What are companies saying in their reports?
“We have not obtained assurance over the integrated report”
“Some sustainability related information has been assured...Our consolidated annual financial statements were audited by our external auditors”
“We have applied a combined assurance approach to our integrated report”
“The integrated report may contain forward looking statements...no assurance can be given that these will prove to be correct”
What guidance is there?
South Africa's Discussion Paper “Framework for Integrated Reporting and the Integrated Report” released earlier in the year provides some guidance on the approach to assurance and the integrated report. A number of comment letters were received on the Paper, many of which indicated a need for further guidance on assurance over the integrated report.
There is no doubt that independent assurance lends credibility to the information included in the integrated report and, given that the integrated report communicates what is most material to an organisation, the need for assurance is even greater.
What are the challenges?
Traditionally, assurance has been provided over historical financial information prepared in terms of an accounting framework. In more recent years, assurance has extended to non-financial information.
South Africa's Discussion Paper calls for an integrated report to have concise information about:
Although some of this information may have previously been included in the annual reports of the past, only “performance” and parts of “remuneration” information would have been assured. Assurance over forward looking information, other than to the extent it is included in fair value calculations, has been avoided.
Assurance providers, companies, regulators and other stakeholders need to debate our ability as assurers to provide assurance over information such as “material issues”, “strategic objectives” and “future performance objectives”. To provide assurance one needs a framework, and such a framework is still in development. Also, a major driver of integrated reporting is to communicate only concise, key messages and the completeness of the information will be a major concern for assurance providers.
Where are we?
We understand that financial statements will continue to be audited and an audit opinion will be expressed over the financial statements as a whole. More organisations are also having key performance information in their sustainability reports assured.
From an assurance perspective, the integrated reports of today include audited financial information (or extracts from the audited financial statements) and, in many instances, selected non-financial information is covered by another opinion (often based on ISAE 3000). This combination of assurance does not, however, result in assurance over the integrated report as a whole. The balance of the information included in the integrated report is dependent on the governance structures in place to ensure that it is a complete and balanced view of the organisation.
In the short term, the answer must lie in a combined assurance approach, included in King III, where an organisation draws on assurance from its external auditors, sustainability assurance providers, internal auditors, other external assurance providers, management itself and the governance structures to provide their stakeholders with the appropriate level of comfort over the material issues presented.
For now, some integrated reports have simply combined information in a single report and a combined assurance approach will work well. However, the reports are quickly changing and assurance providers will need to find a way to evolve.
Are we there yet?
We have all heard that developing an integrated report will be a journey; so too will the assurance strategy. An integrated report may be supported by more detailed reports; so too may the assurance report.
Although we may not see assurance over forward looking information “tomorrow”, the tools to express assurance over the processes and assumptions leading to forward looking statements already exist and could be used to express assurance over the application of the integrated reporting principles.
As organisations embrace integrated reporting, it will become more challenging to provide assurance solutions with the current set of standards. Like companies, assurance providers will need to become more innovative with their assurance solutions. Although the international Discussion Paper is currently silent on assurance, the standards that assurance providers use may also need to evolve. asa
Neil Morris CA(SA) is a Director of KPMG's Climate Change and Sustainability Business Unit and also Chairman of the IRBA CFAS Sustainability Standing Committee.
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