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  • Jennifer M Mueller-Phillips
    Corporate Sustainability Reporting and Stakeholder Concerns:...
    research summary posted June 22, 2017 by Jennifer M Mueller-Phillips, tagged 14.0 Corporate Matters, 15.0 International Matters, 15.05 Sustainability Services 
    Title:
    Corporate Sustainability Reporting and Stakeholder Concerns: Is There a Disconnect?
    Practical Implications:

    Sustainability is important to the accounting industry. Accountants have a responsibility to help integrate sustainability into areas such as budgets, resource allocations, and capital expenditure decisions. The evidence from this study indicates what CS activities consumer find important. Management can use this information in developing their business strategies related to CS. 

    Citation:

    Bradford, Marianne, J. B. Earp, D. S. Showalter, and P. F. Williams. 2017. “Corporate Sustainability Reporting and Stakeholder Concerns: Is There a Disconnect?”. Accounting Horizons. 31 (1): 83-102.

    Keywords:
    corporate sustainability; Global Reporting Initiative; sustainability reporting; stakeholder theory; content analysis; survey; factor analysis
    Purpose of the Study:

    There has been an increasing number of companies reporting their corporate sustainability (CS) in recent years. Traditionally, CS refers to measures companies take against environmental issues. However, in recent years it is often viewed as the balance between environmental, social, and economic outcomes, also known as the triple bottom line. This expanded definition of CS has caused companies to emphasize different outcomes, and subsequently to have vastly different CS reports. The current guidelines for CS reporting, the Global Reporting Initiative (GRI) framework, is consistently updated to account for this expanded view. Additionally, consumers are increasingly being viewed as primary stakeholder groups. This study examines whether the CS information being reported through the GRI framework is adequately addressing consumer stakeholder interests.

    Design/Method/ Approach:

    The sample contained 505 participants that responded to an online survey in 2013. The link to the survey was posted on the Institute of Management Accountants (IMA) website and also onto North Carolina State University’s website. The participants assumed the role of consumers and took the survey which contained 40 scale items and 6 demographic items.

    Findings:

    The authors find the following:

    • There is a disconnect between the dimensions that consumer stakeholder groups view as important and the GRI dimensions. The GRI based framework is broad, and therefore the reported measures may not satisfy the precise concerns that all stakeholder groups have.
    • Specifically, consumer stakeholder group consider Risk and Compliance to be of high importance. The stakeholders are concerned with the company’s ethical behavior, accountability standards, audits, and accounting policies. On the other hand, Economic activities were viewed as less important.
    Category:
    Corporate Matters, International Matters
    Sub-category:
    Sustainability ServicesTraining & General Experience
  • Jennifer M Mueller-Phillips
    The Role of Corporate Social Responsibility (CSR)...
    research summary posted July 27, 2015 by Jennifer M Mueller-Phillips, tagged 14.0 Corporate Matters, 15.0 International Matters, 15.05 Sustainability Services 
    Title:
    The Role of Corporate Social Responsibility (CSR) Assurance in Investors' Judgments When Managerial Pay is Explicitly Tied to CSR Performance.
    Practical Implications:

    This study provides support for the expansion of CSR assurance services, the disclosures of benchmarked CSR investment levels, and the potential investor assessments of such information when integrated with governance information. If investors concerned about “greenwashing” in the presence of pay-for-CSR-performance can reasonably rely upon these CSR disclosure factors, they may become less skeptical about using this type of nonfinancial information in their investment decisions. This in turn may lead firms to attract and retain those managers who are willing to substantively invest in CSR activities, signal the firm’s CSR commitment level, and ultimately add to the firm’s long-term value.

    Citation:

    Brown-Liburd, H., & Zamora, V. L. 2015. The Role of Corporate Social Responsibility (CSR) Assurance in Investors' Judgments When Managerial Pay is Explicitly Tied to CSR Performance. Auditing: A Journal of Practice & Theory 34 (1): 75-96.

    Keywords:
    assurance services, corporate social responsibility, investor judgments, pay-for-performance
    Purpose of the Study:

    With corporate social responsibility (CSR) reports being primarily positive in nature comes investors’ increasing demand for both independent assurance and integrated reporting of CSR information. One explanation of why the demand for assurance exceeds the supply is that CSR assurance and supporting information become especially value relevant to investors as more firms explicitly link managerial pay to sustainability, and such links provide managers greater situational incentives to strategically disclose strong CSR performance. The authors thus examine the role of CSR assurance as a disclosure credibility signal for positive CSR performance when supporting information, such as CSR investment level, is integrated with governance information, such as explicit ties between CSR performance and managerial pay. While a firm may report a high level of CSR investment to indicate an authentic commitment to CSR, investors may become skeptical of the reported CSR investment information when CSR performance is explicitly tied to managerial pay. Since managers have greater situational incentives to overinvest in CSR and thereby report strong CSR performance, investors will seek CSR assurance as a disclosure credibility signal.

    Design/Method/ Approach:

    Qualtrics recruited a sample of 268 individuals, all with an investment knowledge. The mean age is 43 years old, 50 percent are female, and 22 percent have a graduate degree. In addition, there is a range of investing task expertise as an investor through mutual or pension funds (63 percent), an investor in common stock or debt securities (63 percent), or as a professional investor (27 percent). The authors employ an online mixed factorial experiment.

    Findings:

    Investors’ stock price assessments are greater in the presence of both pay-for-CSR-performance and CSR investment level above-industry average only when combined with the presence of CSR assurance. The authors also find that this interactive effect is marginally higher for investors holding conventional securities, which is one proxy used for “investing task expertise.” Investors value the combination of CSR disclosure-based factors rather than each factor individually. CSR assurance acts as a disclosure credibility signal for positive CSR performance when supporting information, such as CSR investment level, is integrated with governance information, such as CSR performance explicitly tied to managerial pay. In all, the results suggest that, in the CSR context, the presence of greater situational incentives renders supporting information value relevant only when combined with independent assurance.

    Category:
    Corporate Matters, International Matters
    Sub-category:
    Sustainability ServicesTraining & General Experience
  • Jennifer M Mueller-Phillips
    Understanding and Contributing to the Enigma of Corporate...
    research summary posted July 27, 2015 by Jennifer M Mueller-Phillips, tagged 15.0 International Matters, 15.05 Sustainability Services 
    Title:
    Understanding and Contributing to the Enigma of Corporate Social Responsibility (CSR) Assurance in the United States.
    Practical Implications:

    The results indicate that many companies that currently issue unassured CSR reports could economically benefit from obtaining CSRA through a reduction in their cost-of-capital and also benefit from reductions in analyst forecast errors and dispersion. As such, CSRA providers, especially accounting firms, need to improve their communication to convey these benefits to prospective clients. The capital markets appear to discount and not value CSRA when it is likely being used for impression management/greenwashing. Thus, the more important public policy issue is how to curb instances of CSRA being used for impression management/greenwashing purposes. For example, public policy makers may want to consider the merits of regulating CSRA providers where there are severe consequences for not identifying inaccurate, incomplete, or misleading CSR reporting.

    Citation:

    Casey, R. J., & Grenier, J. H. 2015. Understanding and Contributing to the Enigma of Corporate Social Responsibility (CSR) Assurance in the United States. Auditing: A Journal of Practice & Theory 34 (1): 97-130.

    Keywords:
    assurance, corporate social responsibility (CSR), environmental, nonfinancial performance indicators, sustainability
    Purpose of the Study:

    The United State public companies have historically trailed their international counterparts in the issuance and assurance of corporate social responsibility (CSR) reports. Many investors and other stakeholders are skeptical of CSR reports, viewing them as public-relation ploys. Recently, the U.S. has gained ground in the issuance of reports, but independent assurance remains uncommon. As an initial attempt to understand this enigma, this paper presents a comprehensive, empirical investigation of CSR assurance (hereafter, CSRA) in the idiosyncratic U.S. setting.

    From an economic perspective, the low demand is due to U.S. firms not perceiving that the benefits of CSRA justify the costs, consistent with previous criticisms of CSRA. Specifically, scholars argue that CSRA is overly influenced by management and, thus, often does not address the relevance or completeness of CSR reporting. There is also substantial variability in assurance scope, independence of the assurance provider, external criteria, and the level of assurance provided. Despite these criticisms, theory and empirical evidence suggests that CSRA is potentially valuable. By enhancing the credibility of how the firm is managing its social and environmental risks CSRA theoretically improves firm reputation and makes it easier to acquire resources.

    Design/Method/ Approach:

    The two-part exploratory analysis employs a sample of 2,649 U.S. CSR reports, of which 230 are assured. The sample data was gathered from the Corporate Register database and Compustat. The sample uses data from 1993 to 2010. The authors employ sequential logit models to emulate the three interrelated decisions to (1) issue a CSR report, (2) have it assured, and (3) choose a CSRA provider (i.e., accounting or nonaccounting).

    Findings:
    • Results indicate that the U.S. CSRA market fundamentally differs from international markets.
    • Large firms are more likely to obtain CSRA, as they are prone to public criticism due to their visibility.
    • Highly leveraged firms are less likely to obtain CSRA. Thus, strong U.S. bank monitoring could be suppressing CSRA demand, as highly leveraged firms may be indirectly discouraged from allocating resources to CSRA to avoid violating debt covenants. Nonetheless, the authors find that liquidity is not associated with CSRA demand indicating that short-term financial constraints are likely not a major reason for low U.S. CSRA levels.
    • Having CSR strengths increases CSRA demand, which is not surprising as weak CSR performance does not need assurance to be credible. However, having CSR concerns also increases CSRA demand.
    • Firms with CSR concerns are less likely to choose the higher-quality CSRA offered by accounting providers. Large firms are not more likely to use accounting providers.
    • Results of the user perspective tests indicate that CSRA is valued by equity markets. Specifically, CSRA is associated with reduced cost-of-capital, analyst forecast dispersion, and analyst forecast errors. The reductions in cost-of-capital and forecast dispersion are significantly greater when an accounting firm is the CSRA provider.
    Category:
    International Matters
    Sub-category:
    Sustainability ServicesTraining & General Experience
  • Jennifer M Mueller-Phillips
    The Impact of Strategic Relevance and Assurance of...
    research summary posted July 27, 2015 by Jennifer M Mueller-Phillips, tagged 15.0 International Matters, 15.05 Sustainability Services 
    Title:
    The Impact of Strategic Relevance and Assurance of Sustainability Indicators on Investors' Decisions.
    Practical Implications:

    This study contributes to understanding the interaction between strategy information and ESG information on investment decisions, and provides support for the argument that investors can benefit from the enhanced connections between strategy and ESG information that form the underlying basis of Integrated Reporting. Importantly, the results document that investors' perception of strategic relevance is a driver of their investment decisions. This study suggests that nonprofessional investors’ responses to sustainability disclosure are affected by the strategic relevance of the reported information. The assurance affects investment decisions by increasing the perceived importance of the sustainability information suggests that assurance has a signaling effect, and highlights the importance of making independent assurance public to investors.

    Citation:

    Cheng, M. M., Green, W. J., & Chi Wa Ko, J. 2015. The Impact of Strategic Relevance and Assurance of Sustainability Indicators on Investors' Decisions. Auditing: A Journal of Practice & Theory 34 (1): 131-162.

    Keywords:
    environmental social governance indicators, strategic performance information, strategy, sustainability assurance
    Purpose of the Study:

    In this paper, the authors extend the prior sustainability and assurance literature by examining whether and how the strategic relevance of environmental, social, and governance (ESG) indicators interact with sustainability assurance to influence nonprofessional investors’ investment decisions. Strategic relevance is defined as the extent to which the ESG indicators are critical to evaluating the company’s strategy. The research provides insights regarding how this information affects nonprofessional investors’ investment decisions.

    Sustainability assurance is a growing area of interest to assurance professionals, researchers, and investors. Despite this increased interest, there is limited empirical research on the impact of sustainability report assurance on investors’ decision-making. The first experiment manipulates strategic relevance of reported environmental, social, and governance (ESG) indicators between "high" and "low" by varying the company strategy (sustainability-based differentiation strategy versus cost leadership strategy unrelated to sustainability). The second experiment manipulates the strategic alignment of the ESG indicators (holding strategy constant). The authors also manipulate the presence or absence of assurance in both experiments.

    Design/Method/ Approach:

    The first experiment uses a 2x2 between-subjects experimental design. The participants are 128 graduate students enrolled in a Master’s of Financial Analysis at a leading international business school, and act as surrogates for nonprofessional investors. The average age of the participants was 24.4 years old, 73 percent of whom were female. The experimental instrument was administered to volunteer participants during the semester in designated experimental sessions on campus in fall 2012.

    Findings:
    • Results from experiment one indicate that both factors increase the importance nonprofessional investors place on the ESG indicators when making investment decisions, and perceived importance in turn increases nonprofessional investors’ willingness to invest.
    • Experiment one also shows an interaction effect where the positive impact of assurance on nonprofessional investors’ willingness to invest is moderated by the strategic relevance of ESG indicators.
    • The results of the first experiment suggest that even in the retail industry context, assurance is more likely to affect nonprofessional investors’ decisions if the ESG indicators are highly relevant to the company’s strategy.
    • Experiment two provides further support that the perception of the strategic relevance of ESG indicators increases investors’ willingness to invest.
    • The finding that assurance increases the perceived importance of ESG indicators suggests that assurance has a beneficial signaling effect.
    • Companies are likely to benefit from both the disclosure of ESG indicators that are seen as strategically relevant, and the independent assurance of sustainability reports containing this information.
    • The benefits that may accrue to a company from assuring their ESG indicators is greater
      if they can clearly communicate to potential investors the link between the company’s strategy and its ESG performance.
    Category:
    International Matters
    Sub-category:
    Sustainability ServicesTraining & General Experience
  • Jennifer M Mueller-Phillips
    CSR and Assurance Services: A Research Agenda.
    research summary posted July 24, 2015 by Jennifer M Mueller-Phillips, tagged 15.0 International Matters, 15.05 Sustainability Services 
    Title:
    CSR and Assurance Services: A Research Agenda.
    Practical Implications:

    The authors have attempted to highlight the vast research opportunities in the CSR report assurance context. This is a crucial area where auditors and auditing research can help develop a tipping point where it may be to a company’s advantage to engage in appropriate CSR behavior and to document this behavior in a report that will receive the rigorous scrutiny of quality assurance providers.

    Citation:

    Cohen, J. R., & Simnett, R. 2015. CSR and Assurance Services: A Research Agenda. Auditing: A Journal of Practice & Theory 34 (1): 59-74.

    Keywords:
    assurance research, assurance services, corporate social responsibility, CSR assurance
    Purpose of the Study:

    The primary objectives of this special research forum are to highlight the current research and identify future research opportunities in the area of assurance services for corporate social responsibility (CSR) reports. Internationally, and increasingly in the U.S., companies are now producing CSR reports that provide information to assess a company’s environmental, social and governance performance. This paper describes the current environment for assurance services for corporate social responsibility (CSR) performance. It then discusses opportunities for research, and highlights areas that are evolving as significant research opportunities and areas of significance that have been under-researched in the past. Finally, the paper reviews the five papers in the forum and highlights how multiple methodologies may be appropriate to examine different aspects of assuring CSR reporting from both internal and external assurance perspectives.

    Design/Method/ Approach:

    The paper motivates a research agenda on the subject of CSR and Assurance Services.

    Findings:

    This area is ripe for further research because nearly every research question and research method that has been examined in financial statement audit research can be explored for CSR report assurance.

    Category:
    International Matters
    Sub-category:
    Sustainability ServicesTraining & General Experience
  • Jennifer M Mueller-Phillips
    The Association between Sustainability Governance...
    research summary posted July 24, 2015 by Jennifer M Mueller-Phillips, tagged 15.0 International Matters, 15.05 Sustainability Services 
    Title:
    The Association between Sustainability Governance Characteristics and the Assurance of Corporate Sustainability Reports.
    Practical Implications:

    In order to develop future regulation, policy-makers rely on firm-specific sustainability information to analyze current corporate activity trends. The findings may help to inform regulators of the trends in SRA among U.S. firms and on the impact governance has on SRA adoption. This may assist policy-makers in influencing increased SRA without costly regulation. The findings may also inform stakeholders demanding reliable sustainability information, such as investors, rating agencies, NGOs, and customers, among others. Understanding the impact of the corporate governance mosaic on SRA may inform stakeholders on how to effectively influence SRA adoption or foster reliable sustainability reporting practices.

    Citation:

    Peters, G. F., & Romi, A. M. 2015. The Association between Sustainability Governance Characteristics and the Assurance of Corporate Sustainability Reports. Auditing: A Journal Of Practice & Theory 34 (1): 163-198.

    Keywords:
    assurance providers, Chief Sustainability Officers, corporate governance, environmental committees, sustainability assurance, sustainability assurance determinants
    Purpose of the Study:

    In a time when sustainability reporting is increasingly criticized for its lack of transparency, sustainability assurance potentially provides both external stakeholders and management with increased confidence in the firm’s sustainability information for decision-making. However, a lack of common sustainability reporting standards and the public’s inexperience with the origin and meaning of sustainability reports allow managers a platform for opportunistic behavior. While 93 percent of the world’s largest corporations now publish a sustainability report, only 59 percent of those reports employ any form of assurance. In this paper, the authors provide a more comprehensive examination of the factors influencing SRA by considering the existence of and characteristics associated with an extensive corporate governance mosaic.

    Within the sustainability report assurance (SRA) arena, there are three common types of assurance providers: internal auditors, consultants and professional accounting firms. This study seeks to provide evidence on whether a firm’s sustainability-oriented corporate governance mechanisms influence the adoption of SRA and the selection of assurance provider. Specifically, the authors examine the presence and characteristics of environmental committees on the Board of Directors and a Chief Sustainability Officer (CSO) among the management team. Further, they seek to provide evidence concerning the value-relevance of the various assurance options, as well as the expanding sustainability governance mosaic.

    Design/Method/ Approach:

    The sample consists of 912 U.S. sustainability reports issued from 2002 through 2010. The authors examine the effects of sustainability corporate governance mechanisms on the likelihood that a firm chooses SRA using a logistic regression model.

    Findings:

    In general, the authors fail to find an association between the presence of an environmental committee and SRA. However, a more in depth examination suggests that environmental committees containing members with related environmental expertise display a positive association with SRA. While it is unclear whether this result indicates that environmental committees without experts are merely a symbol of a commitment to sustainability, or more of an inability to influence due to their limited knowledge or experience with the use of assurance services, the results are informative in helping to understand the conditions in which firms pursue greater reliability of sustainability reporting. Such committees appear to prefer the services of professional accounting firms. The authors also find that CSOs with prior sustainability or environmental expertise are positively associated with SRA. However, the CSOs do not seem to distinguish between the services of professional accounting firms compared to consultants and internal auditors, although they do prefer consultants to internal auditors. The authors also find that these associations are mitigated by other environmental contextual characteristics of the firm, including the firm’s prior environmental performance.

    Category:
    International Matters
    Sub-category:
    Sustainability ServicesTraining & General Experience
  • Jennifer M Mueller-Phillips
    Internal Audit's Role in GHG Emissions and Energy...
    research summary posted July 23, 2015 by Jennifer M Mueller-Phillips, tagged 15.0 International Matters, 15.05 Sustainability Services 
    Title:
    Internal Audit's Role in GHG Emissions and Energy Reporting: Evidence from Audit Committees, Senior Accountants, and Internal Auditors.
    Practical Implications:

    The focus on the insights of audit committee members and senior accountants concerning the role of internal auditors in their work in areas of sustainability reporting, allows the authors to inform the broader internal audit literature on the role of internal auditors as a corporate governance resource. The interviewees indicated that the internal audit teams were already multidisciplinary and that this would increase in the future. Insights from these senior practitioners also inform potential research questions in audit judgment and decision-making (JDM) research.

    Citation:

    Trotman, A. J., & Trotman, K. T. 2015. Internal Audit's Role in GHG Emissions and Energy Reporting: Evidence from Audit Committees, Senior Accountants, and Internal Auditors. Auditing: A Journal Of Practice & Theory 34 (1): 199-230.

    Keywords:
    energy usage, GHG emissions, internal auditing, judgment and decision making, nonfinancial assurance, qualitative research
    Purpose of the Study:

    Internationally, disclosures related to greenhouse gas (GHG) emissions and energy usage have increased dramatically due to trends toward increased sustainability reporting, growing concerns about climate change, and the introduction of new legislation and taxes. Audit committees, management, internal auditors, external auditors, and other stakeholders all have a potential role in relation to GHG disclosures.

    This study addresses the role of internal auditors. Understanding the role of internal audit in GHG and energy reporting is important, given recent trends toward reliance by both internal and external stakeholders in the monitoring, measuring, and reporting of GHG emissions and energy usage. European nations have the highest reporting rates and although the U.S. has relatively lower reporting rates, the trend in the U.S. is toward increased reporting. Sustainability reports cover a wide range of disclosures, but the primary focus is on the environment, particularly resource and energy usage.

    Design/Method/ Approach:

    The data was collected via semi-structured interviews. The sample contained 29 participants, including: nine heads of in-house internal audit departments; six partners from the Big 4 accounting firms and one partner and one director from one of the largest second-tier firms; seven audit committee members and five senior accountants. Twenty-one participants were male and eight were female with all having at least 20 years of work experience. The evidence was collected prior to November 2012.

    Findings:
    • All groups of participants consider that internal audit has a role to play in the assurance of GHG and energy reporting.
    • The type of work performed by internal auditors on GHG and energy reporting includes developing and checking processes, ensuring the accuracy and completeness of data, and performance auditing, including cost reductions.
    • The following key factors are identified as providing a need for internal audit involvement in GHG and energy reporting: regulation and compliance; potential penalties and sanctions against the CEO and the directors; managing risk; the nature of the industry; and the interests of shareholders, as this is market sensitive information that can impact reporting reputation. Lack of expertise is given as a reason for internal audit not playing a major role for some organizations.
    • While participants see an important role related to improving the reliability of the data reported, they do recognize other alternatives to in-house internal audit including outsourced internal audit, internal quality assurance, financial accountants, sustainability managers, external audit, and external consultants.
    • All groups of participants see a larger role for internal auditors in this area in the future, particularly audit committee members and partners who expect directors will require more information from internal auditors on GHG and energy disclosures.
       
    Category:
    International Matters
    Sub-category:
    Sustainability ServicesTraining & General Experience
  • Jennifer M Mueller-Phillips
    Impact of Assurance and Assurer’s Professional Affiliation o...
    research summary posted December 3, 2014 by Jennifer M Mueller-Phillips, tagged 12.0 Accountants’ Reports and Reporting, 12.07 Attestation Services, 15.0 International Matters, 15.05 Sustainability Services 
    Title:
    Impact of Assurance and Assurer’s Professional Affiliation on Financial Analysts’ Assessment of Credibility of Corporate Social Responsibility Information
    Practical Implications:

    The findings of this study provide evidence on the benefits of assurance of CSR reports in enhancing credibility. Practice indicates that around the world about 50% of organisations have their stand-alone CSR reports independently assured, and that about 50% of these are assured by members of the accounting profession. This research shows that financial analysts in the U.K., U.S. and Australia will perceive an enhanced credibility of these reports when they are independently assured. However, the evidence also indicates that such benefits are context-specific. Assurance will add more credibility to CSR reports for companies that are facing more significant CSR issues. With regards choice of assurance provider, financial analysts in Australia and U.K. perceive improved credibility associated with independent assurance whether or not the assurer came from the accounting profession. In the U.S. it was only assurance from professional accountants that leads to significantly higher perceived CSR report credibility. This will have implications for organisations in their decision to assure and choice of assurance provider. From the assurance firm’s perspective, in countries where CSR assurance is commonly provided by both accounting profession and other providers outside of the profession, accounting firms may wish to more clearly articulate the benefits of their assurance services compared with those from other assurance providers.

    For more information on this study, please contact Roger Simnett.

    Citation:

    Pflugrath, G., P. Roebuck, and R. Simnett. 2011. Impact of assurance and assurer's professional affiliation on financial analysts' assessment of credibility of corporate social responsibility information. Auditing: A Journal of Practice & Theory 30 (3): 239-254.

    Keywords:
    corporate social responsibility; assurance; benefits of assurance; credibility
    Purpose of the Study:

    Globally, the increasing trend of Corporate Social Responsibility (CSR) reporting has led to the growing importance of assurance of nonfinancial reports. While archival research provides insights into the international CSR assurance market as well as the choice of assurance provider, it remains unknown whether assurance impacts financial analysts’ perception of the credibility of CSR information, and if it does, whether the impact differs depending on the assurance providers’ professional affiliation. To provide evidence on the issue, this study uses an experimental design to examine whether assurance of CSR information and the type of assurer (professional accountant or sustainability expert) impact financial analysts’ perception of CSR information credibility. The study motivates its predictions with the documented benefits of assurance in enhancing credibility and the likely benefits of professional accountants’ assurance due to service providers’ expertise and reputation. Additionally, the study examines whether the perception differs for analysts from different countries and whether the results are consistent for CSR-reporting companies across different industries. 

    Design/Method/ Approach:

    The study uses an experimental design. The participants are financial analysts from Australia, U.K. and U.S. In the experiment, the participants are presented with a set of two CSR reports (one from a mining company and the other from a retailer). Whether the reports are assured and, if they are assured, the type of assurance provider, is manipulated across different treatments. The participants are asked to indicate their perception of the credibility of the CSR information after reading the reports, and if appropriate , the assurance report on CSR information. The research instrument was administered as either in hard copy or an electronic version. The experimental data from the hard copies of the research instrument were collected in the last quarter of 2007, while the data from the online instruments were obtained in the second quarter of 2008. 

    Findings:

    The study finds that:

    • Financial analysts consider assured CSR information to be more credible than CSR information that is not assured. 
    • When CSR information is assured, financial analysts perceive CSR information assured by a professional accountant to be more credible than CSR information assured by a sustainability expert. 
    • Assured CSR information from the mining company is perceived by financial analysts to be more credible than the assured information from the retailing company. 
    • Assurance from professional accountants leads to significantly higher perceived information credibility from the U.S. financial analysts. However, Australian and U.K. financial analysts were found to value assurance highly regardless of the type of assurer.
    • Assurance of CSR information, type of assurer, and the industry of CSR reporting company have little impact on investment-type decisions made by financial analysts.  
    Category:
    Accountants' Reporting, International Matters
    Sub-category:
    Attestation Services, Sustainability ServicesTraining & General Experience
  • Jennifer M Mueller-Phillips
    Seeking legitimacy for new assurance forms: The case of...
    research summary posted October 10, 2013 by Jennifer M Mueller-Phillips, tagged 01.0 Standard Setting, 01.01 Changes in Reporting Formats, 15.0 International Matters, 15.05 Sustainability Services 
    Title:
    Seeking legitimacy for new assurance forms: The case of assurance on sustainability reporting
    Practical Implications:

    Corporate sustainability reporting is a growing area due to increased political and social focus on corporations’ actions.  With the development of this reporting area comes the development of the associated assurance service.  Without legitimate assurance, these sustainability reports lack reliability and credibility.  Prior research has not thoroughly examined how audit firms acquire and obtain legitimacy when developing a new area of their professional practice.  This study shows the different strategies employed by audit firms to secure legitimacy with key internal and external stakeholders as it relates to sustainability reporting.   

    For more information on this study, please contact Brendan O’Dwyer.
     

    Citation:

    O’Dwyer, B., D. Owen, and J. Unerman. 2011. Seeking legitimacy for new assurance forms: The case of assurance on sustainability reporting. Accounting, Organizations and Society 36: 31-52.

    Keywords:
    sustainability reporting; legitimacy; assurance reports.
    Purpose of the Study:

    There has been an increased engagement of audit firms to provide assurance services for corporate sustainability reports. This is a new area of assurance with no established standards or reporting formats.  This paper focuses on the strategies practitioners have used to attempt to legitimize sustainability assurance to key constituencies: (1) clients, (2) external users, and (3) audit firms’ internal risk and reporting department.  Establishing legitimacy is crucial to the development and acceptance of sustainable assurance reporting.

    Design/Method/ Approach:

    The authors use a case study to examine the processes undertaken in the sustainability assurance division of a Big 4 firm to legitimize its actions to the three key groups listed above.  Processes of legitimation are key parts of developing new forms of assurance.  There are three types of legitimacy within each of the three key groups the authors study:

    • Pragmatic:  addresses the groups’ focus on its specific self-interests
    • Moral: addresses the groups’ focus on the welfare of society
    • Cognitive: addresses the subconscious attitudes of the group on what is appropriate and proper
       
    Findings:
    • Audit firms must first acquire pragmatic legitimacy with the audit firm’s internal risk and reporting department.
      • High levels of sustainable reporting can only be obtained if the internal assurance reporting department of the audit firm can increase the information content of assurance statements for external users. 
    • Audit firms must then establish moral legitimacy with external users of the assurance statements.
      • The study finds that when assurors encourage reporting that increases users’ understanding of the assurance process, the assurance statement is viewed as more informative and valuable.
    • Audit firms must then develop pragmatic legitimacy with the clients.
      • By establishing moral legitimacy with external users, audit firms can show clients the external credibility benefits of sustainability reporting.
         
    Category:
    International Matters, Standard Setting
    Sub-category:
    Changes in Reporting Formats, Changes in Reporting Formats, Sustainability ServicesTraining & General Experience

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