Verification of corporate social responsibility reports is a task best left for outsiders
External expertise, please
Dilemma: You are CFO of a large company that is trying to differentiate itself from its competitors by having a focus on corporate social responsibility (CSR).
The board of your company has requested that you produce a CSR report to be included in the annual report. The board requires that the CSR report be verified to add credibility.
However, they wish this to be done internally as they do not want external scrutiny of their claims regarding their carbon footprint. You are concerned as to the board's motivation for such a 'verification' and wish to advise the board on a number of issues related to CSR reporting. What issues should the board consider?
A growing number of companies are producing CSR reports, and yet there is no generally accepted approach as to how to collect, evaluate and report on this non-financial data. Moreover, there is no universally accepted approach to non-financial assurance.
The Global Reporting Initiative (GRI) does, however, provide a highly robust and well-regarded reporting framework and set of guideline indicators.
Therefore, until there is agreement by practitioners on what CSR report assurance should entail, such reporting may remain confusing and potentially misleading.
It is therefore important for the board to clearly articulate the method and scope of the CSR report and ensure that it is not misleading to its users.
If the main aim of the report is to add credibility to the company's CSR initiatives, then this objective may be compromised if the verification was undertaken internally. There would be a clear lack of independence if the same assurance providers wrote the report and carried out the assurance process, thereby 'assuring' their own work.
This would clearly amount to a self-review threat. There would also be potential conflicts of interest. In this case there may be a reluctance to report on poor performing initiatives, such as reducing the carbon footprint. Such conflicts would lead to report shortcomings.
Further, the use of words such as 'assurance' and 'verification' may lead to the perception among users that there is a degree of conformity in the preparation of CSR reports and therefore comparability when reading different reports. This perception is understandable given the current regulation (including practitioners' qualifications, the form of financial statements, independence requirements, legal basis) that attaches to presentation and audit of financial statements.
However, given the alternative approaches available for CSR assurance, such a conclusion would be erroneous for CSR reports.
Moreover, if impartiality is fundamental to establishing trust, then having the assurance undertaken internally severely compromises this aim. Not using an independent, impartial and external assurance provider with appropriate skills, knowledge and experience would not meet globally recognised guidelines such as GRI(G3) 2006 and AA1000AS (2003).
It is therefore appropriate to recommend that the board consider assurance by a third party if it is vital to ensure credibility of the information. However, there are additional benefits that include: enhanced data quality; confidence in the measures of progress and success; demonstrated importance of the data; continuous improvement in reporting.
Dilemma resolved by Tiina-Liisa Sexton, CPA Australia's ethics adviser.
Quick checks for CSR reporting
Report credibility
What do the report readers think about your company and the sector?
Is this supported by stakeholder research? What do your advisers say?
How credible will your report be without external assurance?
Internal management
How robust are your systems for generating reliable report content?
Will your underlying processes stand up to examination?
Would they benefit from an external assuror's feedback?
Final report check
Do you have the staff to check the entire report for consistency and human error?
Would having professional qualified assurors help improve report quality?
Sounding board
Can you see your company as others see you? Do you need to?
