Causes and Consequences of Choosing Different Assurance Providers: An International Study of Sustainability Reporting

Headnote

An increasing number of companies voluntary disclose information about their social and environment performance in sustainability reports. This study investigates the causes and consequences of choosing different assurance providers for companies seeking independent verification of their sustainability reports. We employ a logistical regression analysis from an international sample of 136 companies to document that companies domiciled in countries with a weaker governance system are more likely to choose a big-4 accounting firm as assurance provider. We additionally examine the association between the type of assurance provider and the quality of a sustainability assurance statement. Using a content analysis based on an existing framework (O'Dwyer and Owen, 2005), we provide evidence that big-4 accounting firms positively affect assurance quality in terms of reporting format and assurance procedures. In contrast, the quality of the recommendations and opinions in a sustainability assurance statement is positively associated with non-accounting assurance providers.

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1. Introduction

An increasing number of companies disclose information about their social and environmental performance in, so-called, sustainability reports to demonstrate a commitment to corporate responsibility. Recent evidence documents the rise of external assurance services that independently verify this type of non-financial reports (Beets and Souther, 1999; FEE, 2004; Ifac, 2006). According to a recent worldwide survey, between 1997 and 2007 the average annual growth rate in assurance statements has been 20%, with a current proportion of assured reports settled at 25% (Corporateregister, 2008). From the 2005 KPMG survey of corporate responsibility reporting, it appears that one-third of the fortune global 250 companies adopt an assurance statement of their sustainability report (KPMG/UVA, 2005). The voluntary demand of independent verification by reporting companies can be explained by their willingness to enhance a report's credibility. These claims are consistent with prior research in auditing indicating that third-party assurance provides greater user confidence in the reliability of the information disclosed (see Carey et al., 2000).

Since the market for sustainability assurance services is in its formative stages and is evolving rapidly, there is limited understanding of the nature and extent of the demand and supply of this novel auditing practice (Hasan et al., 2005). O'Dwyer and Owen (2005), drawing on a sample of assurance statements of firms short-listed for the 2002 ACCA sustainability reporting...