A Buyer’s Guide To Assurance On Non-financial Information

A buyer’s guideto assurance onnon-financialinformation

ACKNOWLEDGMENTS:WBCSD is delighted to partnerwith the Institute of CharteredAccountants in England andWales (ICAEW), a world leadingprofessional membershiporganization that promotes,develops and supports over181,500 chartered accountantsand students worldwide. Weextend our sincere thanks to allWBCSD member companies,assurance working groupmembers and ICAEW’smembers and the Audit andAssurance Faculty who sharedtheir insights, experience andrecommendations throughoutthe ideation and review process.WBCSD & ICAEW: A buyer’s guide to assurance on non-financial information2

ContentsSUPPORT FOR THE GUIDANCE 4EXECUTIVE SUMMARY 5INTRODUCTION 6PART 1:THE CONCEPT OF ASSURANCE 81The basics of assurance 92Key features of an assurance engagement 143The process of assurance 194Types of assurance 255The assurance report 29PART 2:PRACTICAL GUIDANCE 366Is assurance the right solution for your organization? 377The next steps: how to commission an assurance engagement 42TECHNICAL GLOSSARY 47REFERENCES AND RESOURCES 49ACKNOWLEDGMENTS 51WBCSD & ICAEW: A buyer’s guide to assurance on non-financial information3

Support for the guidanceThe demand for reliable non-financial information is on the rise and stakeholders need confidencein the reported information. Furthermore, with this evolution in reporting, companies will increasinglylook to assurance providers to provide trust and reliability around entire systems of informationused to collect and report data. Yet, they are often confused about what assurance is and how todistinguish between service providers’ offerings. This publication by WBCSD and ICAEW is timelyand important because buyers of assurance services must have a clear understanding of thetypes and process of assurance. We believe the majority of the guide’s concepts are applicableinternationally and in the United States, which benefits companies and stakeholders alike.Barry Melancon, CPA, CGMACEO, Association of International Certified Professional AccountantsI fully support this initiative. In the current environment, it is very important for organizationsto provide this broader range of information and, in order to rebuild trust in organizations andsociety, this information must be seen to be credible. Independent assurance is an importantelement of these credibility-enhancing procedures and it is important that those purchasingassurance have a clear understanding of the types and process of assurance. I highlyrecommend this publication to buyers of assurance.Professor Roger Simnett AO,Chair and CEO, Australian Auditing and Assurance Standards BoardFSR - Danish Auditors welcome this new guidance from WBCSD and ICAEW. It is much neededas it serves to help organizations and buyers of assurance understand and select the provisionsthat best suit their needs. In view of the societal challenges we are facing with climate change, andthe momentum we see around sustainable finance, reliable ESG information that can be trustedto inform investment decisions is essential. Assurance is a natural part of the evolution to bringsustainability and ESG information on par with the robust and assured measures we know fromfinancial reporting and assurance.Tom Vile Jensen,COO, FSR - Danish AuditorsWe support this initiative as we recognize how important it is for buyers of assurance to havea clear understanding of what they are purchasing; what they can expect from assuranceproviders; and what will be required from them during the assurance process.Loshni Naidoo,Project Director: Integrated Reporting, South African Institute of Chartered AccountantsWe commend WBCSD for helping companies respond to the demand for independentassurance. Accountancy Europe and WBCSD share the goal to strengthen sustainabilityassurance practices as part of transitioning to a sustainable world. We look forward to keepingworking with WBCSD’s members to increase trust in non-financial information by externalassurance.Olivier Boutellis-Taft,CEO Accountancy EuropeWBCSD & ICAEW: A buyer’s guide to assurance on non-financial information4

ExecutivesummaryIndependent assurance can enhance the credibility of,and trust in, information that organizations disclose intheir corporate reports.By providing external validationof disclosures and of theprocesses undertaken inproducing those disclosures,assurance can increase theconfidence of capital providersand other stakeholders usingnon-financial information toguide their decision-making.But what is assurance? Howdoes it work? And how is itbeneficial to users of nonfinancial information?This ‘Buyer’s guide to assuranceon non-financial information’(the guide), written by theAudit and Assurance Facultyof the Institute of CharteredAccountants in England andWales (ICAEW) and the WorldBusiness Council for SustainableDevelopment (WBCSD),addresses these questions andbrings much needed clarity on atopic that is often perceived asconfusing.For those unfamiliar with thetopic of assurance, the firstpart of the guide explains theconcept of assurance, what itmeans to obtain assurance fornon-financial information andhow assurance is conducted.In doing so, we address somecommon misconceptions aboutassurance and explore thedifferences between reasonableand limited assurance – anarea that can be challenging tounderstand.The second part of the guideoffers practical guidance,considerations and tips to helporganizations assess whetherassurance is the right service tomeet their needs and to identifyand procure assurance servicesthat are ‘fit for purpose’.While this guide is focused onlisted organizations, it can beapplied by all organizationsworldwide. And althoughincreasing demand for robustand reliable environmental,social and governance (ESG)information has shaped manyof the considerations, it can beused in the context of all nonfinancial information.Given recent inquiries into theaudit profession – followingcorporate collapses and otherexamples of perceived auditfailure – the timeliness of thispublication is clear. Whateverthe outcome of these inquiries,ICAEW and WBCSD share theview that assurance will play amore prominent role in the futureof corporate reporting.In the context of these inquiriesand the rise in demand forcredible ESG and other nonfinancial information, it ismore important than ever thatorganizations understand whatassurance is, the value it canbring to users of non-financialinformation, and how to procureassurance services that meetthe needs of users and theorganization itself.In producing this guide, ICAEWand WBCSD aim to addressthese specific points and help toensure that those charged withprocuring assurance servicesare better informed.WBCSD & ICAEW: A buyer’s guide to assurance on non-financial information5

IntroductionThe purpose of the guide is to explain, instraightforward terminology, what assurance is, howthe process of assurance works and what organizationsneed to consider when seeking to procure assuranceservices that are ‘fit for purpose.’WBCSD & ICAEW: A buyer’s guide to assurance on non-financial information6

IntroductionWHY DID WE WRITETHE GUIDE?HOW TO USE THISDOCUMENT.ICAEW and WBCSD havewritten this ‘Buyer’s Guide toassurance on non-financialinformation’ based on insightsgained through our work withprivate sector companies suchas WBCSD’s members and otherstakeholders worldwide.The first part of the guideprovides an overview of thekey concepts and processescommon to assuranceengagements. Chapters 1-5have been designed for thosenew to assurance or looking toconfirm their understanding.Companies have told us thatthey find the marketplace forassurance services on nonfinancial information confusing.In particular, they find itchallenging to determine what anappropriate cost for assurance isand to discern the quality of oneprovider compared with another.Those already familiar withassurance may wish to focuson chapters 6-7, which providepractical guidance to assistthose looking to procureassurance.There are commonmisconceptions aboutassurance, including what theterm assurance means, how thetypes of assurance (reasonableand limited) differ, and whatelements of the annual reportand other forms of reportingneed to be audited or assured,if at all. This was a key finding ina recent series of roundtableswith investors, undertakenby PwC and WBCSD, whichfound these areas of confusionare particularly prevalent inthe context of non-financialinformation.1WHO SHOULD READ IT?The guide is written withorganizations (the buyer) in mind.It may also be helpful to investorsand other users of non-financialinformation.It is a longheld view of ICAEW’sAudit and Assurance Facultythat greater clarity is neededamong organization’s procuringassurance servies.2 They havedeveloped an online resourceto raise awareness of theseissues. This is consistent withWBCSD’s first assurance projectand consistent with the view ofnational-standard setters whoidentify a need to explain whatassurance is to users of nonfinancial information.3The ‘buyer’ could be one of avariety of different people withinan organization - includingmanagement, sustainability,finance and procurementprofessionals. With this in mind,we have tailored the report andhave provided a glossary oftechnical terms and practicalexamples to illustratetechnical points.The assurance needs of apublicly listed organization willnaturally vary between industriesand geographies as well asacross unlisted organizations,owner-managed organizationsand public sector (governmentfunded) bodies. However, thefundamental principles andthe processes that need to beconsidered remain the same.While this guide is focused onlisted organizations, it can beapplied by all organizationsworldwide. And althoughincreasing demand for robustand reliable ESG informationhas shaped many of theconsiderations, it can be used inthe context of all non-financialinformation.For the purposes of this guide,non-financial information refersto all information outside of theaudited financial statementsincluding, but not limited to,operational and financial keyperformance indicators (KPIs)and ESG information - whetherin the annual report, separatecorporate social responsibilityreports, sustainability reportsor other material information(e.g. company presentations toinvestors).Where relevant, we haveanchored the discussion inthe concepts and principlesof the global assurancestandards and framework ofthe International Auditing andAssurance Standards Board(IAASB), rather than otherassurance standards such asISO, AA1000.4 The guide is not atechnical document and shouldnot be used as a substitute forISAE 3000 (Revised) ‘AssuranceEngagements Other ThanAudits or Reviews of HistoricalFinancial Information’, otherIAASB assurance standards, orassurance guidance developedby other standard setters.WBCSD & ICAEW: A buyer’s guide to assurance on non-financial information7

Part 1:The conceptof assuranceWBCSD & ICAEW: A buyer’s guide to assurance on non-financial information8

1The basicsof assuranceIn this chapter, we set out the basics of assuranceincluding: what does assurance mean; who might wantor require it; and when and why might it be beneficial?WBCSD & ICAEW: A buyer’s guide to assurance on non-financial information9