Assurance Engagements Research Articles

Internal auditing and assurance of corporate social responsibility reports and disclosures: perspectives of some internal auditors in Ghana

Purpose This study aims to examine the nature and extent of internal auditors’ (IAs) involvement in corporate social responsibility (CSR) assurance. It also ascertains the capacity building requirements to legitimise the role of IAs as a credible form of providing CSR assurance. Design/methodology/approach A qualitative research approach was adopted, where data were collected through semi-structured interview of IAs of companies in Ghana that produce CSR reports. Findings Findings suggest that companies appreciate the fact that the internal audit function could provide independent assurance on CSR reports. However, there is limited information on the nature and scope of the assurance procedures. Moreover, most IAs seem to lack the requisite knowledge and skills needed to effectively carry out CSR assurance engagements. These evidences suggest a relatively low level of reliance being placed on CSR assurance services provided internally. Research limitations/implications Findings are purely based on the perceptions of IAs. Future studies may include the views of those who appoint IAs (i.e. management). Practical implications Findings engender discussions on the need for IAs and regulators of IAs (e.g. the Institute of Internal Auditors), particularly those in developing countries to begin to conscientise practitioners on the changing roles of the IA in the areas of CSR and CSR assurance. Originality/value This study is one of the very few studies on CSR assurance from the perspective of IAs and it also based on evidence from an African context. Also, the study provides evidence on the need for a deliberate effort to equip internal audit practitioners to provide at least some minimal assurance on CSR disclosures and reports.

Ethical and Quality Control Requirements When Undertaking Assurance Engagements

In response to an increasing demand for assurance of non-financial information, the International Auditing and Assurance Standards Board (IAASB) has recently released a number of International Standards on Assurance Engagements (ISAEs). In response to concerns as to whether their use be extended beyond professional accountants to other assurance providers, the IAASB determined that public interest would be best served if all competent practitioners were able to use ISAEs to benchmark their work effort. It also determined that the ethics and quality control frameworks under which assurance engagements are undertaken should be disclosed in order to address concerns about inconsistency in their quality. This study examines assurance engagements to identify the ethics and quality control standards claimed to be used by assurance practitioners, both professional accountants and other assurance providers. It finds that, while most professional accountants reference the accounting profession’s Code of Ethics and Quality Control standards, there is still room for improvement. Further, the lack of any reference to codes of ethics or quality control standards by other assurance providers raises concerns over the IAASB’s determination to extend the use of ISAE standards to these other providers. Using multivariate analysis we further find that both the type of assurance practitioner and the stringency of a country’s reporting requirement on non-financial information are consistently related to the level of reference to both ethics and quality control requirements.

Esiste una strategia di Internal Auditing che crea valore? Un'analisi empirica del contesto italiano

Does exist an internal strategy that can create value? An empirical analysis of the Italian context To create value the internal auditing (IA) functions should define a strategy taking into account the characteristics of the external and internal environment and the expectations of the IA stakeholders. It does not exist a one best way to create value, but the IA strategy should be defined and implemented considering the specific contexts in which the IA functions operate. This is the main finding that emerges from the empirical analysis the authors have carried out in cooperation with the Italian Institute of Internal Auditors involving 78 CAEs (Chief Audit Executives). Other important research findings show that the IA function performs more the assurance engagements than the consulting activities. Moreover there is a growing use of audit software, data analytics and data mining tools to increase the efficiency and effectiveness of IA process and finally the IA carries out a wide range of auditing activities to meet the various expectations of an increasing number of stakeholders.

The Feasibility of Assurance Engagements for Business Risk

The Feasibility of Assurance Engagements for Business Risk

The Role of Sustainability Performance and Accounting Assurors in Sustainability Assurance Engagements

Research on sustainability assurance is still in its beginnings. One of the key questions in this field that also is of highest practical relevance is concerned with the quality of the assurance process. However, a common understanding of assurance quality and how it should be measured is still missing. We try to close this gap by building on the financial audit literature. We introduce a definition of assurance quality that comprises two key aspects: the depth of the assurance process and the breadth of the assurance statement. Based on prior research, we hypothesize that a firm’s sustainability performance is related to the depth of the assurance process, while the type of the assurance provider, more precisely the affiliation to the accounting profession, is related to the breadth of the assurance statement. Results for a sample of 122 European firms reveal a negative relationship between sustainability performance and assurance process depth as well as between the affiliation to the accounting profession and assurance statement breadth. Thus, we find evidence that poor sustainability performers ask for in-depth assurance services, most likely as a means to enhance their internal sustainability-related processes and systems. Assurance providers that do not belong to the accounting profession in turn are associated with broader assurance statements.

An Overview of Factors Affecting Auditing Quality in Albania

The effects of the financial crisis during the last decade derived by major financial scandals in major corporations and the uncertainty that still follows the economic situation has emphasized the need to regain the confidence of the users in the financial information. In these conditions, the need for certified and reliable financial information is a challenge that mostly affects the auditors, which should be stimulated to improve the audit quality. There is a wide range of studies and authors who try to determine the most influence factors that affects the auditing quality. The objective of this paper is to study how various internal and external factors like audit firm culture, quality of people, management and audit committee as well as general cultural and political factors affects the audit quality in Albania. Identifying the main factors that can improve the auditing quality in Albania can contribute to our understanding of how the Albanian auditors adopt the auditing standards to accomplish the quality control and other related reporting responsibilities. The study will be widely based on international standards on auditing and assurance engagements to identify the main factors affecting the quality control of auditing according to most popular and used classification. The objective of this study will be completed by analyzing the views from the respondents (CPA and independent auditors) obtained from the utilization of the questionnaires and interviews as well as the usage of foreign and national literature. DOI: 10.5901/ajis.2015.v4n3s1p223

An empirical assessment of assurance statements in sustainability reports: smoke screens or enlightening information?

In recent years, the number of companies using external third parties to assure their sustainability reports has increased. Previous studies have underlined the heterogeneous content of voluntary assurance statements and have attributed this to the fact that standards are vague and regulations are non-existent. Against this background, this study seeks to examine the quality of, as well as the similarities and differences between, assurance statements in sustainability reports. The paper specifically analyses content, applied standards, assurance engagements, and providers by applying content analysis to the assurance statements in non-financial reports. The results indicate differences in the content, executed processes, and concrete implementation of the standards. Non-accountants apply a wider diversity of methods, while assurance processes by accountants seem to be prone to isomorphism due to professionalisation, network effects, and uncertainty. The results are discussed in the context of isomorphism by templates and deinstitutionalisation and suggest that current practices may diminish the credibility, transparency, and internal benefits for management which could be otherwise derived from assurance statements.

Differences in Auditors' Materiality Assessments When Auditing Financial Statements and Sustainability Reports

AbstractWith increased interest in voluntary sustainability reports from investors and other stakeholders, more companies are having these reports assured. The issue of what is considered material in these assurance engagements is important, and yet research on materiality has focused only on financial statement audits. This article reports the results of an experiment where auditors assess the materiality of audit differences in the same magnitude for both a financial audit and a sustainability (water) assurance engagement. Two factors, the risk of breaching a contract and community impact, are manipulated between‐subjects. We find that auditors assess the materiality of an audit difference significantly higher for a financial case than for a water case. This difference is significantly greater when there is no risk of breaching a contract than when there is a risk of breaching a contract. The risk of breaching a contract has a stronger effect on the difference in auditors' materiality assessments when there is no community impact than when there is a community impact. Overall our findings suggest that qualitative factors have a greater impact on sustainability (water) materiality assessments than on financial statement materiality assessments when an audit difference is between 5 percent and 10 percent of a relevant base. Understanding the factors that impact material judgments in sustainability reports is important as these factors affect the reliability of the reported disclosures.

Mandatory corporate social responsibility assurance practices

Purpose– Despite its voluntary nature, the Johannesburg stock exchange (JSE) requires all listed companies to apply the King III principles, including providing independent CSR assurance. King III has accordingly made independent CSR assurance a de facto mandatory requirement, albeit on an “apply or explain” basis. The purpose of this paper is to examine the impact mandatory corporate social responsibility (CSR) assurance practices in South Africa, within a King III context.Design/methodology/approach– To understand the impact of King III on South African CSR assurance practices, a longitudinal study covering reporting periods both before and after King III implementation. The first stage reviewed the annual reports of the 200 largest JSE-listed companies to establish the frequency of CSR assurance provision. The second stage involved performing a content analysis on the CSR assurance reports.Findings– King III is driving the institutionalisation of CSR assurance practices in South Africa, as evidenced by the growth in CSR assurance since the implementation of King III. The study also found that the audit profession’s dominance was being eroded by specialist CSR assurors providing higher levels of assurance, despite concerns about the rigour of their assurance methodologies. Voluntary CSR assurance practices have resulted in the inconsistent application of CSR assurance practices, impairing the ability of stakeholders to understand the nature and scope of CSR assurance engagements. It is argued that this deficiency may be overcome through the imposition of a mandatory CSR assurance regime.Originality/value– The pervasive impact of the King Code of Governance on South African organisations makes it appropriate to examine its impact on South African CSR assurance practices. As such, this paper represents one of the first studies to specifically consider the impact of a mandatory regulatory requirement for independent CSR assurance and suggests a future direction for global CSR assurance practices.

2010-2014: A Comparative Evolution of Sustainability Reporting and Its Assurance in Europe and the U.S.A.

Abstract The concept of sustainability has evolved to encompass environmental, social and governance issues regarding corporate behaviour. For the last few years, stakeholders have begun putting pressure on companies to report on sustainability issues. Several national and international regulations and standards have been adopted to guide companies in their reporting. To ensure the accuracy and comparability of non-financial data needed for the stakeholders' decision making process, there is an increasing preference for the external assurance of sustainability reporting. The internationally recognized CSR report assurance standards are the International Standard on Assurance Engagements, ISAE 3000, and AccountAbility's AA1000 Assurance Standard (AA1000AS). This study focuses on the evolution of corporate sustainability reporting, using two non-financial indicators: ESG reporting, and Assurance of ESG reporting. The data for the study is based on content analysis of both CSR reports and corporate websites, courtesy of Sustainalytics. We assessed the evolution of the two indicators from June 2010 to February 2014, for 50 listed European companies and 50 American ones. The comparative approach illustrates the different evolutions of sustainability in Europe and the USA, emphasising the need for stronger regulations and guidelines in the USA, similar to those already implemented in European Countries. For the selected time period, US companies are shown to be worse reporters than European ones, having a negligible number of reports externally verified.

Comments by the Auditing Standards Committee of the Auditing Section of the American Accounting Association on the IESBA ED Release (August 14, 2014), Proposed Changes to Certain Provisions of the Code Addressing the Long Association of Personnel with an Audit or Assurance Client

SUMMARY On August 14, 2014 the International Ethics Standard Board for Accountants (IESBA) requested public comments to its Exposure Draft (ED) (IFAC 2014a) on proposed changes to the 2014 Code of Ethics for Professional Accountants (IFAC 2014b). The proposal aims to enhance the independence provisions of the Code to respond to threats that may be created by using the same audit firm personnel for audit or assurance engagements over an extended period of time. Among other things, the amendments would require (1) strengthened general provisions for all audits threatened by a long association of firm personnel, and (2) an increase in the mandatory “cooling-off” period, from two to five years, for the engagement partner on the audit of a public interest entity. The comment period ended November 12, 2014. This commentary summarizes the contributors' views on selected proposals in the ED. Data Availability: The Exposure Draft and related request for specific comments are available at: http://www.ethicsboard.org. Paragraph referencing in the ED is extracted from the Code, set out in the 2014 Handbook of the Code of Ethics for Professional Accountants, available at: https://www.ifac.org/ethics/iesba-code/.

Regulating Third Party Assurance Engagements on Sustainability Reports: Insights from the Swedish Case

It is a well-institutionalised notion that information subjected to assurance (audit) by third parties contributes to better quality information for decision making. In the field of sustainability reporting, who are providing assurance and how is quality regulated? What are the challenges of regulating sustainability assurance through standards? What role can hard law play to strengthen reporting and assurance as tools to support sustainable companies?

Regulating Third Party Assurance Engagements on Sustainability Reports: Insights from the Swedish Case

It is a well-institutionalised notion that information subjected to assurance (audit) by third parties contributes to better quality information for decision making. In the field of sustainability reporting, who are providing assurance and how is quality regulated? What are the challenges of regulating sustainability assurance through standards? What role can hard law play to strengthen reporting and assurance as tools to support sustainable companies?

Sustainability Reporting and Assurance: A Historical Analysis on a World-Wide Phenomenon

Sustainability reporting and assurance of sustainability reports have been used by organizations in an attempt to provide accountability to their stakeholders. A better understanding of current practices is important to provide a base for comparative and trend analyses. This paper aims to consolidate and provide information on sustainability reporting, assurance of sustainability reports and types of assurance providers. Another aim of this paper is to provide a descriptive analysis of these practices for a global sample, comparing results with previous studies, and suggesting opportunities for future research. To accomplish these objectives, a literature review was performed, an analysis of the organizations included in the Fortune Global 500 2010 was completed, and results were presented and consolidated by country. These results demonstrate that all organizations analysed provided some type of information in relation to their social or environmental performance in their official website. The percentage of organizations issuing a sustainability report has been increasing in the last few years. However, the percentage of organizations assuring their sustainability report has stagnated. Types of assurance engagements include those performed by accountants and non-accountants, and new practices have emerged, namely the “mixed approach” and the “stakeholder or specialist review”. The analysis also shows that the practices of issuing sustainability reports and having them assured have become a world-wide phenomenon, occurring in developed, and emerging economies around the world.

Differences in Auditors’ Materiality Assessments When Auditing Financial and Non-Financial Reports

With increased interest in voluntary sustainability reports from investors and other stakeholders, more companies are having these reports assured. The issue of what is considered material in these assurance engagements is important and yet research on materiality has focused only on financial statement audits. This paper reports the results of an experiment where auditors assess the materiality of audit differences of the same magnitude for both a financial audit and a sustainability (water) assurance engagement. Two factors, the risk of breaching a contract and community impact, are manipulated between-subjects. We find that auditors assess the materiality of an audit difference significantly higher for a financial case than for a water case. This difference is significantly greater when there is no risk of breaching a contract than when there is a risk of breaching a contract. For the water case, risk of breaching a contract has a stronger effect on auditor's materiality assessments when there is no community impact than when there is a community impact.

Assurance of sustainability reports

PurposeThe International Auditing and Assurance Standards Board (IAASB) is currently in the process of revising International Standard on Assurance Engagements (ISAE) 3000. The purpose of this paper is to review the implications of this revision process for providing assurance on sustainability reports, and identify policy‐related research opportunities associated with this review.Design/methodology/approachThe paper takes the form of a conceptual and critical review of standards development, and archival analysis of ISAE 3000 exposure draft responses.FindingsIn the revision of ISAE 3000, concerns have been expressed by a number of parties around the distinction between reasonable and limited assurance, the procedures necessary in properly undertaking a limited assurance engagement and the structure and content of a limited assurance report. These concerns can be addressed by appropriate research initiatives which can inform these policy issues.Research limitations/implicationsResearch opportunities are identified, in particular the use of experimental design to examine implications of changing the requirements of the procedures for limited assurance on assurance practitioners and of changing aspects of the assurance report on the level of assurance conveyed by limited assurance reports.Practical implicationsThe paper contains a review of the standard‐setting process and has implications for assurance providers of sustainability reports, standard setters and regulators.Originality/valueThe paper provides an update of relevant standards for assurers of sustainability reports and review and appraisal of issues raised in the recent revision process of ISAE 3000.

The Competitive Market for Assurance Engagements on Greenhouse Gas Statements: Is There a Role for Assurers from the Accounting Profession?

SUMMARYIn response to current and increasing demand for assurance on greenhouse gas statements, the International Auditing and Assurance Standards Board (IAASB) released an exposure draft of a new assurance standard, ISAE 3410 “Assurance on a Greenhouse Gas Statement” (IFAC 2011), to provide comprehensive guidance on these types of greenhouse gas (GHG) assurance engagements. Internationally, approximately 50 percent of GHG statements are independently assured. The related assurance market is competitive, with the accounting profession and those outside the profession currently holding approximately equal shares. This paper highlights the characteristics of GHG assurance engagements that warrant multi-disciplinary teamwork, the unique and interdependent skill-sets that different practitioners bring to these engagements, and the market forces that create a demand for diverse providers.

Limited Assurance Engagements: Bankers, Auditors, And Reality

Bankers are becoming increasingly reliant on limited assurance reports (LARs) issued by accountants. A clear understanding the level of assurance intended by these reports aids in optimal management of the credit function and leads to efficient allocation of scarce resources. The difficulty lies in that accountants cannot quantify, and thus users may not understand, how much assurance the accountant intends to convey in a LAR. This raises the concern that bankers may be making suboptimal decisions based upon a misconception of the assurance intended by the accountant. This paper presents the results o fan empirical test designed to access whether bankers and accountants have a congruent understanding of the assurance intended by several common LARs. The findings indicate a significant difference exists between bankers and accountants perceptions of the intended assurance levels. Particularly, bankers believe interim reviews provide more assurance than they really do and they believe reviews of financial forecasts provide less assurance than they really do.

Are Greenhouse Gas Assurance Engagements a Natural Domain of the Auditing Profession?

Informed by stakeholder responses to the International Auditing and Assurance Standards Board’s (IAASB) Consultation Paper on their draft international standard for assurance on greenhouse gas (GHG) statements, this paper explores the question of whether GHG assurance engagements are a natural domain of the auditing and assurance profession. It is argued that there will be scope in the GHG assurance market for services led by different professionals depending on the nature of the engagement and clients’ cost-benefit analyses. Potential responses to the issues raised in the Consultation Process with regards the engagement partner, engagement teams and the use of the IAASB’s standards by parties other than professional accountants are also canvassed.

Determinants of the Maximum Level of Assurance for Various Assurance Services

Although the International Framework for assurance engagements established by the IFAC (IFAC Framework) has reached overall acceptance, controversy still exists as to how to determine and effectively communicate the potentially different levels of assurance for various types of engagements. This paper concentrates on the determinants of the maximum level of assurance for different assurance services. Using theoretical considerations and empirical evidence the primary conclusion is that there is a restriction in the maximum level of assurance that can be explained by using the attributes of the audited subject matter. In general, this evidence supports the interaction of variables model embedded in the IFAC Framework. Based upon these findings, the paper discusses some changes in the IFAC Framework, a possible alternative to the concept of reasonable assurance, and research perspectives.