Topic 1: The Expanding Role of the Auditor

Introduction

Organizations might communicate their commitment in the sustainability and might offer their outcomes in their ground through creation or publication of corporate social responsibility statement. Today, there is an increasing number of organization distributing CSR reports as their yearly financial statements or as the separate corporate social statements. In spite the growth these reports the superiority differs (Brown-Liburd & Zamora, 2014, pg 75). This means that CSR do not necessarily give complete information that the learners want, which as a result intensifies the issues with assessment and comparison of company’s results accomplished within this scope. The diversion also takes place between reporting techniques utilized in numerous nations caused by differently employed legislatures on admission of the non-financial and financial information. The paper thus offers the present state of the CSR and sustainability reporting as well as assurance with focus on EU, Australia and the US.

Current State of CSR and Sustainability Reporting and Assurance

1. Definition and Explanation of CSR and Sustainability Reporting

CSR reporting is usually a communication tool envisioned in giving relevant information, both externally and internally on the organization’s tactic and development in execution of its CSR theory. Basically, CSR report is usually the concept in which organizations integrate social as well as environmental components within their operations, management as well as relation with the stakeholders. Such form of understanding of the CSR reporting has been advocated by EU and US (Brown-Liburd & Zamora, 2014, pg 76). European Union defined CSR as one of the responsibility of firms for their effect on the society. In other words, CSR is the management concept where a company integrates environmental, social and economic concerns in its interactions and operations with its stakeholders. Generally, it is considered as sum total of a company’s commitments to a sustainable development (Cohen & Simnett, 2014, pg 60).

On the other hand, sustainability reporting is usually the means by which an enterprise communicates all its contribution to a sustainable development process to its stakeholders. In this procedure, organizations report its entire social, economic and the environmental practices, performance as well as effects caused by daily operations (Lewis, 2016, pg 350). In other words, sustainability reporting is the practice of presenting a company’s values as well as is governance model, and demonstrating link that exists between its commitment and its strategy to a sustainable development. It is mainly described with some terms like corporate responsibility reporting, non-financial reporting, triple-bottom-line reporting, social or environmental reporting as well as extra-financial reporting (Noronha, Tou, Cynthia & Guan, 2013, pg 30). It is the modes for executing some lawful obligation of an organization and proof of accomplishment of the legality to general public. Lewis (2016, pg 349) described it as the mean through which organizations could display their legitimacy to their stakeholders.

2. Similarities and Differences Between CSR and Sustainability Reporting

CSR and sustainability reporting are similar at some point. Some of the similarities between CSR and sustainability reporting include; first, CSR and sustainability reporting share in common a nice-sounding concepts which present wish lists of what should be avoided or done locally or globally by companies and policy-makers (Lewis, 2016, pg 348). Further, the two aims for a triple-bottom-line though at different levels; where sustainability reporting is at multi-governmental and governmental levels and CSR at the organizational level.

Despite the two terms appearing interchangeable, there are some differences between them. First, sustainability reporting is futuristic whilst corporate social responsibility is antiquated. It is easy to not that sustainability reporting presents information about future or forward plans of an organization to sustain its operations and improve its targets such as innovative brand development and waste reduction. On the other hand, CSR comprises of deeds or activities which have already been performed before in supporting a specific community venture or others such as building a library in supporting literacy within the community or provision of health care site for the community (Brown-Liburd & Zamora, 2014, pg 77). Secondly, sustainability is long-term while CSR is all about now. A good number of the CSR ventures satisfy the present community wants, but fails to always address fundamental issues. Sustainability reporting on the contrary is about long-term plans. For instance, a community might have been somehow better in an oil firm change its techniques of extraction for better and conduct some replenishment measures upon every extraction. Thus, CRS is more of present initiative with restricted strategic focus than sustainability reporting (Freundlieb & Teuteberg, 2013, pg 5).  Third, sustainability is both external and internal while CSR is mainly external. Whenever organizations conduct CSR, they more often aim at the external stakeholders. On the other hand, sustainability reporting incorporates both internal and external stakeholders.

3. Brief History of the Sustainability Reporting and Assurance

Sustainability reporting could be traced all the way back in 1960s as well as 1970s within Europe and to some extent far along in the US when firms began to distinguish their roles or responsibilities within the society beyond and above profit generation. Basically, sustainability reporting as well as assurance in the US can be traced back to major Earth Day that was help on 22^nd April 1970 (Habek & Wolniak, 2015, pg 563). After this period, sustainability reporting and assurance gained momentum with 1987 UN report. The reports greatly reinforced sustainability reporting as the mode of matching environmental and economic issues. The proposition that businesses should supplement their financial reporting or accounting with non-financial reporting or on their social, environmental and on the other non-financial concept; that is, sustainability reporting was first proposed in 1990s. By 1992 UN Conference, quite a good number of organizations were engaged in the sustainability reporting and responding to the growing media attention to the environmental and social issues, most of their reporting were focused on the environmental performance and policies (H?bek, 2017, pg 2322). While calls for the sustainability reporting originally stemmed from advocacy investors and groups and from some leaders, the government played a significant role in distinguishing the significance of sustainability reporting.

In a decade between the UN Conference and 2002 World Summit, several initiatives were commenced in exploring and advancing sustainability reporting. By early 2012, sustainability reporting concept had definitely turned as one of the most desirable and progressively conventional reporting practice in major industries across the world (H?bek & Wolniak, 2016, pg 400). This proposition was based on the fact that the progress toward a sustainable development and green economy could not be made at all unless the information is unveiled on social, environmental as well as economic effect and performance of the organization. Toward this edge, the government developed CSR that encourages sustainability reporting. Besides, several nations including Sweden and Denmark have gone further and have mandated sustainability reporting for specific large firms. With the urge of understanding the current business practices of an organization and the need to conduct comparative and trend analysis of the business, there has been increased uptake of the sustainability reporting and assurance of the sustainability report internationally (Sawani, Mohamed Zain & Darus, 2010, pg 628).

4. Current Details on Which Companies Undertake Sustainability Reporting and Companies Involved in Providing the Assurance Service

Sustainability reporting and assurance is usually a voluntary process in most nations. Thus, there are no restrictions on which firms could undertake such reporting and who is providing the assurance services. The providers of assurance services could be segregated into two main classes including the accounting sustainability assurance provides as well as the non-accounting sustainability assurance providers (Sawani et al., 2010, pg 630). Some of the firms undertaking sustainability reporting and assurance include the KPMG, E&Y, PWC and Deloitte (Sethi, Martell & Demir, 2017, pg 790).

The KPMG offers sustainability reporting and assurance services that deals with greenhouse gases as well as emissions and signs linked with occupational safety and health, human rights, corporate governance, human resources, risk management and the social sphere. The providers evaluate sustainability of reporting prepared by board of the directors and provide opinion on whether or not the reports are prepared in line with agreed criteria to sustainability report users. Basically, the four assurance service providers have mainly focused on provision of financial audit services to their customers (H?bek & Wolniak, 2016, pg 117).

5. Future Developments In The Sustainability Reporting as well asAssurance

In the sustainable development, sustainability reporting is considered as the greatest example of how action undertaken by partnership of the shareholders since 1992 UN Conference has assisted in creating and putting into operation a wholly fresh sustainability reporting practice (Sapkauskiene & Leitoniene, 2014, pg 7). All together with the other multi-stakeholders region inventiveness like Carbon Disclosure project, Global Reporting inventiveness has closely created fresh levels of awareness, engagement and information across sustainability performance of companies. Though promising, nonetheless, this in not deeply and widely enough viewed to accomplish sustainable development (Sawani et al., 2010, pg 633). As noted, some probable pathways on sustainability reporting lie ahead. For instance, despite the progress made, sustainability reporting might have peaked and now becoming less popular. This could be due to prolonged global economic crisis, confusion arising from emergence of diverse reporting techniques as well as mixed messages from the government. Secondly, sustainability reporting would make steady though increasing progress amongst large public firms and improvements in quality and depth of reporting (Subhan, Hassan & Fletcher, 2018, pg 300). Thirdly, sustainability reporting would become issue-specific. This means that the reporting would be featured by incremental attention to issue-based reporting driven by increasing market or regulator demand on particular firms which have some special effect on sustainability issues.

6. The Frameworks, Guidelines or Standards Used for the Preparation of the Sustainability Reports, including the Bodies Responsible to These Guidelines

There are a number of frameworks or guidelines used in preparation of sustainability reports. Some of these guidelines include, first, in preparation of the sustainability reports, organizations should disclose information on their sustainability performance in order to protect their good image from future criticism. The guidelines establish that reporting standards should be employed by a firm when preparing sustainability reports. It is clear that the firm should identify relevant issues and their impacts on their activities, services and products, regardless of whether these effects took place outside or within the firm (Sustainability Studies, 2016, p 8). The firm is also responsible for disclosing management technique and indicators linked with material aspects. The main bodies responsible for these standards and guidelines include ISO 14031, Global Reporting Initiative and the Suitability Accounting Standard Board (Leitoniene & Sapkauskiene, 2015, pg 335). These bodies provide detailed reporting and accounting frameworks and guidelines that improve corporate accountability and transparency amongst companies.

7. Assurance Guidelines and Procedures for Auditor 

While structuring and completing assurance engagement, there are a number of procedures and guidelines the auditor needs to use. First, the company needs to adhere to ethical standards by observing independence and objectivity. It is crucial for auditor to show high level of independence from any answerable party (Sawani et al., 2010, pg 635).  Absence of independence would impact the auditor capacity of conducting their engagement in more objective manner therefore compromising quality of their work and possibly issuing some misleading opinions to sustainability reports users. According to Braam and Peeters (2018, pg 167), given that the auditor experiences with carrying out financial audit, s/he have a clearer understanding of the assurance and therefore require to maintain high level of objectivity and independence than other stakeholders. Moreover, the auditor needs to adhere to all requirements of ethical code of conduct. These codes plainly explain requirements for an auditor in maintaining their independence and in safeguarding against specific threats which might impact on their objectivity.

Conclusion

In conclusion, as future direction of sustainability reporting remains unknown, more demand for the sustainability information or data is expected. Besides, it can be concluded that as sustainability issues become urgent and more apparent, it is unthinkable that there would be relatively little demand for sustainability reporting in future.

Topic 2: Auditor independence

Memo

To: Senior Audit Manager

From: Audit Manager Chase and Fearnley

Date:

Re: Independence requirements of up-coming engagements

Independence in auditing is the cornerstone of auditing professions. Thus, there is a closer link between independence and the auditing risk. In fact, independence and auditing risks, all have significant impact on the audit credibility and audit quality as well as economy in general (Allen & Siegel, 2002). Independence in auditing is considered as heart of trust for auditing work. As such, I have highlighted in this memo some of the probable threats to independence in the four scenarios, probable solutions in eliminating the threats as well as recommendations to BAM Pty Ltd.

First, as an auditor, one needs to be aware of some of the situations that might damage his or her independence. In this scenario, a number of potential independence threats can be pointed out. The first threat to audit independence is self-review threat. Self-review threat takes place whenever an auditing company or person in the audit team, is placed in position of reviewing some subject matters for which an individual or the company was formerly responsible and that seem important in context of audit engagement. For instance, Craig who was chair of the audit committee in Baxter Aviation Limited (BAL) wishes to become the external auditor. This would result in Craig reviewing some of the judgements he had undertaken previously before the acquisition. This would pose some threat to independence and objectivity of the audit work.

Secondly, there is self-interest threat. This threat takes place whenever auditing company or member of audit team benefit from some financial interests in audit customer. For instance, in case of Max Maxim Global Limited, Emily has some financial interests in the organization having been selected to audit the company financials due to her familiarity with the company complex IT system. This might affect her independence and objectivity while delivering her audit report.

The third threat to audit independence is intimidation. This form of threat takes place whenever audit firm is deterred from exercising their professional scepticism and acting objectively by perceived or actual threats from the audit customer. Basically, it is said that Granger Freight Services Pty Ltd (GFR) owed Chase and Fearnley $462,000 cash for audit as well as other assurance services offered to GFR in the financial years 2017 and 2018. This would compromise the audit independence since Chase and Fearnley could not act independently since it is scared to loss the outstanding amount unless they audit and give a report favourable to their customer.

Finally, there is familiarity threat. This form of threat take place whenever there is close relationship between the auditing firm and audit customer, officers, personnel or director. In other words, familiarity threat might be created when a member of auditing team or audit firm have very close relation with audit customer, hence, putting his or her in position of exerting significant and direct influence over audit engagement. For instance, given that John and David have been friends for many years, it would be difficult for David to rule in favour of Wilcox System Solutions (WSS) opponents but instead he would rule in favour of John. This is based on the fact that the auditor had very close relationship with WSS as a result of long association with John in conducting the annual audit. Thus, independence and objectivity of the mediation between WSS and the petitioner would be compromised.

The financial-review threat would be eliminated by disposing Craig proposal to becoming an external auditor for the company. None of the assurance or immediate audit committee should be given an external auditor post. Further, familiarity threat could be eliminated by excluding David in the mitigation meeting. This way, WSS and the complainant would reach to an effective decision. Self-interest threats to independence could be eliminated by excluding Emily in auditing Max Maxim Global Limited financial reports. Additionally, intimidation threat could be eliminated by employing another firm other than Chase and Fearnley to audit GFR financial statements. Doing this, the firm auditing GFR would be independent in conducting its duties since nothing would force it give a report in favour of its client.

BAM Pty Ltd should decline the audit. This due to fact that it is quite impossible to remove or reduce the independence threats pointed out to acceptable levels. Basically, it is very hectic for some firms to exclude their auditors since some have a very senior position in the organization, making it hard to deny them a position to audit the firm.

References

Allen, W. T., & Siegel, A. (2002). Threats and Safeguards in the Determination of Auditor Independence. Wash. ULQ, 80, 519.

Braam, G., & Peeters, R. (2018). Corporate sustainability performance and assurance on sustainability reports: Diffusion of accounting practices in the realm of sustainable development. Corporate Social Responsibility and Environmental Management, 25(2), 164-181.

Brown-Liburd, H., & Zamora, V. L. (2014). The role of corporate social responsibility (CSR) assurance in investors’ judgments when managerial pay is explicitly tied to CSR performance. Auditing: A Journal of Practice & Theory, 34(1), 75-96.

Cohen, J. R., & Simnett, R. (2014). CSR and assurance services: A research agenda. Auditing: A Journal of Practice & Theory, 34(1), 59-74.

Freundlieb, M., & Teuteberg, F. (2013). Corporate social responsibility reporting-a transnational analysis of online corporate social responsibility reports by market–listed companies: contents and their evolution. International Journal of Innovation and Sustainable Development, 7(1), 1-26.

H?bek, P. (2017). CSR reporting practices in Visegrad Group Countries and the quality of disclosure. Sustainability, 9(12), 2322.

Habek, P., & Wolniak, R. (2015). Factors influencing the development of CSR reporting practices: Experts’ versus preparers’ points of view. Engineering Economics, 26(5), 560-570.

H?bek, P., & Wolniak, R. (2016). Assessing the quality of corporate social responsibility reports: the case of reporting practices in selected European Union member states. Quality & quantity, 50(1), 399-420.

H?bek, P., & Wolniak, R. (2016). Relationship between management practices and quality of CSR reports. Procedia-Social and Behavioral Sciences, 220, 115-123.

Leitoniene, S., & Sapkauskiene, A. (2015). Quality of corporate social responsibility information. Procedia-Social and Behavioral Sciences, 213, 334-339.

Lewis, J. K. (2016). Corporate Social Responsibility/Sustainability Reporting Among the Fortune Global 250: Greenwashing or Green Supply Chain?. In Entrepreneurship, Business and Economics-Vol. 1 (pp. 347-362). Springer, Cham.

Noronha, C., Tou, S., Cynthia, M. I., & Guan, J. J. (2013). Corporate social responsibility reporting in China: An overview and comparison with major trends. Corporate Social Responsibility and Environmental Management, 20(1), 29-42.