4.2.2 The role of assurance in Integrated Reporting

Assurance1 of integrated reports may be crucial to bring credibility to the information disclosed and to increase trust.2 The assurance of an integrated report may be conducted by an independent third-party assurance practitioner, and meant to ascertain if the organization “creates value the way it says it does and to those for whom it claims it does;” where “material ESG risks, opportunities and impacts are identified; the Board is involved in the reporting process;” and “there is a culture of cooperation across silos.”3 Eccles, Krzus and Watson (2012) explain that the “full value of integrated reporting will only be realized when integrated assurance is provided on the report.” These authors believe in the integration of standards and assurance methodologies for financial and non-financial information in a way that provides a “true and fair view of an organization’s sustainability.”4 It will be necessary to further develop integrated assurance standards, methodologies and accountability procedures. However, this development could take advantage of the current financial audit and assurance framework, together with the expertise provided by the accounting firms and accounting professionals. In the end it is expected that there will still be reasonable and limited assurance of reports; and according to the audit firms when an accountant audits a report, be it financial or non-financial, there will be no difference. An auditor has the competences to carry-out both. The challenges include, methodology issues, arising from differences between the existing financial audit and sustainability assurance. As PwC explains the current assurance model “assumes a mature reporting model, and not all information is yet ‘assurable’ in that more traditional sense”, suggesting to challenge current concepts and “to think differently about how trust can be built into an organisation’s emerging and evolving reporting.”5 Another methodology challenge is the difficulty to agree on a definition of materiality. In the financial audit, materiality is a well-developed concept, the same is not true for non-financial materiality. There is no guidance or standards on materiality. Besides further guidance on how to determine materiality, is to develop sector-specific indicators for the most relevant and strategic ESG issues, as the SASB’s indicators and GRI’s reporting framework.6 Other challenges include, high costs, robustness of reporters’ internal systems and the availability of skilled and experienced assurance providers.7 If a financial auditor carries out a non-financial audit, there is no fundamental difference when compared with the financial audit. There is also no conflict between the two. However, the main fundamental concepts for non- financial reporting and assurance must be developed.8

According to the IIRC, the International Standard on Assurance Engagements (ISAE 3000) issued in December 2013, has the most potential to be used in the assurance of an integrated report.9 However, the IIRC and some assurance practitioners question if a new Integrated Reporting assurance standard should be developed.10 Corporate reporting is constantly evolving (progressive reporting, forward–looking and more integrated) and so should assurance mechanisms.11 Assurance of non-financial information should also focus on management, governance processes and qualitative statements about value creation (narrative reporting and future oriented information).1213Independently of building on an existing assurance standard or developing a new assurance standard for Integrated Reporting, a few issues should be taken into consideration, such as, the scope of the assurance engagement, materiality, guidance and what constitutes appropriate evidence.14