Auditors set to check emissions claims

Date: 17/06/04

By Peter Chapman

GLOSSY brochures purporting to show that 'CSR' or 'sustainability-conscious' corporations are cutting CO2 emissions or don't employ child labour are churning off the presses as fast as the company reports demanded by stock markets and regulators.

But whether or not investors, customers or employees take them seriously depends ultimately on the quality of the information and the numbers, inside.

Critics warn that the information is little more than advertising - and is likely to be disregarded - unless the claims can be independently verified.

However, Graham Ward, president-elect of the International Federation of Accountants (IFAC), says the EU's auditing profession could soon be responsible for checking out these claims.

New York-based IFAC is the parent body of the International Auditing and Assurance Standards Board (IAASB) - the group responsible for setting auditing standards.

Ward says the IAASB is currently working on a draft standard for checking CSR claims.

Once adopted, he said, the standard would be mandatory inside Europe if governments approve a draft directive unveiled last March by Internal Market Commissioner Frits Bolkestein.

Under the draft '8th company law directive' the full suite of international audit standards, once vetted, will be a legal requirement in the Union.

But what will be in the standard?

“The issues to be resolved are, first, does the IAASB support the idea that the auditors should report on the process rather than the content of the claims.” This is the approach taken by the UK in a recent government policy paper.

“You have then got to know how much detailed work needs to be done in order to report on that process.

“And, even though you are only looking at the process, if you find that the outcome is something that just does not look right, what do you do? Do you report it to the company, its audit committee and board?”

Ward said auditors already have to review information that is published alongside company accounts and to say whether they believe the information is consistent or not.

To date, it is often impossible to cross-reference between CSR reports and accounts, says Ward. “That is something that has to be debated.”

Inside the IAASB, the standard-setting process is likely to take around two-and-a-half years, says Ward. But the entry date of the standard depends on when EU governments approve the 8th company law directive and on the speed at which the global auditing norms are endorsed.

The ongoing rumpus over the EU's adoption of two controversial international financial reporting standards shows that the endorsement system is unlikely to be a rubber-stamping exercise.

Another issue is that of auditor liability. Some countries, such as the UK which rules on the issue shortly, are keen to set “sensible limits” on liability, says Ward.

However, Bolkestein caused a stir this year when he suggested that auditors should face unlimited liability if they are sued over the quality of assurance statements.

If that is the case, Ward warns: “EU auditors would feel nervous and be reluctant to expand their duties.”

The International Auditing and Assurance Standards Board (IAASB) is currently working on a draft standard for checking company reports' claims in areas such as cutting carbon dioxide emissions and corporate social responsibility . Once adopted the standard would be mandatory in the European Union if the draft eighth Company Law Directive is approved.

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