Numerous definitions exist for general assurance practices (see section 2.3.1) and there is currently no agreed specific definition of assurance practice as it relates to stand-alone reports. SustainAbility and UNEP (2004, p. 32) emphasise that assurance is a very broad term and at best its practical implications can be described as “steps taken to increase confidence in a report”. Likewise, Zadek et al., (2006, p. 22) emphasise that assurance is defined in terms of its outcome as “enabling the confidence of a party or group of people that the information they have is accurate and complete enough for them to make an informed decisions about a certain subject matter”. Further, Wilson (2003, p. 162) defines provision of independent assurance on sustainability reports as “a formalised practice in which an independent and qualified
practitioner assesses the veracity or meaning of written or implied assertions regarding environmental, social, and/or economic performance or management made by an accountable party, and communicates the results of this assessment to another individual(s) or group(s) who will, or may, use that information”. Furthermore, the GRI (2006, p. 38) state that assurance involves “activities designed to result in published conclusions on the quality of the report and the information contained within it”. This includes consideration of underlying processes and systems contributed in preparing this information (GRI, 2006, p. 38).
From the above definitions, it could be argued that the assurance process of a stand- alone report consists of the following components. First, the existence of some accountability relationship where a responsible party provides information regarding the subject matter to another party (the users), and the assurance provider is responsible (as an independent party) to provide an opinion on the reported information. Second, the expression of a conclusion/opinion that is aimed at enhancing the confidence of the users with respect to the reported information. Third, the use of standards and criteria by the assurance provider to govern the assessment of the responsible party’s assertions against specified criteria. Fourth, communication of results by the assurance provider to the users, usually in the form of an assurance statement. These components would guide to introduce a specific definition applicable in the current research.
For the purpose of the current study, the assurance process is defined as: an engagement in which an independent third party is appointed by a responsible agent to carry out an assessment and express an opinion on assertions related to non- financial subject matter, and where specific set of standards and appropriate criteria are used to conduct that engagement, with the result being communicated to the users of such information.
Drawing from the above definition, all assurance statements that are contained with the stand-alone reports or with any sort of non-financial information disclosed by the FTSE100 companies for the years 2000-2004 will be considered. In contrast with some of previous studies (Ball et al., 2000; Wilson, 2003) three practices, however, will be excluded in the current study since they are not able to convey assurance to the users of the assured stand-alone reports (mainly duo to lacking of a systematic
assessment of the subject matter by an independent third party, missing criteria and standards while conducting the assessment and absence of an assurance opinion within the statement – see Ball et al., 2000; IAASB, 2006). First, assurance engagements carried out by an internal audit or internal assurance team/department (because these are not undertaken by an independent (external) third party). The Institute of Chartered Accountants in England and Wales (hereafter ICAEW, 1989 in Vinten, 1999, p. 410) stress that internal audit is not an independent activity and hence it could not be considered assurance for the purposes of this thesis. Second, engagements of the benchmarking parties, such as London Benchmarking Group (LBG), FTSE4Good, and Business in the Community (BITC), because these engagements are not conducted using a systematic approach, criteria and standards or with the aim of providing an independent opinion. Rather statements provided by such engagements (for example FTSE4Good) are aim at “allowing investors to gain exposure to companies that meet globally recognised corporate responsibility standards” (ACCA, 2005, p. 5). Other engagements (such as those provided by BITC) aim to benchmark the position of the reporting organisation in terms of developing and implementing an appropriate “strategic approach to corporate responsibility reporting” and practice (BITC, 2005, p. 4). Finally, general commentary statements issued by the opinion leaders, NGOs or any other parties are excluded because these statements, again, are not developed using a systematic approach of assurance or specific sets of standards as well as opinion/conclusion is not usually presented within these statements, thus, provision of assurance to the information’s users is doubtable. While the key purpose of assurance is assumed to be increasing the credibility of disclosed information (ACCA and AccountAbility, 2004; Park and Brorson, 2005; Deegan et al., 2006; GRI, 2006), addition benefits have been also been suggested including: (i) improving the public perception of the reporting companies’ activities; (ii) promoting improvements in control and reporting systems that will enhance the reporting process, as well as improving the content of the stand-alone report; and (iii) learning and knowledge transfer within the reporting company from engagement with external parties (FEE, 2003, p. 5). In addition, Wallage (2000, p. 54) suggests that a major driver for assurance of stand-alone reports is the legal requirement to report on the non-financial issues (namely environmental) in some countries. In addition to these motivations, Wilson (2003, p. 177) asserts that reporting companies may choose
to have their reports externally assured in an attempt to differentiate themselves from their peers as part of the overall communication and/or reputation strategy.
In summary, it could be argued on the basis of literature that enhancing credibility of reported information, and improving the internal reporting systems and other underlying systems are the most common reasons offered for assurance practice. From the perspective of the current study evidence for internally oriented drivers for assurance (improving the reporting systems and other underlying systems) could be inferred by the presence of disclosures of weaknesses and the provision of recommendations in the assurance statements. Evidence for credibility of the assured information could be inferred from the addressee of assurance statements. If assurance statements are addressed to stakeholders (externally or internally) one could infer that a credibility focus has been sought from assurance (Ball et al., 2000).
It could be argued that the value-added by assurance is dependent on the quality of assurance practice being conducted (Knechel et al., 2006). Further, Carcello et al., (1992 in Knechel et al., 2006, p. 147) assert that compliance with the professional standards is one of the most important attributes that affects the quality of audit/assurance. Furthermore, there is evidence that audit quality is increased by employing audit standards (Frantz, 1999). In the context of assurance of stand-alone reports, there are various sets of assurance standards applicable. In order to inform some implications into the current study, the next section focuses in exploring the most relevant assurance standards that in turn applicable for the stand-alone reporting practices.