Summary by James R. Martin, Ph.D., CMA
Professor Emeritus, University of South Florida
For some background on social accounting see Estes, R. 1992. Social accounting past and future: Should the profession lead, follow - or just get out of the way? Advances In Management Accounting (1): 97-108. (Summary).
The purpose of this paper is to provide the what, who, and why of corporate social responsibility (CSR) reporting and the Global Reporting Initiative (GRI), along with some practical guidance for accountants. From an accounting perspective there is considerable interest in the "triple bottom line" (economic, environmental, and social) as reflected by trends in corporate social responsibility reporting and the Global Reporting Initiative.
What is CSR and Who Does It?
Corporate social responsibility activities are defined as "actions a company initiates to further some social good beyond its own interests, going beyond compliance and exceeding legal obligations". Examples of CSR activities include those designed to mitigate harmful environmental impacts from emissions and waste, reclaim and recycle packaging materials, support suppliers, invest in infrastructure, promote nondiscrimination, and reduce absenteeism, injuries, and fatalities.
A recent survey by KPMG indicated that 80% of the global Fortune 250 companies issue CSR reports. In addition, 45% of the largest 100 companies surveyed in twenty-two countries issue CSR reports. According to the Corporate Register, more than 3,000 reports were prepared in 2009. There are also a number of socially screened investment funds indicating a market demand for corporate social responsibility reporting, e.g., the Domini Social Equity Fund, Vanguard FTSE Social Index Fund, and TIAA-CREF Institutional Social Choice Equity Fund.
Why Do Companies Report CSR Activities?
Three theories are used in attempts to explain why companies voluntarily submit CSR reports. These include economic theory, stakeholder theory, and political cost theory. Economic theory views CSR reporting as a form of marketing where CSR activities and reports are only appropriate if they are used to promote the company's profitability. Stakeholder theory advocates argue that a company's performance should be based on how it satisfies all of its constituents including customers, employees, suppliers, the local community, and society at large. On the other hand, political cost theory views CSR activities and reporting as a way to avoid mandated disclosures, regulation, and litigation. Although current research results are inconsistent (perhaps because there are no generally accepted CSR reporting principles), some reasons given for reporting by CSR reporting firms were: 1) to achieve competitive advantage and leadership, 2) to improve internal processes, and 3) to enhance the company's reputation and to promote trust and respect.
The Global Reporting Initiative
GRI Sustainability Reporting Guidelines were released in 2,000, 2002, and 2006. By 2009 approximately 1,400 companies from 64 countries issued CSR reports based on the GRI guidelines. The GRI guidelines use a triple bottom line framework including measurements for environmental, social, and economic performance and allow for three levels of compliance with the GRI standards. The guidelines also recommend that CSR reports are supported with external assurance. Examples of firms issuing CSR reports are given in Exhibit 2 of the article (p.67). All of the companies in Exhibit 2 are from the Household and Personal Products Industry. The U.S. firms include Colgate-Palmolive, Johnson & Johnson, Procter & Gamble Global, and Seventh Generation.
The Role of CPAs
Although the majority of CSR reports do not contain external assurance, the Big Four and other CPA firms have issued assurance reports based on the AICPA's attestation standards. An example of such a report is provided in Exhibit 3 of the paper (p.68). In addition to the AICPA, two other organizations have developed frameworks for CSR assurance standards including the IAASB and AccountAbility.
International Audit and Assurance Standards Board (IAASB)
The IAASB published Assurance Engagements Other than for Audits of Historical Financial Information in 2005. These guidelines, or standards are referred to as ISAE 3000. Using a framework based on the principles of materiality, completeness and relevance ISAE 3000 provides a generic standard for assurance engagements other than audits of financial statements. There are two types of engagements including "reasonable assurance" and "limited assurance" engagements. The difference between the two relates to the level of engagements risk. The objective of each engagement is based on a predetermined agreement between provider and client and may include assurance related to nonfinancial performance, physical characteristics, systems and processes such as internal controls, corporate governance policies, and compliance with regulations.
AccountAbility - (AA1000AS)
In 1996 the European Institute for Business Ethics, KPMG, and others formed AccountAbility, a nonprofit organization developed to promote accountability for sustainable development and trust between corporations and their stakeholders. AA1000AS was issued in 2003 and provides for two types of sustainability assurance engagements including: Type 1 - Accountability principles, and Type 2 - Accountability principles and performance information. The principles are related to materiality, completeness, and responsiveness. Performance information is evaluated in terms of whether the information provided is sufficient to support informed judgments by the company's stakeholders. The authors note that AA1000AS and ISAE 3000 standards are complementary and are frequently used together. An example of such a report is provided in their Exhibit 4 (p.69).
A Growing Trend
Global trends indicate that CSR reports are becoming a regular part of reporting for large corporations. In addition this trend is expected to extend to many small and medium sized firms as well. To add credibility to their CSR reports, companies are voluntarily seeking assurance services. Since assurance of CSR reporting is not regulated or licensed, some CSR reporting companies have used services by non-accounting professional assurance providers, stakeholder panels, and other external groups. However, public accounting firms are in an excellent position to capitalize on the increasing demand for assurance services. Although the Big Four have actively pursued the CSR assurance market for several years, smaller CPA firms can also benefit from this trend. To take advantage of this opportunity, CPAs must develop a knowledge of social responsibility reporting, the reporting standards and related assurance guidelines.
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