Summary of Key Concepts

Key Concepts: Internal and External Assurances

Watch for assurances in sustainability reports. Both internal and external assurances make information more credible and reliable.

Internal assurances provide early warning signals and observations to improve

  • the reporting process;
  • information quality; and
  • performance improvement.

External assurances provide an assessment of the quality of the information. Although some external assurance providers will include observations, their main objective is to determine accuracy of information.

External assurances help to improve

  • information accuracy;
  • fulfillment of legal requirements; and
  • performance practices.

Key Concepts: The Role of Internal Controls

Keep an eye open for a discussion of internal controls in sustainability reports. They help to control the process of gathering and reporting of information to ensure errors are not made.

Two important types of controls are

  • process controls, which give direction to carrying out the reporting steps;
  • responsibility controls, which assign tasks to specific individuals.

The entire set of controls that an organization uses is referred to as a control system. Control systems can be specified by an external organization such as ISO 14000, developed internally and customized to meet the organization’s needs, or both.

Key Concepts: The Work of Internal Auditors

Internal auditors will often check that internal controls are functioning properly and that numbers are accurate, providing a higher degree of confidence that information is credible.

Internal auditors

  • identify inefficiencies and recommend improvements in controls;
  • recognize warning signs for potential problems; and
  • make suggestions for meeting targets.

Internal auditors may also provide assurance statements in sustainability reports. Check the assurance statement carefully to determine

  • the name of the assurance statement;
  • the name of the assurance provider;
  • the scope of the review;
  • the procedures or methodology used in the review process; and
  • the opinion or decision made by the auditor.

These characteristics will help you to determine the degree of rigor of the assurance.

Key Concepts: Qualification of Assurance Providers

Check the report for external assurances as well as internal assurances. Determine the assurer’s qualifications. Not all assurers are equally qualified. Assurers should be independent from the organization whose information they are assuring.

External assurance providers are not employees of the organization and therefore are generally more objective than internal assurances providers. However, internal auditors perform valuable work before an external assurer is engaged.

A truly independent assurance provider has the following qualifications:

  • No financial interest in the reporting organization;
  • Not heavily dependent on the reporting organization for income; and
  • Not assuring consulting work prepared by the assurer’s own firm at another time.

Key Concepts: Types of Assurance Statements

Check the wording in the assurance report to determine if the assurance provided is

  • limited (negative); or
  • reasonable (positive).

A reasonable assurance involves greater time and effort by the assurer but also provides a higher level of assurance.

Reviews that provide assurance can be

  • general in nature (cover the entire report); or
  • specific in nature (covering only selected indicators or other selected information).

Key Concepts: Characteristics of External Assurance Statements

Learn to recognize the types of information contained in an assurance statement. The more information that is provided, the better you are able to judge the confidence that you have in the information reported in a sustainability report. Assurance statements will contain all or some of the following characteristics:

  • name of assurance statement;
  • name of assurance provider;
  • scope;
  • procedures;
  • the standard used to perform the assurance;
  • the standard used to assess the reporting;
  • statement of independence of the assurer;
  • statement of the qualifications of the assurer;
  • opinion;
  • observations and recommendations from the assurer; and
  • organization’s response to the assurance.

Key Concepts: Involving Stakeholders

Involving stakeholders in the reporting process will ensure that an organization’s report contains information useful to its stakeholders. Stakeholders’ observations and recommendations will serve as evaluations of the company’s performance and its reporting. Stakeholders can be used at different times and for different purposes in the reporting process:

  • before preparing the report to determine what is important to include in the report;
  • during the reporting process to assess specific parts of the report; and
  • as a stakeholder panel after the report has been completed to provide observations and recommendation about performance and reporting adequacy.

Key Concepts: Benefits of Assurances

Both internal and external assurances improve the quality of information. Internal controls, internal audits, independent third party reviews, and third party commentaries all help to make information more credible and therefore more useful to the reader. Thus, everyone benefits. Assurance methods can do the following:

  • enhance the readers’, and the organization’s own, confidence about sustainability information;
  • lead to better decisions or judgements about performance;
  • allow others, not involved in the preparation of the report, to provide valuable ideas on the interpretation and analysis of the report indicators;
  • provide the impetus to improve sustainability performance.