds light on the role played by audit committee characteristics on sustainability assurance statement quality. The study findings potentially offer useful insights for practitioners, standard setters, and regulators.