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Revolution or evolution? Emerging non-financial assurance standards.

The past 10 years have seen significant changes in non-financial reporting.

Climate change, fair trade food and stakeholder engagement have all become mainstream issues. Both private and public organizations now claim to be environmentally and socially responsible about these and a host of other concerns.

But can these claims be verified in a structured and credible manner subject to third-party verification? Yes. A global set of standards and frameworks developed over the past decade has important implications for traditional audit and assurance practitioners.

About 10 years ago, financial professionals began to apply the principles of financial assurance practices to non-financial assurance engagements. While intentions were good, the assurance process was effectively left to personal decision making and professional judgment, which led a group of like-minded sustainability assurance providers to create principle-based assurance standards.

Why principle-based? In its infancy, assurance of sustainability-related performance and impact was voluntary and not subject to independent verification by stakeholders and regulators. Evolutionary changes have brought about the creation of both prescriptive and descriptive sustainability assurance standards and frameworks. Important principles still form part of these new standards and frameworks, but they are now Augmented by well-established financial assurance practices that improve transparency and comparability.

Two important items form the basis of today's non-financial assurance standards. First, a global framework measures and reports on the so-called "triple bottom line." Second, a set of standards enables documentation and assurance of organizations' corporate social responsibility (CSR) or sustainability performance, including the intensity of stakeholder engagement.



Launched 14 years ago, the network-based Global Reporting Initiative (GRI) created the international sustainability reporting framework based on principles of transparency and reliability. According to the hook Accounting for Sustainability, this framework "sets out the principles and indicators that organizations can use to measure and report on their economic, environmental and social performance." Commonly referred to as the G3.1, the GRI's prescriptive framework is currently in its third version.

As organizations began to adopt and implement the G3.1 to measure and report on their triple bottom line, financial assurance practices were used to confirm accuracy and credibility. But due to a lack of common best practices and legislative reporting requirements, the assurance process was fragmented, which led to both a lack of consistency and comparability. This led to the creation of assurance standards for sustainability performance, results and reports.

Account Ability is a not-for-profit organization based in London, England, that helps organizations address the challenges of sustainable development. The 2008 Account Ability 1000 Principles Standard (AA1000 APS) is a descriptive framework to help identify, prioritize and respond to sustainability challenges.

Account Ability's AAIOOO Assurance Standard (AAl000 AS) provides a methodology for assurance practitioners to evaluate the nature and extent to which an organization adheres to Account Ability principles. Many organizations secure the services of independent auditors who use the AAIOOO AS process to assure performance and corresponding reports. The one challenge that readers of such reports may not be aware of is that this process can be applied at several distinct levels, depending on the intensity of the assurance engagement.

Stakeholder engagement is an emerging field. Some organizations disclose who they believe are their stakeholders and explain why, which can, for obvious reasons, lead to debate and is outside the scope of this article. Fortunately the AA1000 Stakeholder Engagement Standard 2011 (AA1000 SES) provides guidance and best practices for stakeholder engagement and organizational reporting. It also includes ways to assess the inclusivity, materiality and responsiveness of an organization's systems and processes.

Readers new to the subject might assume only Account Ability bas published assurance standards for sustainability standards, assurance and stakeholder engagement. If only life were that simple.


The International Standard on Assurance Engagements, or ISAE 3000, is a framework for the assurance of sustain ability reports. It was created and published by the International Auditing and Assurance Standards Board (IAASB), the independent standard-setting body for the global auditing profession initiated by the International Federation of Accountants, of which CMA Canada is a member.

The ISAE 3000 framework provides a structured approach for establishing basic principles and procedures. It also provides guidance for the performance of assurance engagements other than audits or traditional reviews of financial performance.

Important considerations include the link between stakeholder engagement and the sustainability report, clarification of the scope of the engagement, independence of the assurance provider, the type and rigour of an engagement, and the type and source of frameworks, standards and criteria used to document both the engagement and assurance processes, sometimes called an auditor's report. The ISAE 3000 is particularly good at prescribing a process to develop evaluation criteria where none exist.

One of the potential challenges of the ISAE 3000 is that assurance practitioners should "assess" the appropriateness of the subject matter and the suitability of criteria while considering materiality during the engagement process. Given the level of subject-matter expertise required in some industries, assurance providers may have to decline some engagements simply because they are not sufficiently competent, or do not understand a specific organization and its intricacies.

While the AA1000 as and ISAE 3000 may not seem complementary, they are in fact good companions, and sustainability assurance providers often use elements of both to address specific requirements. While the A.A.1000 highlights an organization's management systems and the corresponding strengths and weaknesses in the content of sustainability report, the ISAE 3000 focuses on documenting any real or perceived challenges and limitations in the reporting process.

In the absence of regulatory requirements, all but a few countries have clear, legal triple bottom-line reporting requirements, let alone prescribed assurance standards. Over time this gap will be tilled in one of two ways. Either there will be a change in domestic reporting requirements, which at this point seems unlikely, or the non-financial assurance process will be guided by case law. As an evolving practice it's probable that an important investment decision will be made based on the interpretation of an organization's social and/or environmental performance contained in an independently assured report. When the decision turns out negative, it's conceivable litigation will commence. The real question is not if, but when this will occur.


Some organizations have begun issuing "integrated reports," or reports that combine financial, environmental and social performance and management disclosure. In many cases two separate auditors are engaged, one to provide assurance for the financial results and report, and another for the CSR/sustainability results and report. For obvious reasons, organizations that issue integrated reports now want one auditor as opposed to two. This trend is a game changer. Traditional audit firms that do not evolve their service offering to include assurance of environmental and social performance will otter one-dimensional services in an emerging three-dimensional world.

Accounting and business advisory firms that now otter a complete suite of assurance services are building competitive advantage. Early assurance providers of environmental and social performance often acted as business consultants for the very organizations they audited, but a separation of these two roles is critical for credibility. It's also important that assurance providers have a deep understanding of non-financial challenges and opportunities to address risk and governance issues.

Assurance providers who offer a structured and credible approach to validate the impacts of non-financial performance will be in a position to otter better value than their competitors. Additionally, should investors, regulators or governments challenge actual non-financial performance or the statements in a sustainability report, credible assurance practices could make the difference between success or failure in both courts of law and public opinion.

Prescriptive supply chain standards, carbon intensity, ethical procurement, biodiversity and stakeholder engagement are issues all organizations now acknowledge as critical. The good news is that CMACanada's co re competencies enable organizations to both embed sustainability into the core of their business strategy and lead the assurance of financial and non-financial performance. This unique skill set is also what will continue to evolve emerging assurance frameworks, standards and best practices.

RELATED ARTICLE: Best practices: The U.K

Accounting for Sustainabitity: Accounting Practical Insights (Earthscan, 2010)

. Accounting for Sustainability is the product of His Royal Highness The Prince of Wales' accounting for sustainability project (A4S), established in recognition of the fact accountants play a key role in the achievement of sustainable economic development. (For more, see the March/April issue of C/MA magazine.)

The connected reporting framework (CRF), a key aspect of the A4S, is a new approach to reporting that improves the link between financial and sustainability performance by better connecting an organization's operating environment, risks, available resources, governance and relationships.

The CRF is applied to nine of the book's 10 case studies, illustrating how sustainability reporting can be integrated at operational, tactical and strategic levels. Two examples are summarized below.

Public sector performance management

The U,K,'s West Sussex County Council (WSCC), like many local governments, takes direction from its national government- Ultimately, it's responsible for both on-the-ground implementation of many public policies and the cumulative impact of day-to-day decision making by elected officials and council employees.

WSCC initiated the creation of a sustainability strategy based initially upon the CRF, local priorities and national sustainability standards. The resulting sustainability action plan indentified priorities under its direct and indirect control, which led to the creation of a five-year corporate sustainability plan.

Private sector supply chain performance measurement

One of the U.K.'s largest supermarket chains, Sainsbury recognizes its suppliers have environmental and societal impacts, particularly in rural areas.

Sainsbury applied the integrated A4S Decision-Making Tool (A4S), described in the book, to better understand inputs and intended outcomes of its sustainability policies. The results enabled Sainsbury to effectively document and communicate both qualitative and quantitative impacts to stakeholders,

Sainsbury candidly describes both the challenges and opportunities involved in disclosing its sustainability results using the connected reporting framework.



David Crawford, CMA, is president of CAF Consulting Inc., a firm based in Coquitlam, B.C.
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Author:Crawford, David
Publication:CMA Magazine (Mississauga)
Date:May 1, 2011
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