Transparency and Assurance: Minding the Credibility Gap

Author(s): Nicole Dando and Tracey Swift

Source: Journal of Business Ethics, Vol. 44, No. 2/3, Corporate Sustainability Conference
2002: The Impact of CSR on Management Disciplines (May, 2003), pp. 195-200
Published by: Springer
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Transparency and Assurance: Nkok Dmdo
Minding the Credibility Gap Tracey Swift
ABSTRACT. There is a growing realisation that the
current upward trend in levels of disclosure of social,
ethical and environmental performance by corpora
tions and other organisations is not being accom
panied by simultaneous greater levels of public trust.
Low levels of confidence in the information com
municated in public reporting is probably under
mining the impetus for this disclosure.
This article suggests that this credibility gap can
be narrowed through the use of third party indepen
dent assurance. However, this is not an unqualified
panacea. Much verification and assurance practice
itself has to date been of questionable robustness, reli
ability and consistency, and has been framed by finan
cial assurance models that are inadequate for the
broader, qualitative dimensions of social, ethical and
environmental performance. The paper argues that
there is need for a universal standard for the provi
sion of assurance of social, ethical and environmental
reporting, and indeed for the credibility of the
assurance providers themselves. The new AA1000S
Assurance Standard, developed by the Institute of
Social and Ethical Ac count Ability, offers an approach
and a tool for addressing these gaps.
KEY WORDS: assurance, credibility, social ethical
reporting
Introduction
Organisations of all types are now reporting on
their social, ethical and environmental impacts,
although this development has been led by larger
corporations with high public profiles and brands
Both authors are now formerly' at AccountAbility.
Dr Nicole Dando is AA?000 Programme Manager.
Tracey Swift is Research Director at the Institute of Social
and Ethical AccountAbility.
?? Journal of Business Ethics 44: 195-200, 2003.
r" ? 2003 Kluwer Academic Publishers. Printed in the Netherlands.
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(Adams, 2002). It is now extending to the wider
business community, and to public and private
non-profit organizations. The drivers for this
trend are many and varied including reputation
enhancement, meeting investor demand for
performance information and fulfilling a com
mitment to demonstrate an ethical position to
stakeholders.
There is a growing realisation that the current
trend in increasing levels of disclosure by corpo
rates and* other organisations of their social,
ethical and environmental (SEE) performance is
being undermined by a lack of confidence in
both the data and the sincerity of the reporting
organisations (Doane, 2000). For example, a
coalition of NGOs has challenged the U.K.
government with a bill demanding greater
accountability from business because SEE reports
often disregard the key social and environmental
issues that impact on sustainable development
(NEF, 2002). The growth in reporting is not
resulting in increased confidence in the ability or
intention of business to take sustainability seri
ously. Without this confidence, sustainability
reporting will not serve the demands of stake
holders for information, be it on the impacts of
a company's activities or their strategies for risk
management, nor the need for organisations to
give a credible account of their performance. It
seems that greater transparency is not enough to
engender trust and cannot be said to equate to
more effective accountability.
This article suggests that this credibility gap
can be narrowed through the use of indepen
dent third party assurance. However, it will be
argued that this is no panacea. Much verifica
tion and assurance practice itself has to date been
of questionable robustness, reliability and con
 196 Nicole Dando and Tracey Swift
sistency. Standards for social and environmental
performance and for sustainability reporting
have been developed over recent decades.
These include the Global Reporting Initiative's
Guidelines for Sustainability Reporting, SA800
on labour practice amongst others. However, the
absence of a generally accepted approach to the
assurance of SEE reporting has meant that assur
ance practice has typically been framed by finan
cial assurance models that are inadequate for the
broader, qualitative dimensions of SEE perfor
mance, or indeed inappropriate for the intended
audiences (O'Dwyer, 2001).
Drawing on consultations with upwards of 150
accountability practitioners and thought leaders,
this paper argues the need for a standard for the
provision of assurance for SEE performance, and
indeed for the credibility of SEE assurance
providers themselves. It suggests that the new
AA1000S Assurance Standard, developed by the
Institute of Social and Ethical AccountAbility,
addresses this need.
Does assurance close the credibility gap?
A key element of credibility is trust. Engendering
trust and adding value to any public reporting
can be attempted through various mechanisms of
assurance, i.e. assuring the public and other users
that the information in a report is true and fair.
The mechanism employed should vary with the
levels of assurance demanded by the stakeholders.
Where pre-existing levels of trust are high, assur
ance may be achieved through simple self-certi
fication and internal review. The assurance of
public communications purporting to demon
strate social, ethical and environmental responsi
bility to stakeholders has included a range of
approaches of varying rigor. One example is the
use of commentary from high profile experts
deemed trustworthy by the public. This com
mentary may be misinterpreted by the public as
a direct endorsement of the organisation's per
formance. Another is the use of high profile
awards for best practice or excellence (such as the
ACCA Environmental Reporting Awards). More
formal approaches to assurance have typically
looked to models used in financial disclosure,
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based mainly on the accuracy of quantitative data
and the robustness of accounting systems.
For financial disclosure, assurance is provided
by independent third party auditors who, based
on the evidence they have examined, will
normally state the level of assurance they are able
to give. This auditing process has been regulated
and standardized to a large degree. The recent,
high profile cases of "Enronitis" have however,
exposed the limits of financial audit functions and
confidence in audited accounts has been badly
damaged (Simms, 2002). Corporate collapses
have also served to push assurance and the
credibility of audit and auditors to the front of
debates on public accountability, corporate social
responsibility, and risk management adding to the
prevailing deliberation and disquiet over both the
quality and purpose of reporting on social, ethical
and environmental performance, for which there
has to date been no regulation or established con
sistency. New standards and frameworks have
been developed to create more robust and com
parable reporting, such as the GRI Guidelines,
and there are various methods for evaluating
different aspects of performance such as labour
codes (SA8000) or environmental management
(ISO 14001). But there remains no generally
accepted standard providing robust assurance for
all aspects of an organisations' sustainability
reporting.
SEE assurance has been criticised for not pro
viding reasonable levels of confidence to stake
holders, neither about the relevance of the
information disclosed nor the quality of the
systems and commitments that are to deliver per
formance improvements. To reflect and service
the interests and concerns of stakeholders SEE
assurance providers need to go beyond norma
tive audit practice and comment on features of
performance that would not normally be com
mented on in financial accounts.
Many verification statements are addressed to
the directors of the organisation and their scope
determined by the organisation, rather than the
stakeholders or the independent assessor acting
on their behalf.
The current state of attestation is especially discouraging
as it seems auditors are unwilling or incapable of assessing
 Transparency and Assurance: Minding the Credibility Gap 197

and then reporting on the extent to which a reader might
rely on the social account. This renders attestation either
a complete waste of time and money, or more perniciously,
a deliberate attempt to mislead society as to the quality
of organisations' social and environmental performance
(Gray, 2001, p. 13).
Due to its voluntary nature and dominant
corporate influence, commentators have long
warned of the potential for social and ethical
accounting to fall prey to managerial capture
(Owen et al., 2000; Ball et al., 2000).
Independence is a critical element of credible
assurance. Furthermore, a lack of consistency in
assurance statements and their variable quality
and content make reports impossible to compare
and the organisations and their performance dif
ficult to evaluate by, for example, the investment
community and customers.
Although existing assurance approaches may
be criticised for being irrelevant to changing
expectations of corporate behaviour and
auditing and reporting launched i
AA1000 adopted a strategic-systems app
social auditing (Davis, 1995). The new
Series seeks to address the traditionally
tensions in assurance provision, namely
concerning the responsibilities of audito
commitment to the public interest, th
of the opinion, and the degree of indep
that assurance providers can maintain
porate management.
The AA1000S Assurance Standard h
informed by extensive international con
with accountability practitioners and
leaders using interviews and discussion
This research confirmed the role of ass
credibility. The Global Reporting In
states in its Draft Guidelines for Susta
Reporting (GRI, 2002, p. 17):
In order to address stakeholder's concerns about
ibility of sustainability reports, the GRI recomm

accountability, a central concern has actually been reports include a statement of the reporting org
policies and inter practices to enhance and pro
the absence of independent assurance of SEE
ance about the accuracy, completeness and reliab
reporting. A survey of the social and environ
can be placed on its sustainability report
mental reports of the top 100 companies in 11
reporting organisation's policy and current pra
countries conducted by KPMG found that only regard to providing independent assurance abou
19% contained any form of external verification report.
(KPMG, 2002). This had risen to 27% in 2002.
Such a general lack of third party assurance has Roger Adams, Technical Director of the U.K.
likely contributed to general critique that social Association of Chartered Certified Accountants,
reporting is simply about corporate spin and sums up the crucial role of robust assurance in
public relations. making public disclosure credible to concerned
As the number of organisations using external and often sceptical stakeholders:
assurance to enhance the credibility of their dis
closure grows, it is clear that the practice of assur All organisations want to show themselves in the best
ance will itself need to be robust and credible.
possible light. ACCA believes that independent external
assurance is a vital part of the credibility and trust
building process. The role of independent assurance is
Enhancing accountability through to ensure that the reporter presents an account that is
assurance fair, complete, unbiased and relevant (pers com to
AccountAbility secretariat, 2002).
To address this growing disquiet about the quality
The research also
(or lack thereof) of the assurance provided for confirmed the need for a robust
standard
social accounts and reports, the Institute ofwhich
Socialcould handle the issues of trust
and Ethical Accountability set out peculiar to social, aethical and environmental
to develop
generally accepted standard for the accountability.
assuranceThe offeatures of performance and
social, ethical and sustainability reporting. This
process not normally characteristic of financial
has been part of the revision to the AA1000
accounting and auditing fall broadly into four
Framework for social and ethical accounting,
categories:

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 198 Nicole Dando and Tracey Swift
Firstly, stakeholder concerns must be at the
centre of the assurance. This has implications for
who the assurance is for, as well as how the
report and the evidence supporting it is evalu
ated. In terms of organisational accountability,
many stakeholders are either not in a position to
represent their own (disparate) interests, or the
complexity of organisational activities prevents
them from understanding performance. Yet their
views and expectations can threaten the ability
of the organisation to achieve its objectives.
Social, ethical and environmental auditors play a
vital role in the process by which an organisation
accounts to its stakeholders and establishes their
trust.
Stakeholders need to be assured of more
than the accuracy of the data. The traditional
audit model only purports to assess the truth
and fairness of a set of accounts and public
reports. It is behind this veil of protection that
most financial auditors escape after major cor
porate collapses where material fraud has been
committed by top management (Swift and
Dando, 2002). Indeed, AA1000 (1999), based as
it was on financial auditing standards, has
itself been criticised for serving only to assess
the completeness, truth and fairness of a set
of social accounts (Gray, 2001; Owen et al.,
2000). Observers cautioned against the inade
quacies of such an audit model for social and
ethical auditing, arguing that this would not
best serve the interests of organisational account
ability (Owen et al., 2000; O'Dwyer, 2001).
Stakeholders need to know that the information
in a report provides a complete, accurate, relevant
and balanced representation of the organisation's
performance and an assurance provider will need
to provide an opinion on this. Thus, content
must be driven by the material concerns of stake
holders and issues material to society at large, not
by the organisation's own take on the boundaries
of its responsibilities.
Second, responsiveness to stakeholders'
concerns and an obligation to learn, innovate and
improve performance is at the heart of true
accountability. Accurate credible and rigorous
data alone do not drive organisational change.
Reports uses will want to be confident about the
quality of the systems, processes and competen
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cies that deliver the information in the report and
underpin the organisation's performance and
commitments. The assurance provider must
therefore be forward looking and not confine
their opinion to historical performance.
Third, these previous two points require that
the assurance provider's opinion is informed by
expert judgement in addition to the data made
available by the reporting organisation. Assurance
providers will need to make a judgement, for
example, on the robustness of the qualitative data
and the processes that delivered it, and may chose
to engage directly with stakeholders. In order to
judge the completeness of a report and to avoid
relying on their client's interpretation, the assur
ance provider will require an awareness and
understanding of the issues and stakeholders that
are salient to the sector and community in which
the organisation operates. The assurance provider
needs to comment on what has been excluded
from the reporting as well as on the information
that has been disclosed.
Fourth, the profile of the assuror appears to be
critical to the credibility of the assurance and so
the disclosure. In financial auditing, the impetus
for failing to always act in the public interest has
been attributed to market pressures in which
accounting bodies vie for client business (Sikka
and Willmott, 1995) or engage in other "value
adding" services (Mitchell et al., 1994). That
social and ethical auditing could be susceptible
to similar influences is suggested by the obser
vation recorded by Cowe:
At the moment, there is an incentive for firms to appoint
soft auditors. In some cases, it looks like the auditors
are not doing their job deliberately because they are just
raking in the money (Cowe, 1999).
In the environmental auditing arena, it has been
noted that some assurance providers engage in
selective disclosure - i.e. deliberately failing to
give an opinion or judgement on so called grey
areas or activities that could be pejorative to the
client's interests (Ball et al., 2000). To maximise
their confidence in a report and any independent
audit of it, the user will wish to know the rela
tionships of the assurance provider to the
reporting organisation and their professional
qualifications and expertise.
 Transparency and Assurance: Minding the Credibility Gap 199
The AAIOOOS Assurance Standard
The AAIOOOS Assurance Standard has responded
to the above findings in the development of
Guiding Principles (AccountAbility, 2002). The
three principles, underpinned by the AA1000
framework, are:
Completeness: requires the assurance provider
to evaluate the extent to which the
reporting organisation has included in its
report material information on all of its
activities, performance and impacts across
all aspects of sustainability.
Materiality: requires that the assurance
provider evaluate whether the reporting
organisation has included adequate and
timely information about its activities, per
formance and impacts for the reporting
organisation's stakeholders to form an
understanding of the organisation and to
make judgements, decisions and actions.
Responsiveness: requires the assurance
provider to evaluate whether the reporting
organisation has acknowledged and
responded to stakeholder concerns,
explained the basis of any policy response,
provided adequate indicators for associated
changes in activities, performance and
impacts, and adequately communicated
these responses in its public report.
These principles work together with guidelines
for a robust assurance statement and the inde
pendence and qualifications of the assurance
provider. Whilst no regulation currently exists,
the AAIOOOS Assurance Standard provides
guidance that can be used by stakeholders and
commissioning organisations to judge the quality
of an assurance process. It thus sets a standard to
which assurance providers must aspire, and which
in turn it is hoped, will mandate best practice.
Concluding remarks
The degree to which stakeholders are able to rely
on and trust corporate social and environmental
accounts is a marker of the efficacy, sincerity and
legitimacy of accountability processes. This paper
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has argued that greater levels of transparency are
not enough to demonstrate responsibility or
enrich trust and confidence that an organisation
is sufficiently committed to a sustainability
agenda. Responsiveness, learning, innovation
and performance improvement are critical links
between transparency and accountability. SEE
reporting must be accompanied by a robust
and independent assurance of these aspects, and
this requires an approach to assurance that goes
beyond that offered by the accuracy focused
models of financial accounting and auditing.
Just as SEE reporting discloses performance in
terms of stakeholders, then reporting needs to be
assessed in terms of its relevance and usefulness
to stakeholders and their decision making. This
requires that the information provided represents
a balanced picture of the organisation's impact on
society and the natural environment, and that
public disclosure is part of a broader framework
of enhanced organisational accountability and
performance improvement.
After decades of evolution, current financial
auditing practice remains unable to guarantee the
robustness and reliability of financial accounting
and reporting and to impart public confidence.
The assurance of social, ethical and environ
mental accounting and reporting is in its infancy
and the progressing climate of governance, risk
appetite and responsibility is continually posing
new challenges. How to impart confidence to
public and ensure meaningful accountability
needs further investigation.
The ideology of accountability, being made up
of compliance, transparency, responsiveness and
innovation, must underpin the goals of SEE
audit in order for it to be meaningful for those
with a duty to account, and for those to whom
the account is owed. The AA1000S assurance
standard will emphasis performance as well as
assurance in the interests of prompting organisa
tions to live up to their promises.
Note
1 This article was written while the AAIOOO
Assurance Standard was a consultation document. Th
Standard has since undergone extensive revision an
 200 Nicole Dando and Tracey Swift
was released in March 2003. Contact AccountAbility
for details: www.accountability.org.uk.
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24 Greencoat Place,
London, SW1P 1BE,
U.K.
www. accountability, org. uk,
E-mail: nicole@accountability. org. uk,
tracey @accountability. org. uk.