Tina Trickett.pdf

pwcAssurance under the SpotlightIs Corporate Responsibility Assurancedelivering what is required?Tina Trickett27 July 2006

ObjectivesStimulate thinking on assurance by sharing knowledgeBy:Increasing understanding of the assurance profession and standardsPutting a spot light on some assurance examplesDiscussing a possible future for Assurance0600694PricewaterhouseCoopers LLPPage 2

The jargonFinancial reporting …Statutory reporting…Voluntary disclosure …Corporate responsibility reports ……Certification…Assurance….Audit… Verification0600694PricewaterhouseCoopers LLPPage 3

Assurance – the current position in outlineCorporate Responsibility assurance hasbecome its own industry in recent years.Almost 75% of the FTSE 100 companiesissue CR ReportsApprox 50% of those obtain some form ofassurance0600694PricewaterhouseCoopers LLPBut the future is uncertain, it is dependenton how:• companies develop their internal needsfor CR information and so determine theirinvestment in CR internal controls andreporting;• what stakeholders demand in terms ofquality of management controls andinformation in relation to CR;• the value that is gained from CRassurance by those internal and externalstakeholders who rely on it.Page 4

What defines an assurance engagementThe defining characteristics aregiven in professional standards, inparticular International Standard onAssurance Engagements 3000.These provide the professionalstandards that regulate the auditindustry.SubjectMatterCriteriaAssuranceConclusionThird PartyrelationshipEvidence0600694PricewaterhouseCoopers LLPPage 5

Subject matterReducing level of standardisation and rigourFinancialStatementsAnnual ReportCR & other reportingFinancial Risks GovernanceConductEconomic Environment Philanthropy Social HRStatutoryaccountsStrategic andoperational riskinsight and control0600694PricewaterhouseCoopers LLPStructure, processes,compliance withstandardsCorporate codes,compliancebreaches, legalcasesTax, Investmentstrategy, R&D,profitability,procurements,emissions trading,liabilities, finesEmissions, water,waste and energymanagement,product life cycleDonations,events, timecommitted,initiativesLabourstandards,diversity,reward,development,welfareEthics, corruption,human rights,fencelinecommunities, healthand safety, productimpact, supply chainPage 6

Subject matterSubject mattermust beidentifiable andcapable ofconsistentevaluation ormeasurementagainstidentifiedcriteria.Judgementsand opinionsare not suitablesubject matter.ConductEconomic Environment Philanthropy Social HRCR reporting covers all of these elements theextent of performance reporting across each ishighly variable and increasingly static.Assurance typically ismore restricted in scopeAlthough….increasingly companies are looking forexternal opinions on completeness,materiality and responsiveness 10600694PricewaterhouseCoopers LLP1AA1000S - AccountabilityPage 7

CriteriaCriteria are the benchmarks used toevaluate subject matter. Without thisdefined framework any conclusion is opento individual interpretation andmisunderstanding. Criteria have to bemade available or evident.Criteria are context specific.For example what are the criteria for:Customer satisfaction?Effective controls?Completeness of reporting safetyincidents?Over waste minimisation0600694PricewaterhouseCoopers LLPCriteria need to display the followingcharacteristics:• Relevance• Completeness• Reliability• Neutrality• UnderstandabilityThe evaluation or measurement of asubject matter on the basis of thepractitioner’s own expectations,judgments and individual experiencewould not constitute suitable criteria.Page 8

Sources of criteriaEstablished through laws and regulationsIncreasing public awareness of criteriaIssued by authorised or recognised bodies or experts thatfollow a transparent due processShared standards developed by interested parties through atransparent due processManagement codes developed by management through atransparent due processEngagement specific criteria developed by management0600694PricewaterhouseCoopers LLPPage 9

Third party relationshipA third party relationship createsthe environment of a duty of care todual parties on the part of thosepreparing and assuring theinformation.Third parties can include:• Shareholders, or• Regulators, or• Business partners, or• Business customers• SupplierThe financial audit model:ShareholdersAuditCommittee orequiv.Auditors0600694PricewaterhouseCoopers LLPPage 10

Third parties explainedResponsible partyThe person or personsresponsible for the subjectmatter undergoing assurance.The responsible party andintended users may be from thesame organisation.Intended userThe person, persons or class ofpersons for whom thepractitioner prepares theassurance report. Theresponsible party can be onebut not the only one.PractitionerThe person or personscompetent to deliver theassurance conclusion andcomplete sufficient workto be able to support theconclusion reached.0600694PricewaterhouseCoopers LLPPage 11

Is assurance meeting theexpectations of those whoseek to rely on it?Some examples considered0600694PricewaterhouseCoopers LLPPage 12

Under the spotlightKey questions –Is the right information being subject to assurance?What is the real purpose of assurance of CR information – for management andexternal stakeholders?How much value is gained through a consistent and comparable, standards basedapproach to assurance?What benefit is obtained through the presentation of individual opinions andjudgements?To what extent are current “assurance” arrangements giving what is needed andwhat is missing?Looking to the future………0600694PricewaterhouseCoopers LLPPage 13

CR reporting and assurancewill continue to evolve andmature0600694PricewaterhouseCoopers LLPPage 14

Key driversStakeholder needsarticulation by critical stakeholders of their key information needs and expectationsfor assurance to be provided to a recognised standardManagement responsefocus on improved management and reporting of material performance issues withincreased need for robust assurance of controls and information0600694PricewaterhouseCoopers LLPPage 15

Stakeholder balance of influenceReportingneeds arelikely to beincreasinglyinfluenced byregulators andbusinesscustomers.0600694PricewaterhouseCoopers LLPManagementRegulatorsBusinesscustomersInvestorsAll these partieswill want toplace legalbased relianceon assurance,by default it willtherefore needto be conductedto recognisedstandardsPage 16

Expected management responseAssuranceKey performance indicatorsFocus towards thematerial issues withincreased emphasis onthe quality ofmanagement controls.Key management controls(including stakeholder tests,interventions, views)Critical management outcomesTime0600694PricewaterhouseCoopers LLPPage 17

A view to the futureIncremental change will progress to a more defined, standards based model• Enhanced management focus on material issues• Integration of material issues into business control frameworks• Integration of material issue reporting into mainstream reporting• Increase in real time reporting (e.g. quarterly)• Better use of direct reporting methods (e.g. investor briefings)• Reduction in the issue of separate CR Reports (but more interactive use of web)• Separate use of stakeholder interventions and views as part of management controls• Standards based assurance processes focused towards material issues0600694PricewaterhouseCoopers LLPPage 18

pwcThis publication has been prepared for general guidance on matters of interest only,and does not constitute professional advice. You should not act upon the informationcontained in this publication without obtaining specific professional advice. Norepresentation or warranty (express or implied) is given as to the accuracy orcompleteness of the information contained in this publication, and, to the extentpermitted by law, PricewaterhouseCoopers LLP, its members, employees and agentsaccept no liability, and disclaim all responsibility, for the consequences of you oranyone else acting, or refraining to act, in reliance on the information contained in thispublication or for any decision based on it.© 2006 PricewaterhouseCoopers LLP. All rights reserved. 'PricewaterhouseCoopers'refers to PricewaterhouseCoopers LLP (a limited liability partnership in the UnitedKingdom) or, as the context requires, other member firms of PricewaterhouseCoopersInternational Limited, each of which is a separate and independent legal entity.Design: 0600691/PIC/tkPwC