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Assurance standards - the evolution continues
24/10/2008

On Friday 24 October 2008, AccountAbility announced the revisions to its AA1000AS series of standards. Here, csrnetwork director Jon Woodhead examines the new approach.

Assurance standards - the evolution continues

It has taken over a hundred years for standards in providing independent assurance for financial reporting to develop to their current levels of widespread commonality and use.  And yet in today's chaotic economic climate, who would place much reliance on any financial reported information as a basis for making decisions?  It is into this world, that the next generation is born of the international standards setting organisation AccountAbility's AA1000AS standard for the assurance of sustainability reporting.

The first edition of this standard was published in 2003, designed to provide some much needed consistency between the methods and outputs for the assurance of the credibility and quality of sustainability performance reporting.  The 2008 version has been developed following a period of multi-stakeholder consultation, and yet remains clearly true to its original basis; this is for assurance providers to go beyond mere checking or 'verification' of data, to address more strategic questions about the ways in which companies manage sustainability performance, engage and respond to their stakeholders.

The original standard was one document, containing 'principles' of accountability, standards that could define an assurance process, and guidance on how these could be implemented by assurance providers.  Through the 2008 revisions, these elements have been split out into separate documents under the AA1000 Series: AA1000APS - Accountability Principles Standard, AA1000AS - Assurance Standard, AA1000SES - Stakeholder Engagement Standard, and a Guidance Note - Guidance on the Use of AA1000AS.

Important changes

The Accountability Principles for Sustainable Development first appeared in 1999.  In the 2003 version of AA1000AS, these principles were expressed as Materiality, Completeness, Responsiveness, underpinned by a 'Commitment to Inclusivity'.  The 2008 revisions bring about some important changes to these.  'Inclusivity' is now a 'Foundation Principle', and sits alongside two other principles; Materiality and 'Responsiveness', with 'completeness' no longer expressed as a principle.

Why should anyone care about what seem to be semantics, you might well ask?  The answers lie in the way in which AA1000APS and AA1000AS elevate to such importance the processes for stakeholder engagement and the ways in which organisations should use information from dialogue with stakeholders, in developing a coherent sustainability programme and report on performance.

Inclusivity is presented as a Foundation Principle for the very reason that the AA1000 standards consider that it is fundamental to accountability for organisations to be able to show a defined process of engagement with stakeholders.  But inclusivity goes beyond engagement - it encompasses participation by stakeholders in the development of strategies, plans and actions to address and respond to issues and impacts in an accountable way.  In its pure form, this is radical stuff for many companies, and the implications for those companies and assurance providers who agree to use this as a key element of an assurance process will be profound.  Whilst most organisations undertake stakeholder dialogue on relevant issues on a day to day basis and can provide examples of how the outputs of this dialogue is used in specific decision making processes, very few will be able to provide evidence to fulfil all of the criteria included in the standard under this principle.  Whilst this is not a 'pass or fail' component, companies should be prepared for this particular challenge.

The first release of AA1000AS in 2003 caused some considerable interest amongst companies and assurance providers alike.  Since then, adherence to the letter and spirit of the standard, and even levels of understanding of its implications, have been noticeably variable in assurance statements.  Some statements refer to A1000AS but then make no observations against the principles.  Others contain findings and recommendations under the principles, but do not make clear whether or not any assurance is provided over the accuracy of data or the systems used to gather data. 

Discipline and clarity

The 2008 revisions attempt to bring some discipline and clarity to this situation by specifying that assurance can be provided in two flavours: Type 1 is where the assurance provider evaluates the nature and extent of the organisation's adherence to all three AA1000 Accountability Principles; Type 2 is where the assurance provider makes the same assessment about adherence to the principles as per a Type 1 assurance, but also evaluates the reliability of sustainability performance information.  An assurance statement that only includes an evaluation of performance data, cannot claim to be in accordance with AA1000AS.

This distinction could be particularly helpful for those companies whose data collection systems are at an early stage of evolution, where the value-added in checking data accuracy may be limited, or where a specific focus on the principles and the organisation's engagement with stakeholders would be more constructive.

High assurance

Another noticeable trend in the last five years since the first version of AA1000AS has been the convergence of terminology with financial audit practices in expressing the 'levels' of assurance being provided.  Terms such as 'limited' and 'reasonable' have been introduced, drawn from accounting standards such as ISAE3000.  Where these are used, there has often been varying degrees of transparency about the basis for these assertions, even where the assurance provider is one of the 'big' four financial accountancy companies.  AA1000AS (2008) brings in two new terms - 'High' and 'Moderate'.  With High assurance, sufficient information has been obtained to support the conclusion such that the risk of error is very low (but not zero).  With Moderate assurance, sufficient evidence needs to be gathered to support the conclusions such that the risk of error is reduced but not reduced to very low.

Whilst these definitions, and the process components that support them, such as use of suitable criteria, might still leave room for variance in interpretation, this is a notable step forwards.  If followed with rigour by both assurance providers and the companies they work for, although the time required to undertake both reporting and assurance will undoubtedly need to increase, so will the quality and reliability of the outputs.  Sustainability reporting and assurance has come a long way, but there is no basis for complacency.  AA1000AS will help to shine new light on the process of reporting, assurance, and the expectations and concerns of the stakeholders.

This article will be featured in November/December 2008 issue of "Sustainable Business"

Jon Woodhead is a director and co-founder of csrnetwork, one of the UK's leading CSR consultancies and providers of independent assurance to companies including The Co-operative Group, Holcim, EDF Energy, Stora Enso and Scottish Power.