Amsterdam Business School
Master Thesis Accountancy and Control
The operationalization and legitimization of new audit
spaces within a Big 4 audit firm
Name: Prya Subadar
Student number: 10868038
Thesis supervisor: mr. C. Clune MSc
Second reader: prof. dr. B.G.D. O'Dwyer Date: June 20th, 2016
Word count: 17.280
MSc Accountancy & Control, specialization: Accountancy Faculty of Economics and Business, University of Amsterdam
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Statement of Originality
This document is written by student Bharti Prya Subadar who declares to take full responsibility for the contents of this document.
I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.
The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
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Abstract
Purpose – The purpose of this paper is to deepen our understanding of how auditors conduct audits in new audit spaces such as integrated and sustainability reporting, and how they seek to obtain legitimacy for such audits.
Research design and methodology – For the sake of this research a case study has been conducted within a Big 4 audit firm in the Netherlands (henceforth mentioned as ABC). Nine interviews have taken place with members of varying levels that are involved within integrated and sustainability reporting audits.
Findings – ABC conducts audits on new audit spaces. The audit process of the new audit spaces are similar to the audit procedure for financial reporting audits. This allows auditors to use their prior experience and already secures a part of the pragmatic legitimacy for ABC. Even though the process is for the most part the same, auditors still encounter difficulties during the process of auditing on non-financial information such as a lack of guidance and fixed rules. To limit these difficulties as much as possible, ABC uses combination teams, so that auditors are assisted by specialists on sustainability topics. This is one of the measures that ABC uses to enforce their procedural and structural legitimacy. Furthermore, from this paper it appears that the understanding of integrated reporting audits is still in its infancy stage and needs to be developed further in order to obtain legitimacy for this practice. Sustainability reporting audits are more developed and already has some legitimacy, but there is still room to further enforce the legitimacy in this area.
Limitations – The main limitation for these findings are that in this research interviews have been conducted with auditors from only one audit firm. When more audit firms are interviewed, the findings might have a different outcome.
Originality – There is some research on new audit spaces; especially on the subject of integrated and sustainability reporting. However, most of this literature focuses on the challenges that auditors might come across when auditing in new audit spaces, but little research has been done on how auditors deal with those challenges. Further, this research compares the legitimacy of integrated and sustainability audits, which gives a description of how and to what extent legitimacy is obtained in these areas.
Key words: new audit spaces, integrated reporting, sustainability reporting, legitimacy theory, audit techniques, fact building
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Acknowledgements
This thesis has been produced over the course of a six month time period as part of the MSc program Accountancy and Control. In this section I would like to take the opportunity to express my gratitude to those who have been supporting me in this period.
First, I would like to thank my supervisor Conor Clune for his valuable guidance. He consistently steered me in the right direction during the conduction of this research. Further, he was always very approachable and responsive to my questions. He took the time to discuss my work that I had done so far and really showed his interest in my research process. With his comments and knowledge that he shared with me he inspired me to improve my thesis. He showed great patience and support at the times where I was struggling and urged me to continue my work.
Secondly, I want to thank my second supervisor Brendan O’Dwyer. He is responsible for my interest in non-financial audit areas. During his lectures he actually transferred his own passion on this field to me, which has triggered my own interest.
Thirdly, my sincere thanks goes to my internship councilor Bram van Diepen, who has helped me get in touch with some of the interviewees. With his enthusiasm and helpful tips he encouraged me to work harder and to improve my competencies that I could apply in my thesis and with my future work tasks. Further, he gave me an in-depth perspective on what it is like to perform audits in practice.
Lastly, I would like to thank all nine interviewees who had participated in my research for freeing their schedule in order to conduct the interviews and sharing their knowledge and experiences with me.
None of this would have been possible without the support of family and friends, who I could lean on for moral support and motivation. Most importantly I would like to gratefully thank my direct family and boyfriend. They have continued to be patient and supportive, I could not have done this without their support and faith in me.
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List of abbreviations
A4S Accounting for Sustainability
ABC Code name for the Big 4 firm that is used for this research ACCA Association of Chartered Certified Accountants
ASSC Accounting Standards Steering Committee IFAC International Federation of Accountants IIRC International Integrated Reporting Council GRI Global Reporting Initiative
NBA Nederlandse Beroepsorganisatie van Accountants (Dutch Professional Body of Accountants)
NRC Nieuwe Rotterdamse Courant (New Rotterdam Current)
List of tables
Table 1 Interviewees overview
Table 2 (dis)Advantages of combination team composition
Table 3 Main differences in legitimacy between integrated reporting and sustainability reporting
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Table of Contents
Abstract ________________________________________________________________ III Acknowledgements ________________________________________________________ IV List of abbreviations _______________________________________________________ V List of tables ______________________________________________________________ V 1. Introduction ___________________________________________________________ 2 2. Background ___________________________________________________________ 6 2.1. Sustainability Reporting _______________________________________________ 6 2.2. Development of integrated reporting _____________________________________ 6 2.3. What is Integrated Reporting? __________________________________________ 7 2.4. International Federation of Accountants __________________________________ 8 2.5. Integrated and sustainability reporting in other literature ______________________ 9 2.6. In summary _______________________________________________________ 10 3. Theory ______________________________________________________________ 11 3.1. Legitimacy theory ___________________________________________________ 11 3.2. Risk management in legitimacy theory ___________________________________ 12 3.3 Legitimacy as an institution ___________________________________________ 13 3.4. Types of legitimacy _________________________________________________ 13 3.5. Usage of the theory _________________________________________________ 14 4. Research Method ______________________________________________________ 15 4.1. Description of the research method _____________________________________ 15 4.2. Criteria for qualitative research _________________________________________ 15 4.3. Research design ____________________________________________________ 16 4.4. Interviews ________________________________________________________ 17 4.5. Research analysis ___________________________________________________ 18 5. Research findings _____________________________________________________ 19 5.1. General findings that are related to both integrated and sustainability reporting ____ 19 5.1.1. Key issues indicated during the interviews __________________________________________ 20 5.1.2. Knowledge and practical experiences in new audit spaces _______________________________ 23 5.1.3. Techniques _________________________________________________________________ 25 5.2. Integrated reporting audits ____________________________________________ 27 5.3. Sustainability reporting audits __________________________________________ 29 5.4. Comparison of integrated and sustainability reporting audits __________________ 30 5.5. Legitimacy type ____________________________________________________ 32 5.6. Findings summary __________________________________________________ 33 6. Concluding and discussion ______________________________________________ 34 6.1. Research summary __________________________________________________ 34 6.2. Practical implications ________________________________________________ 35 6.3. Limitations and future research ________________________________________ 36 7. References ___________________________________________________________ 37 Appendix 1 _______________________________________________________________ 41 Appendix 2 _______________________________________________________________ 42[2]
1. Introduction
Over the last few years new audit spaces have materialized (O’ Dwyer, 2011; O’ Dwyer, Owen and Unerman, 2011; Andon, Free and Sivabalan, 2014, Andon, Free and O’ Dwyer, 2015). Integrated and sustainability reporting amongst others are examples of reports in new audit spaces. These new audit spaces should also be made auditable in order for auditors to perform their audit tasks, which results in the need for auditors to expand their expertise (Power, 1997; Gendron, Cooper and Townley, 2007). The very root of the audit profession is a function carried out in the public interest (Samsonova-Taddei and Humphrey, 2015). Auditors have the responsibility to act according to the following principles: professionalism, integrity, objectivity, being knowledgeable and reliable (NBA, 2014; ACCA, 2016). Audit firms are considered to act and protect on the behalf of the society. Part of their legitimacy consists of a good reputation for a fair and efficient audit. Stakeholders use the financial statements to obtain an opinion about a firm. However, recently stakeholders have become interested in more than just the financial information. This has resulted in a shift in the providing of information regarding social corporate responsibility (Deegan and Blomquist, 2006). More recently there has also been a demand for integrated reporting which requires a more complex load of information (de Villiers, Rinaldi and Unerman, 2014).
Sustainability reports are non-mandatory reports that firms provide in order to give more in-depth information to their stakeholders with regards to the social, governance, economic and environmental performances (IASplus, 2016). Often, firms want these reports to be audited in order to increase the reliability of the report as a message to stakeholders. Even though reporting on sustainability is not yet mandatory, Dutch-listed firms will be obliged to report on some aspects of their non-financial performances starting from the year 2017 (GRI, 2016).
Integrated reporting is a phenomenon that has gained attention within the accounting world and is a more recent type of reporting than sustainability reporting. Even though it has only been a few years that integrated reporting is actual in the European countries, it has been mandatory for listed firms in South Africa since the year 2010 (Makiwane and Padia, 2012; King report on governance for South Africa, 2009). Thus, it is possible that integrated reporting will be mandatory in the future for the European countries as well. Currently the reporting of firms consists of a financial report and a letter of the CEO in which the main events of the previous year and the goals for the upcoming years are announced. In addition to this, many firms provide a sustainability report which gives insights in the organizations environmental and social performance, and corporate governance. The aim of the integrated report is to give an insight into how the firm’s resources are creating value (IIRC, 2013).
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The audit of new audit spaces requires more knowledge than the traditional audit areas (O’ Dwyer, 2011; Owen, 2013; de Villiers et al., 2014). However, it is still the task of the auditor to audit these reports, even though this audit has to be done on areas for which the auditor has not been formally trained for. This is also recognized by the International Federation of Accountants, but they have not yet provided a solution to this problem. Although auditors are not trained to conduct audits in new audit spaces, in practice they do perform them. Thus, the research question is: “How is the audit in new audit spaces being operationalized and legitimized by auditors?” This study will attempt to answer this question by specifically looking at the tasks auditors conduct in new audit spaces at a Big 4 audit firm.
This research responds to the call of O’ Dwyer et al. (2011), and Andon et al. (2015), where they investigated how sustainability assurance is being legitimized within audit areas. They urged to conduct more research on this subject to further develop the knowledge on new audit areas. Furthermore, it also responds to the research suggestions indicated by de Villiers et al. (2014), to investigate to what extent the role of auditors will be influenced by the development of new audit spaces. The aim of this research is to develop our understanding of audits in new audit areas by looking at the specific tasks that auditors perform. One of these tasks is fact building. For auditing in new audit spaces, fact building is highly used through the collaboration with sustainability specialists. Fact building not only helps the auditors in the auditing process of new audit spaces, but it is also a tool to legitimize audits. By examining the auditors’ tasks, this research gives insight into how auditors legitimize audits on non-financial information, and more so it clarifies which type of legitimacy is obtained.
Conducting a research on how auditors audit an integrated report is relevant for the audit profession because integrated and sustainability reporting has become a trend within the audit field. On a global level, more and more companies desire to act upon the demands of their stakeholders and other public responses (Owen, 2013). Therefore the amount of organizations who want to provide an integrated and sustainability report will most likely increase in the future. For both professional accountants and educational institutions it is important to understand the auditing process on these types of reports and how it differs from a traditional audit.
The theory used in this research is the legitimacy theory which is frequently used when examining new audit spaces or other audit related areas. Legitimacy translates to the very root of the audit profession since it validates the right of the audit’s existence (Power, 2003). There are different types of legitimacy (i.e. pragmatic, moral and cognitive) which enables us to classify each aspect of auditing areas, techniques and procedures. Therefore legitimacy theory helps to acknowledge each element that is related to the auditing of new areas. Specifically this research
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builds upon the legitimacy aspects used by Power (2003, 2004) and Suchman (1995). The use of legitimacy theory in this research will provide a robust theoretical framework which can be used to validate the auditing process of sustainability and integrating reporting processes at a large audit firm. As these reporting types are still being developed, legitimacy theory can be a useful tool to validate these new audit fields.
The research aim is examined through qualitative research, more specifically through interviews with auditors from a Big 4 audit firm in the Netherlands. The interviewees are from varying levels (i.e. junior to senior employees) and have varying levels of experience with audits on sustainability and integrated reports. The aim of this research is to examine how auditors conduct audits in these new audit spaces and how they seek to obtain legitimacy for such audits. A number of nine interviews have been conducted and consisted of open and semi-open questions. All interviewees are anonymized for the sake of this research so that their opinions and thoughts would not be restricted. A three level of coding has been used for analyzing the results and are eventually linked to the corresponding aspects of legitimacy theory.
In the existing literature there is – to my knowledge – little research conducted on the legitimatization of new assurance spaces. O’ Dwyer et al., (2011), O’ Dwyer (2011), Andon et al., (2014) and Andon et al., (2015) has been the only research that I was able to find that conducted a research on this area, however their research focused solely on the sustainability area. More so, the detailed operationalization portion of how sustainability audits are conducted is not mentioned in those papers. Since this subject is fairly new, existing literature on it is limited. Furthermore, most literature focuses on the sustainability and integrated reporting from the firm’s side, but not so much on the audit side. This is where this study further builds upon existing knowledge. The first contribution of this research is an empirical contribution. O’ Dwyer et al. (2011) and Andon et al. (2015) are one of the few researchers that have conducted research on this area. This research build upon their studies by providing a more recent empirical contribution through in-depth interviews with auditors performing integrated and sustainability audits. While in most prior literature the emphasis lies on the challenges that audit firms faces when operating in new audit spaces, this research gives practical implications on how the audit firms deals with those challenges.
The second contribution is the application of legitimacy theory. The application of legitimacy is examined in this paper in a new manner, to my knowledge there has not been any literature which examines legitimacy of sustainability and integrated reporting audit side by side. This papers contributes a new dimension of application on those subjects. By comparing the attained legitimacy of integrated and sustainability reporting audits, it seems that the audits for sustainability reports are more legitimized than for integrated reporting audits. This is due to the
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fact that auditors have further developed their knowledge around sustainability audits more so than for integrated reporting audits. The comparison of the legitimacy of integrated and sustainability reporting audits allows us to determine how and to what extent legitimacy is developed within either audit space.
The third and final contribution is that this research contributes to the limited existing research in the Dutch setting. Through interviews, a unique set of data has been obtained which draws from actual experiences of auditors in the field of new audit spaces. The process of integrated reporting audit at Big 4 audit firms in the Netherlands is still at the beginning stage of development. Therefore there is no extensive amount of information available that focuses on the practical implications of audits in new spaces. Input from the members who are actively involved in this process is useful in order to successfully conduct this research. More so, the findings of this research helps to develop our knowledge around the operationalization of integrated reporting audits.
The remainder of this thesis is structured as follows. In the next chapter background information with regards to sustainability reporting and integrated reporting will be provided. The main findings of other literature that are related to new audit areas is also described. Following in chapter three the relevant theory will be discussed. As mentioned before this will be the legitimacy theory. The underlying fundamentals of legitimacy theory will be explained as well as the different types of legitimacy. At the end there will be a brief explanation of how legitimacy theory is being used in order to investigate this research aim. After that the research method is explained. Following upon that the results from the research will be provided and the connection with the theory will be explained. This research will end with a final conclusion.
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2. Background
In this chapter practical background information regarding integrated and sustainability reporting will be provided in order to obtain a better understanding about the concept of new audit spaces. First there will be an explanation of the concept of sustainability reporting. Then there will be a description of the development of integrated reporting. Followed upon that there will be an overview of how integrated reporting is defined and what it entails. After this the perspective from the International Federation of Accountants with regards to integrated reporting will briefly be provided. At the end of this chapter the discussion that has been arose from prior research to new audit spaces is described.
2.1. Sustainability Reporting
The Global Reporting Initiative has defined sustainability reporting as “a report that is issued by a firm about their economic, environmental and social impacts caused by its day-to-day activities” (GRI, 2016). Through sustainability reporting firms can report about their non-financial factors which ultimately support the reported financial information. It gives firms the opportunity to provide more information to their stakeholders by being transparent about the non-financial information which is not yet compulsory to report about (Mock, Rao and Srivastava, 2013). Over the last few year a growing number of firms are reporting about their sustainability. Since reporting about sustainability is not mandatory yet, there are no fixed requirements as to what should be reported (ACCA, 2016).
The Global Reporting Initiative (GRI), is a non-profit organization that encourages firms to report about their non-financial performances. They have created standards to report for sustainability reporting which are commonly used in many countries. The GRI standards are called the G4 guidelines (IASplus, 2016; GRI, 2016). Their aim is to motivate firms to report in a transparent and reliable manner about their sustainability performances this includes the governance, economic, social and environmental performances (IASplus, 2016; Hahn and Lülfs, 2014).
2.2. Development of integrated reporting
Before integrated reporting was developed, there existed already ‘The Corporate Report’. The corporate report stems from 1975 and was created by the UK Accounting Standards Steering Committee (ASSC) (Owen, 2013; Beattie, 2000). The aim of the corporate report was to create a use ability of the financial statements for the users of a financial report. There were seven groups
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considered as the end-users for the corporate report; “lenders, employees, customers, suppliers, the local community and the general public” (Owen, 2013; Beattie, 2000).
Gray, Owen and Adams (1996) indicated that corporate reports should give broader representation of their responsibility and accountability. In this way the social aspect regarding accountability will be an integrated part of the report. This social aspect needs to consist of the aspects that are considered as important by the stakeholders. The view of Gray et al. (1996) is in line with the legitimacy theory. The legitimacy theory argues that expectations that the society holds are considered as the “social contract” between the stakeholders and the company (Deegan and Blomquist, (2006). Over the years, due to growing publicly interest in social and environmental behavior of companies, firms are pressured to give insights on their behavior (Azcárate, Carrasco, and Fernández, 2011; de Villiers et al., 2014). They do this by providing the public with sustainability reports, however research has shown that these reports consists of many caps such as lack of completeness and not consistent (Adam and Evans 2004). These caps in the sustainability reports has been a reason for leading companies to create a new way in providing the firms information, now known as integrated reporting (Rias-Aceituno, Rodríguez-Ariza, García-Sánchez, 2012).
In 2004 the Accounting for Sustainability (A4S) platform was set up by the Prince of Wales. It aims “to help ensure that sustainability – considering what we do not only in terms of ourselves and today, but also to others and tomorrow – is not just talked and worried about, but becomes embedded in organizations’ DNA”, (accountingforsustainability, 2016). In 2005 the UK regulators published the Reporting Standard 1 which enforced firms to provide a broader representation of their performance and the effects of their actions (Owen, 2013).
The A4S together with the GRI eventually evolved to a new body named the International Integrated Reporting Council (IIRC) (Owen, 2013; IASPlus, 2016). Upon the creation of the IIRC, their aim was to establish a global integrated reporting framework that could be universally applied (IASplus, 2016; IIRC, 2013). The IIRC want to stimulate the incorporation of value creation in the corporate reports. Therefore they have developed “The International Integrated Reporting Framework (IIRC, 2013).
2.3. What is Integrated Reporting?
The International Integrated Reporting Council (IIRC) defines reporting as a process founded on integrated thinking that results in a periodic integrated report by an organization about value creation over time and related communications regarding aspects of value creation. According to the IIRC an integrated report consists of the firm’s environmental strategy, governance,
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performance and prospects. It is assumed that these actions will lead to a value creation for the firm.
As mentioned before the aim for integrated report is to report the value creation of the firm. Factors that are considered for this value creation are: the external environment, the capitals and the interaction of the firm with the external environment and the capitals. The external environment compromises of all the fields and branches that are related to a firm, it is about the effect in changes in the economic situation, technological developments and social matters. As for the capitals this is categorized in the financial, manufactured, intellectual, human, social and relationship and natural capitals. However firms are not obligatory to use these same categories as their capitals. The IIRC has provided these categories as a guideline for firms to make sure that if firms follow these categorization, firms are assured to incorporate all the capitals that they might have. The changes within the capitals results in value (de)creation for the firm and this process is addressed as the interaction of the firm with the external environment and the capitals (IIRC, 2013; Baron, 2014).
The key focus of an integrated report is integrated thinking. Integrated thinking means that firms are reflecting all parts of their activities. The operational and financial processes as well as the more supporting processes are taken into account to determine what effect it has on the firms’ value creation (IIRC, 2013). According to the IIRC and the A4S, when integrated thinking is applied and incorporated in the firms processes this will lead to better information systems due to the fact that the different information components are more intertwined within each other and therefore this will improve the decision making process.
2.4. International Federation of Accountants
“The International Federation of Accounts (IFAC) is the global organization for the accountancy profession dedicated to serving the public interest by strengthening the profession and contributing to the development of strong international economies” (IFAC, 2015). According to the IFAC the concept of integrated reporting provides opportunities for the professional accountants in a variety of working fields since accountants are not only active within the audit branch but for example also in management and leadership professions. From the audit profession itself accountants are required to collect and analyze information. Due to this expertise the IFAC argues that accountants can access the information by measuring this information to see if it obtains value creation for the firm. However, in order to gain from this concept accountants should conduct a more extensive and better analysis on the information. Once that is achieved it will give opportunities to provide a better guidance to firms in order to implement a more effective
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strategy. The IFAC has pledged that they will continue to support the accounting profession so that it can progress in the needs necessary for a successful operationalization of integrated reporting (IFAC, 2015).
2.5. Integrated and sustainability reporting in other literature
From prior research it is known that the audit profession has lately shifted from the traditional financial auditing to other non-financial audit areas (O’ Dwyer, 2011; Dragu and Tiron-Tudor (2013); Villiers et al., (2014); Andon, Free and O’ Dwyer, 2015). All the literature about these new audit spaces are agreeing that the traditional audit should change with the introduction of new audit spaces however where some researches do not know what exactly should be change, there are other researches who proposed a global idea for this change.
As O’ Dwyer (2011) concluded that the traditional auditor on its own is not suitable to conduct an audit on integrated and sustainability reporting due to the fact that it is difficult to apply the audit techniques to the non-financial areas of a company, which is required with these types of reports. However conducting an audit on non-financial areas by a non-accountant is also not the best solution since they might lack in the objectivity and the structured procedures which are typically applied in an audit process. From prior research it seems that firms are changing their audit processes to make it more accessible to conduct financial audits by including also non-accountants to the audit. But it seems that these changes are not so much effective due to the fact that non-accountants and accountants have clashing working procedures and habitats, but more importantly the strict rules which are obligatory in traditional audit fields are not in the same way applicable to the non-financial audit areas (O’ Dwyer, 2011; Andon et al., 2015).
The findings of O’ Dwyer and Andon et al., (2015) are also consisted with the findings from the research conducted by van Bommel (2014). In the research of van Bommel (2014) it appears that through integrated reporting a clash of legitimacy arises with the accountants. This is due the fact that it brings difficulties for accountants to decide what their purpose is with the integrated audit. Normally the main aim for an audit is to service the public’s interest by conducting a fair and objective audit. However with an integrated audit, the accountants services not only the public but at the same time also the firm who they are auditing. Since the firm’s goal is to report a value creation, accountants are more inclined to find evidence that is supporting this value creation. This seems like an example of accountants who tend to be more like mediators between the public and the firms, due to the rise of the need of auditing new spaces (Andon et al., 2015). According to the study conducted by Owen (2013) accountants are currently not fully capable on conducting an audit on integrated reports. Since accountants possess the training, knowledge and competences
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to focus on the transactional level of firms, with the aim to provide assurance on the short-term financial performances rather than on the long-term overall performances. The challenge for accountants who needs to audit an integrated report lies in the unknown of how to measure the holistic performances of the firm and consequently to give assurance on those holistic performances (Owen, 2013; NBA, 2013; Andon et al., 2015). More so the with the rise of new audit spaces, the nature of accountants tend to shift from a traditional analytical based auditors perspective to a more juristic perspective. The role of the accountant is now not only to see whether or not the financial numbers are faithful represented, but also to see if firms are complying with the rules regarding the social-, environmental- and humanity levels (Andon et al., 2015). The challenges discussed above should not specifically be a subject of concern for audit firms when they want to conduct audits on integrated reports. In prior literature it is examined that when new audit spaces arises, these new spaces are made auditable (Power, 1996; Power, 1999: O’ Dwyer, 2011). This can be done through fact building. Fact building is the process in which knowledge is obtained of new areas by the use of specialists. However this process is costly and time consuming since it is in a way a never-ending process due to economic limitations that influence the allegedly suitable audit technique (O’ Dwyer, 2011).
When audit firms want to operate on audits in new areas it is important that the actions that they conduct during these audits are legitimate. By obtaining legitimacy the performed activities are being validated (Abbot, 1988; O’ Dwyer et al., 2011). In the past auditors failed to gain legitimacy when they attempted to seek audits in new areas. This failure was to the consequence that the auditors made many hopeful promises, but they could not live up to that (O’ Dwyer et al., 2011).
2.6. In summary
Over the last years an emergence of new audit spaces has occurred. More and more firms are responding to the demand of reporting on non-financial information in order to provide a more transparent view of their overall performances. Even though it is not mandatory, auditors are being asked to conduct audits on these reports. However, since these are new areas of which the reported statements are not based on quantitative numbers it gives difficulties to the auditor’s job. Therefore auditors are now required to implement new auditing techniques in order to conduct a proper audit on these new audit spaces.
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3. Theory
In this chapter the relevant theory for this research will be explained. The theory suitable for the research of how new audit spaces are being legitimized and operationalized in a big 4 audit firm is the legitimacy theory. Legitimacy theory can be applied in many different ways, for this research the theory will be applied according to the context that “legitimacy of both auditor and auditee are co-produced”, as also used by Power (2003). Also the findings will be analyzed around the different legitimacy categories in order to determine if the findings are supported by the legitimacy categories. Furthermore, other perspectives of the legitimacy theory will also be used on a basic level in order to provide a better understanding of the theory.
3.1. Legitimacy theory
According to the legitimacy theory organizations will adopt certain strategies and will disclose their perceptions of what society expects that the organization should do (Deegan and Blomquist, 2006). This means that organizations should have a similar vision, values, manners and behavior as the society in order to stay legitimate (Deegan and Blomquist, 2006; O’ Dwyer, Owen and Unerman, 2011). The similar vision, values, manners and behavior that the organization needs to act upon is also called the ‘social contract’. Thus, the organization has a social contract with the society. In a way the legitimacy of an organization is their right to exist (Deegan and Blomquist, 2006; Guthrie, Cuganesan and Ward, 2006; O ’Dwyer et al., 2011). When organizations do not meet the expectations of the society – thus not acting upon the social contract – this can lead to problems of their right to exist (Deegan and Blomquist, 2006). For audit firms it is also important to have a legitimacy with their clients since audit firms’ existence depends on the demand of audits (Power, 2003). However audit firms also have a social contract with society in general as society expects audit firms to conduct a professional, fair and objective audit (Owen, 2013; NBA, 2014; IFAC, 2015). This is considered to be the general explanation of what the legitimacy of assurance practices is derived from (Power, 2003).
Legitimacy theory is relevant for this research since audit firms rely on the one hand on their clients in order to stay legitimate but on the other hand on society. The legitimacy is not only relevant for the audit firms but also for their clients. Since their clients have a social contract with their own stakeholders (van Bommel, 2014). An important part of the assurance profession is the trust that auditors seek to obtain from the society. However in recent years it has been mentioned by the media that this trust has been damaged due to different auditing scandals. This has resulted in the legitimacy of the assurance profession being under more scrutiny than before (NBA, 2014; NRC 2016).
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There are also other ways of how legitimacy theory can be used. Humphrey and Moizer (1990) have examined how the social composition of auditing is and what the effect of the diversity of roles have on audit activities. From their examination it is revealed that legitimacy is also being used to legitimize the actions that were taken during the audit process in order to prevent conflicts with the client. For instance, they saw that the assistance during the day-to-day activities of staff level auditors was very limited by the supervisory level auditors. But they did use this assisting function in order to legitimize the actions that were conducted by the staff level auditors (Power, 2003). Legitimacy is also used in order to legitimize auditing techniques (Fisher, 1996). From the study conducted by Fisher (1996), it seems that even when a new audit technique is being introduced which is also supposed to be more cost efficient, this new technique will not be adopted until it is considered as legitimate. An explanation for this according to Fisher is that auditors apt to lean on their prior experiences. The new techniques needs to be considered as legitimate first before it is fully adopted. “The new techniques need to be realized by the auditors before it is seen as legitimate” (Berger and Luckmann, 1966; Fisher, 1996). This realization means that first the auditors need to lessen the audit procedures that were performed in their prior experiences in order to reduce the audit costs. After this, by the use of the new audit technology the same audit quality needs to be maintained if this is the case than the new technique will be adopted. When this cycle is been completed, than the new technique will be considered as a legitimate audit technique (Berger and Luckmann, 1966; Fisher, 1996; Andon et al., 2015).
3.2. Risk management in legitimacy theory
The threat with using a new audit technique or providing assurances on new practices is the risk of losing the legitimacy. This is also referred to as the reputational risks for a firm (Power, 2004, p. 32). To further explain this concept, reputation is not something that can be materially measured, however a good reputation is in the same line of the right of the firms’ existence (Deegan and Blomquist, 2006). A practical example from the past is for instance the collapse of audit firm Arthur Anderson. By not auditing and documenting in a reliable manner by some of their employees the Arthur Anderson audit firm eventually lost their legitimacy, due to the fact that the society and their clients did not have any trust in the integrity of this firm anymore and ultimately leading to the termination of the firm as a whole (Cote, 2002; Power, 2004 p.33). This is an extreme example of the consequence when a firm does not reach the society’s expectation. However it illustrates why it is important for audit firms to properly understand how to conduct audits in new audit spaces.
[13] 3.3 Legitimacy as an institution
Legitimacy can also be identified as an institution that is recognized but not generally accepted (Bourdieu, 1984 p. 110; Andon et al., 2014). According to Bourdieu, legitimacy will be obtained after the general rules of a new field has been set (Bourdieu, 1991; Andon et al., 2014). This is in line with prior research in which it is argued that through fact building new spaces can be audited in such a manner that it is considered as legitimate. Fact building is done by gaining knowledge on the new audit space (Power, 2003; O ’Dwyer, 2011). This requires a collaboration between non-accountants and the non-accountants, since the non-non-accountants have more knowledge on these new spaces. Based on the gained knowledge new audit techniques can be developed based on the prior audit techniques (Humphrey and Moizer, 1990; Power, 1997; O ’Dwyer, 2011). Just as Bourdieu, Power argues that when audit techniques are accepted by the society, regulators and stakeholders than the new audit space will also be accepted. This is due to their consideration that they have acknowledge the new audit technique as reliable (Bourdieu, 1984; Humphrey and Moizer, 1990; Power, 1996, 1997; O ’Dwyer, 2011; O ’Dwyer et al., 2011).
3.4. Types of legitimacy
Suchman (1995) recognized three categories of legitimacy on which the paper of O’ Dwyer et al., (2011) also leans on. Legitimacy can be categorized in three dimensions: pragmatic, moral and cognitive. Pragmatic legitimacy concerns that support for a new practice is based on the direct benefits that arises for the intended users (Kumar and Das, 2007; O ’Dwyer, 2011). Pragmatic legitimacy can be narrowed down to three types of legitimacy. The first type is the exchange legitimacy, which is the simplest form of pragmatic legitimacy. With the exchange legitimacy the support is built upon the forecast of the expected value of that practice (Suchman, 1995; O ’Dwyer et al., 2011). Influence legitimacy is another type that is sorted under the pragmatic legitimacy. Proponents lend their support to new elements in their practice, but they do this due to their beliefs that it will result in improvements for the practice as a whole. The third type under pragmatic legitimacy is the dispositional legitimacy. This type of legitimacy stresses that new practices consist of commonly shared values that are established based on integrity and moral values. Thus this will imply for the constituents that everyone’s best interest is being considered with the new practices (Suchman, 1995; O ’Dwyer et al., 2011).
Moral legitimacy is concerned with whether or not the actions in a new area is the right thing to do or not. Here, the focus is more on society’s interest rather than self-interest (Suchman, 1995). Moral legitimacy can also be sorted into three subtypes; consequential legitimacy, procedural legitimacy and structural legitimacy. Consequential legitimacy is based on the understandings that
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arose from prior accomplishments (Suchman, 1995; O ’Dwyer et al., 2011; Pate and Wankel, 2014 p. 183). The output of the organizations is shaped in such way that it might obtain social acceptance (Weber, 1978; Suchman, 1995) Thus, the actions are legitimized based on what result it will deliver. Procedural legitimacy means that “by embracing socially accepted techniques and procedures” moral legitimacy is seeked (Suchman, 1995 p.580). In other words, procedural legitimacy is the social accountability (Coglianese, 2005). The last type which is categorized under moral legitimacy is structural legitimacy. Structural legitimacy arises due to the fact that the society or stakeholders see that a firm has implemented structures and procedures. This is seen as an indicator that a firm is operating in a proper and adequate manner (Suchman, 1995 p. 581; Zott and Huy, 2007).
Cognitive legitimacy is the last category of legitimacy. Cognitive legitimacy is defined as the pursuit of goals and activities that suits with the general perception of the society as to what is appropriate, proper, and desirable (Brinkerhoff, 2005 p. 4). The distinction in cognitive legitimacy is made between comprehensibility and taken-for-grantedness. To stay in line with the definition in accordance to Suchman (1995), the comprehensibility aspect means that a narrative should be blend able with the general beliefs and experiences of the society. Legitimacy based on the taken-for-grantedness aspect occurs when an organizations has succeeded to implemented its procedures and structures in such a manner that a removal of some part of it would be unthinkable (Suchman, 1995; Brinkerhoff, 2005).
In practice the categories of legitimacy are coincide with each other, but they can also come into clash with each other when legitimacy needs to be attained. The main difference between the categories is that pragmatic legitimacy relies on the own self-interest whereas moral and cognitive legitimacy rely on in the interests of the society (Suchman, 1995).
3.5. Usage of the theory
This chapter provided a better understanding of legitimacy theory. Legitimacy is an important matter when it comes to giving assurance on new audit spaces, since the auditing profession relies on their legitimacy for their right to exist. Therefore the explanation of the different implications of the legitimacy theory can be used in order to see if any of these implications can be applied to the audit operations of the sustainability- and integrated reporting of ABC. If this is the case then the way of how new audit spaces are being operationalized by a Big 4 firm is supported by the literature. If any of these implications are not applicable then the operationalization is not supported by the literature, thus giving room to create new theories which can support the findings.
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4. Research Method
In this chapter the research methodology will be described. First there will be a description of what the most appropriate research method would be for this study and the motivation of the reason why this study is conducted in a qualitative manner will be provided. This will be followed up by the criteria that is applied in order to guarantee that the research has been conducted in a way that is unbiased, independent and faithfully represented. The final section of this chapter will portray how this research has been conducted.
4.1. Description of the research method
The purpose of this study is to investigate how audits in new audit spaces are being conducted by a Big 4 firm and how to they get legitimacy for those new audit spaces. The Big 4 firm chosen for this study is stationed in Amsterdam, and due to confidentiality reasons the Big 4 firm will henceforth be mentioned as ‘ABC’. This office is at the very beginning stage of the process of auditing integrated reports. Auditing sustainability reports is slightly more developed within ABC, but it is also fairly new. Therefore it is not possible to obtain quantitative numbers within a six month time period in order to conduct this study. More so, quantitative numbers on this subject would be likely to be more related to the performance measurement of audits whereas the aim for this research is to see how the process of the audit regarding integrated and sustainability reports is being operationalized and legitimized. Therefore a qualitative approach is more suitable to conduct this study. Also, the number of employees who are involved with integrated and sustainability audits is very limited within ABC as this process is still in the early stage of development.
4.2. Criteria for qualitative research
In order to ensure the quality of this research, it needs to meet the criterion of trustworthiness (Lincoln and Guba, 1985; Lincoln and Guba, 1994; Bryman, 2008). Trustworthiness can be assured when this research meets the following requirements: credibility; transferability; dependability and confirmability. Credibility arises when this research does not contain any bias. The transferability means that the results of this research can possibly be applied to other settings, in this case possibly to the other three of the Big 4 firms. Dependability means that every step conducted in order to come to the final conclusion of this research has to be thoroughly documented so that each step taken can be traced back. Finally confirmability is obtained when the researcher is objective and independent when conducting the research (Bryman, 2008).
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In this research every step of the process has been documented and can be found in the appendix of this thesis, also all the reports and literature that are used are mentioned in the reference section. Furthermore all the interviews have been transcribed and transcription has been sent to the interviewees to make sure that everything documented is in the way that they had intended. The variability of people interviewed also made sure that the findings contain no bias and thus the credibility requirement has also been met. Confirmability is also in place since the researcher does not gain any personal interest for a certain result of this study. The findings of this research might be possible to apply to the other Big 4 firms, however it is possible that those firms are in a more or less developed stage of integrated and sustainability reporting auditing.
4.3. Research design
To answer the research questions, several interviews have been conducted. The interviewees were employees and associates of the Big 4 firm that was investigated. The interviews consisted of open and semi-open questions. In this way the opinions and thoughts of the interviewees was not restricted. Before the interviews were conducted a framework of the questions was made, which can be found in appendix 1. Initially the participants were supposed to be asked the same questions, however as the interview process evolved more questions were added while others were eliminated from the interview script. Furthermore, three interviews had not so much in depth sustainability reporting related questions due to the fact that this research was initially focused around integrated reporting. Later on the focus on sustainability reporting was also added, so the other six where asked also in-depth questions around sustainability reporting audits as well as integrated reporting audits. All interviews have been recorded and transcribed in English. The interviews themselves were conducted in Dutch as all the interviewees and the interviewer had Dutch as their native language. Therefore no misunderstandings due to different languages could be made.
In total nine interviews has been taken place with employees of ABC that were varying in sustainability and integrated reporting auditors. From the nine interviewees, five of them had a background as financial auditor as well as non-financial auditor, one had only experience as a financial auditor and three interviewees did not have a financial auditor background or experience but did have experience in Risk services. These three are part of the non-financial audit team. The non-financial audit team of this organization consists of nine members, six of which have participated in this research. The Risk management consultants who participated in this research are among these nine members.
[17] 4.4. Interviews
The nine interviews took place during the period of 12th of April and 17th of May, 2016. Initially
when the interviewees were invited to participate on this research a brief description of my research was sent to them, so that they could assess if they would be knowledgeable enough to provide relevant information. Also the participation was voluntary and beforehand no questions were given to them. The average duration of the interviews was 35 minutes with the shortest one taking 26 minutes and the longest one taking 59 minutes. Permission to record was asked to all the participants. Recording of the interviews has been conducted through the ‘Smart Voice Recording’ application and as a back-up ‘Windows Sound Recording’. In this research the interviewees are named as I1 up to I9 in order to provide anonymity. In table 1 down below an overview of all the interviewees is provided.
Code name Function Department Date Duration (min)
I1 Partner Core Audit April, 21 35
I2 Senior manager Risk Services April, 20 59
I3 Manager Risk Services April, 12 49
I4 Junior Manager Core Audit May, 17 28
I5 Junior Manager Core Audit May, 4 36
I6 Senior Staff Core Audit May, 17 28
I7 Senior Staff Core Audit May, 4 28
I8 Junior Staff Core Audit May, 4 26
I9 Part-time Staff Risk Services May, 17 31
[18] 4.5. Research analysis
Once all the interviews were conducted and the transcriptions were made, these were sent to the corresponding interviewee so that they could assess if all information was documented in the right order in the way that they had intended to. After that the results were analyzed by using three levels of coding corresponding to the Gioia methodology (Gioia, Corley and Hamilton, 2012).
During the first level of coding, basic concepts that were mentioned often during the interviewees were developed. The basic concepts that initially were used are: knowledge, experience, techniques, integrated reporting, sustainability reporting, trends and practice. In the documentation each concept was given a color. In the transcriptions the results that were initially related to a certain concept was highlighted in the same color as the concept where it belongs to. In the second level of coding all results were sorted by each concepts and were critically evaluated. In this stage the concept of trends was eliminated as it was not that meaningful for this research. Also in this stage some results that were related to each other were grouped together, while other results were eliminated completely from a concept. In the second level all the results that were useful for this research was sorted with their corresponding concept.
In the third level of analysis, the final overview of the second level was used in order to assess and recognize if there were patterns that correspond to the aspects of legitimacy theory. All results that were recognized, were then linked to the theory. In the following chapter the results will be presented with their corresponding theory.
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5. Research findings
In this chapter the research findings are presented. This chapter consists of six parts. First the general findings are presented, and these are considered as general because they apply to integrated as well as to sustainability reporting. This section covers the key issues indicated during the interviews, the knowledge and practical experience of the auditors in new audit spaces, and the used auditing techniques. The relation of the findings with the theory will also be described. Next, the findings that are only related to integrated reporting will be presented and here the relevant theory related to this will also be discussed. Subsequently, the findings that are only related to sustainability reporting will be discussed with the relevant theory. Followed upon that there will be a paragraph where the findings of sustainability reporting and integrated reporting will be compared. Lastly, at the end of this chapter there will be a short summary where the most important findings are outlined.
5.1. General findings that are related to both integrated and sustainability reporting Through the interviews the audit process used in both types of reports has come to light. All interviewees agreed that the audit process is somewhat the same for financial reporting, sustainability reporting and integrated reporting audits.
“The audit procedure in the basis is the same when auditing for financial information as for auditing for non-financial information. Because the steps such as in trend analyses, or looking for connections in the documents etcetera is the same.” (I2)
“A big portion of the audit work is the same for financial reports as for integrated reports.”(I3)
“In some regards it is the same as a financial audit……Often you look at the same things, except for the criteria where it is mainly different”(I6).
Since every interviewee agreed that the process in its base is the same for each type of report, it is important to look at the general findings that are applicable to all non-financial audits. This is important because there is no clear distinction within each type of audit process. Thus, certain findings are related to both integrated reporting as well as to sustainability reporting.
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From the interviews a graphical overview can be made to illustrate the general audit process.
Figure 1: audit procedure (I1, I5)
It appears from the interviews that the audit process remains the same, which is in line with the argumentation according to Fisher (1996) who argued that auditors are inclined to support on their prior experiences. Since the audit for non-financial information is somewhat the same as the audit for financial information, procedural legitimacy is partially attained for audits on these spaces. Because for the audits in new spaces, ABC uses techniques that are already accepted within the audit field and those techniques are already legitimized. Thus, for the amount that the same techniques are used in financial as well as non-financial audit, this part is already legitimized for audits in new spaces. However, even though the audit process is the same, all the interviewees agreed that auditing for non-financial information is difficult due to the uncertainty of the reliability of the obtained data of the firms, lack of guidelines and regulations, and nesciences of the subject matters of non-financial information by the auditors. These are indicators that legitimacy for audits in new spaces is not attained or perhaps only partially obtained.
5.1.1. Key issues indicated during the interviews
An issue which was mentioned several times through various interviewees was that the auditing for non-financial information is difficult as there are no fixed rules that you can rely on. This is one of the factors that makes it hard to audit for non-financial information, and another one is that the clients who are being audited themselves do not know what they should put in their reports
Audit phase
Is the delivered information reliable and faithfully represented?
Apply system-related control
activities Apply data-specific controls
Procedure phase
Which procedures has the client used in order to gather all the globally available data?
Planning phase
What are we going to do? What are the subjects that the
client finds important?
Who are the key stakeholders identified by the firm?
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when it comes to sustainability reporting and integrated reporting. Nevertheless, they want the audit to happen in order to obtain assurance as a message for their key stakeholders.
“Additional rules should actually be there, but it is difficult because much of the sustainability information is subjective. Many of the calculations are made by the use of different formulas in different companies. In light of transparency it would be a good development to have more rules and regulations.” (I8)
“There are so few guidelines that you really have to gather and combine whatever you can find. I think that there should definitely be more guidelines and I do think these will come. Integrated reporting is still in its infancy and it is not even that clear for companies on how they need to draft an integrated report.”(I5)
“Well, all firms know what an integrated report is and they have many elements already incorporated in their reports, but nobody really knows what an integrated report actually is.” (I9)
“You also hear about clients who are making these reports using it as a way of showing how ‘green’ the company is. It is also used as a way to improve the appearance of the company.” (I8)
The lack of ground rules regarding the audits of non-financial information and due to the fact that firms themselves have difficulties when reporting about non-financial subject brings several risks as a consequence. Some risks that have been identified by the interviewees are stated below.
“The risk is that we provide a statement which the user interprets in a different way than we initially meant it. This relates as well to the level of assurance, where in some cases we do not provide any assurance or limited assurance, but the user expects us to have done a complete audit. So there is an interpretation of what we have done, what we provide as assurance, and how the user experiences this. In between there is a gap, or the expectation difference between what we provide and what the user interprets.”(I4)
“In practice there are some differences in the way how each audit firm conducts the integrated audits. So when there is more streamlining between the audit firms it will be beneficial on several fronts for instance on the comparability of the firm. Otherwise, firms might thank that certain
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subjects will automatically abide in the audit process where another audit firms needs more information in order to create their assessment.”(I1)
These quotes are good examples of the potential reputational risk that an audit firm has when auditing in new audit spaces. Misinterpretation of the assurance statements by the intended users of a report is a threat to the legitimacy of the audit firm. ABC does not give complete assurance on non-financial information reports, however intended users might think that even though reasonable assurance is given, that this is in the same line as a complete assurance. This misinterpretation can harm the reputation of ABC, which can result in losing their legitimacy to conduct audits (Power, 2004; Deegan and Blomquist, 2006). In order to prevent this from happening it is important that every party involved (e.g. firms, stakeholders, and analysts) should obtain sufficient knowledge with regards to reporting on non-financial information. When intended users of a report have a better understanding of this, the legitimacy of ABC is secured when it comes to auditing on non-financial information. More so, the ‘social contract’ which an audit firm has with their clients might also be in harm’s way when an audit firm is continuously not able to provide full assurance on non-financial reports. Thus, it is important for clients to also understand why audit firms are unable to provide this type of assurance and what the clients themselves can do in order to make the audit process more valuable and reasonable.
More rules and guidance on non-financial reporting is likely to help improve the audit quality on non-financial reports, and it will also help to enforce the position of the auditors when auditing on non-financial reports. Due to more fixed rules auditors have something to rely on when conducting the audit, which is something the currently do not have. When asked to the interviewees if perhaps Big 4 audit firms as a team should assess and make a framework of their own for non-financial audits, this suggestion was well received by the interviewees as this could give an opportunity of fact building.
“I think that it is always useful because four firms know more than one. But it is also quite early, because we also ask very different questions. I can understand this because such a report is not compulsory and the statements we provide are with limited assurance. So the question is how deep you should go in your audit. Within a financial audit you would usually only connect the report with the source files. It is difficult to already achieve consensus without clear guidelines. It would be useful to discuss among the Big 4 firms to share experiences.” (I5)
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“You should always involve the AFM and the NBA. But it is a good development if the Big 4 or the Big 6 develop this further. In the beginning this would be useful.” (I6)
Fact building would occur through the sharing of non-financial audit experiences amongst different audit firms. This would be a way for audit firms to gain more knowledge on this particular audit area (Power, 2003; O ’Dwyer, 2011). Auditing in new audit spaces are currently identified as an audit institution, however aside from the IIRC framework and the GRI framework, there are no generally accepted rules on this area yet (Bourdieu, 1984; Andon et al., 2014), but there seems to be a demand for it. Therefore, legitimacy on audits of non-financial information is not currently obtained. From the interviews it appeared that there is a need for more general rules thus, auditors are aware that more rules are needed in order to gain legitimacy on this field. Fact building will help to set more rules as it will expand the knowledge on these type of audits so that suitable rules can be made. This will also lead to a better embedding of the moral legitimacy, as it now seems that without fixed rules it is unclear what everyone is doing since there is nothing to benchmark the conducted activities to. More especially, procedural legitimacy will be held off, because for third parties it is not possible to determine if the steps taken by the audit firm to conduct the audit makes sense since there is nothing to compare it to. Consequently, structural legitimacy is also not in place. Even though ABC has procedures that they are following, if auditors, firms and stakeholders do not know on which rules these procedures are based, legitimacy for it will not be attained.
5.1.2. Knowledge and practical experiences in new audit spaces
Currently in the auditing process for non-financial information ABC is very much focused on fact building through the composition of their financial audit team. When auditing for non-financial information, ABC uses a team that consists of non-financial auditors who have gained experience in sustainability audits and of specialists who have knowledge of specific sustainability subjects. These specialists assist the financial auditors by giving them more information about the subjects that they are auditing so that the financial auditor can focus on the subject matters.
“We use the knowledge of consultants because they have more in-depth knowledge about different types of firms and are more specialized, therefore they can give us more concrete information on what we should consider as material.” (I7)
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correct manner, there are the consultants who are complementary in the sense that they provide us with the specialized knowledge for example in carbon dioxide.”(I7)
This finding is in line with the audit team composition examined by Humprey and Moizer (1990), where they concluded that legitimacy is obtained by legitimizing the actions that were conducted during the audit process. In the case of ABC the actions that financial auditors take during an audit process are strongly reasoned through the collaboration with sustainability consultants. Therefore when the auditors want to legitimize their actions that they have conducted during the non-financial audit process they can lean on the information obtained from the consultants, which will result in the legitimization of their conducted actions.
All interviewees saw a combination team as something useful and necessary within the audit process of non-financial information. An overview of the advantages and the disadvantages are stated below in table 1.
Advantages Disadvantages
Non-financial information subjects are very specialized concepts for which you need to consult with specialists. When you already have such a diverse team this is an advantage. (I1)
Due to the limited knowledge, the auditor cannot do everything, they always need to consults with specialist. (I6)
You can learn much from each other, since auditors have a different work approach than the consultants. (I8)
Cross-references cannot be done by only the financial auditor. (I6)
Specialists have more specific knowledge on sustainability subjects, through their consulting on auditors it gives the opportunity to obtain a more holistic view on the firm’s reported results. (I7)
What is important that before an audit starts, financial auditors should also be aware of what is material and what is not very material when auditing for non-financial information. So that they understand what it is all about, currently this part is lacking. (I7)
Due to training on the job, an extensive amount of training on sustainability subjects is not needed anymore for financial auditors. (I7)
Most of the sustainability specialists do not have an auditing background. So they do not know how to document everything and how to conduct analysis on a process level basis. (I2)
