The Facts
In terms of numbers, third-party assurance for CR reports is growing, and this growth appears healthy.
A closer look reveals that in terms of the proportion of reports including assurance, growth is stagnant and has been for several years, hovering at just above one fifth of all CR reports.
Some of the underlying reasons for this situation are examined in our 2008 ‘Assure View’ study, freely downloadable from CorporateRegister.com. One of the most revealing statistics shows the differing proportion of assured CR reporting according to the region where the reporting company is headquartered - US business in general appears far more averse to assurance than, say, Europe:
However, even frequency and distribution combined do not give a full picture here. In the field of CR reporting there is no ‘common currency’ of globally accepted definitions, methodologies and formats for assurance. Instead, a wide variety of assurance providers approach the subject in their own way, from the ‘Gold standard’ of AccountAbility’s AA1000 Assurance Standard to individual practitioners commenting on aspects of the report. The three most active types of assurance provider may be characterised as the ‘Big Four’ auditors, certification bodies (SGS, DNV, LRQA etc) and specialist CR consultancies. Each has an individual approach and report assurance statements differ widely in scope and quality - see ‘Assure View’ for more detail. The best are very good with clear methodologies, findings and recommendations.
What is interesting in CR reporting is the extent to which the big auditors are dominating the market, in the same way as they may be expected soon to dominate the integrated reporting market. These two charts show the proportion of CR assurance statements prepared by the major players. ‘Others’ refers to a wide range of further bodies including independent panels, NGOs and academic institutions.
The Opinion
Including an independent third-party assurance statement in a CR report is a key step towards establishing the report’s credibility. In the same way that financial reports are audited, stakeholders should have confidence in the integrity of the CR report development process and the accuracy of the report’s content. There’s more – rigorous assurance process also benefits the reporting company by exposing their internal systems to independent external scrutiny.
There are several aspects of current CR assurance which give cause for concern:
- The proportion of CR reports with assurance is far too low - it should be at least double the current rate and preferably three times.
Recommendation: An ‘Assure or explain why not’ approach could be used here. An appropriate organisation or coalition might consider setting this in motion.
- There is no ‘common currency’ of assurance definition, methodology and elements for inclusion in the statements. Reporting companies therefore obtain widely differing services according to the type of assurance provide they commission. There needs to be more market transparency to help companies in selecting their service partners.
Recommendation: A charter signed by leading providers, setting out definitions, accepted methodologies, independence, ethics and minimum standards, would be one way to address this. Companies engaging charter signatories could be confident that the CR assurance follows best practice.
- CR assurance take-up differs across regions but the low rate in the US is particularly worrying. For 90% of US CR reports not to include an assurance statement sends the signal that these are not serious business documents.
Recommendation: CR stakeholder organisations in the US should consider making an appeal to US reporters to assure their reports. They might also point out that assured reports would be viewed far more favourably (ratings, reviews, awards) than non-assured equivalents.
- The market is in danger of domination by one group of service providers. The ‘Assure View’ report demonstrated in 2008 that CR assurance statements from the ‘Big 4’ were in many respects less informative and less useful to external stakeholders than equivalent statements by certification bodies and specialist consultancies. The market is fragmented, and the current consolidation is set to continue.
Recommendation: Leading assurance providers outside the ‘Big 4’ need to start discussions on synergies and common approaches.
- The CR assurance standard AA1000AS, for which CorporateRegister.com provides the official register and statistics, is in need of an update. It needs marketing and branding activity to increase awareness of its many advantages, and it needs support and nurture not only to ensure its survival, but also to cement its position as the gold standard in CR assurance.
Recommendation: AccountAbility, the organisational steward for AA1000AS, should engage in a major marketing and branding programme. AccountAbility should also engage with all CR assurance stakeholders to review and develop the standard, as an integral part of its stewardship.