Auditing and Assurance

This report sheds light on different aspects of Corporate Social Responsibilities (CSR) and Sustainability Reporting (SR) and assurance. It defines both CSR and SR and establishes the differences and similarities between these two. It also shows the companies that have adopted SR and assurance. It shows the areas of future developments in SR and assurance. Lastly, it shows the guidelines, principles and audit requirements for SR and assurance.

Running head: AUDITING AND ASSURANCE
Auditing and Assurance
Name of the Student
Name of the University
Author’s Note

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Table of Contents
Answer to Question 1: Report....................................................................................................2
Introduction............................................................................................................................3
Definition and Explanation of CSR and SR...........................................................................3
Explanation of Similarities and Differences between CSR and SR.......................................3
SR and Assurance’s Brief History.........................................................................................4
Companies with SR and Assurance.......................................................................................4
Future Developments in the Area of Sustainability Reporting and Assurance......................5
Frameworks, Guideline and Standard....................................................................................6
Assurance Guidelines and Procedures...................................................................................6
Conclusion..............................................................................................................................6
Answer to Question 2: Internal Memo.......................................................................................8
References................................................................................................................................11

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Answer to Question 1: Report
Executive Summary
This report sheds light on different aspects of Corporate Social Responsibilities (CSR) and
Sustainability Reporting (SR) and assurance. This report defines both CSR and SR and
establishes the differences and similarities between these two. This report also shows the
companies that have adopted SR and assurance. This report shows the areas of future
developments in SR and assurance. Lastly, this report shows the guidelines, principles and
audit requirements for SR and assurance.

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Introduction
There are certain factors that determine the success of the companies apart from the
financial aspects; and two of these factors are Corporate Social Responsibilities (CSR) and
Sustainability Repotting (SR) (Cheng, Ioannou & Serafeim, 2014). Both of these factors put
the obligation on the companies to take into consideration the effects of their business
operations on the environment, society and community. For this reason, it become necessary
for the companies to develop a report that will include the information of their financial and
non-financial performance (Cheng, Ioannou & Serafeim, 2014). At the same time, the
auditors are needed to provide their assurance on the sustainability and environmental
activities of the companies that has increased the roles of the auditors. This report takes an
honest attempt to discuss about several aspects of CSR and SR while considering the aspects
of audit assurance on the sustainability reports.
Definition and Explanation of CSR and SR
CSR – CSR is referred to the processes and procedures that the companies use for the
purpose of managing their different business operations for the creation of the overall
positive effect on the people of community and environment (Flammer, 2013). For this
reason, the aspects of CSR undertake problems in the fields of envirmental sustainability,
ethical business practice and others. It is the obligation on the companies to comply with the
principles and standards of CSR while conducting the business operations (Flammer, 2013).
SR – SR is referred to the system that provides the companies with the opportunity for
preparing a statement or report that includes the various environmental and social impacts
that their business operations have created on daily basis. At the same time, SR is considered
as a crucial mechanism due to the fact that it helps the companies to develop their value and
governance model for creating alignment between strategies and commitments (Ioannou &
Serafeim, 2017).
Explanation of Similarities and Differences between CSR and SR
Differences – The main aim of CSR is to make the companies in complying with necessary
regulations and the aim of SR is to ensure the development of business. Providing the
protection to the goodwill and reputation of the companies is the main driver of CSR and the
development of value and opportunity for the businesses is considered as the main driver of
SR. These are the main differences between these two (Hopkins, 2017).

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Similarities – The main similarity between CSR and SR is that firms become majorly
beneficial by implementing these aspects in their business due to their high nature of
essentiality. Both CSR and SR helps the companies in measuring the impacts of their
business operations on the people of community and environment so that they can develop
their businesses. This can be considered as the major similarity between these two aspects
(Hopkins, 2017).
SR and Assurance’s Brief History
SR can be considered as a major mechanism for the businesses to provide the
necessary and clear information about the social and environmental performance of the
companies to the companies’ key stakeholders. It implies that SR has major relevancy in the
business organizations and for this reason, the demand from certain key stakeholder was to
increase the transparency so that the credibility and integrity of information can be prevailed
in the sustainability reports (Junior, Best & Cotter, 2014). In order to satisfy this specific need
of these key stakeholders, certain business organizations started the system of providing the
needed independent assurance of the information provided in the sustainability reports so that
the credibility as well as transparency of the provided information can be enhanced. This
particular aspect initiated the process of providing the needed external assurance on
sustainability report in the years of 1997 and 1998 (Junior, Best & Cotter, 2014).
After certain point of time, most of the companies started to follow this system in the
presence of its major benefits and importance to the key stakeholders. This aspect also
ensures the quality of information provided to the stakeholders in the sustainability reports. In
this aspect, the name of GRI (Global Repotting Initiative) can be mentioned as an example as
it has provided major motivation to the system of providing independent assurance to the
sustainability reports. In the presence of credible and improved information in the
sustainability reports, the key stakeholders become confident on the sustainability related
information of the companies (Junior, Best & Cotter, 2014).
Companies with SR and Assurance
The presence of many big companies can be seen that provide sustainability reports
with the external independent assurance to their key stakeholders; and some of them are
discussed below:
National Australia Bank (NAB) – It can be seen from the sustainability report of NAB that
the bank has provided KPMG with the responsibility to provide independent assurance to the

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information in the sustainability reports. The main area on which KPMG has provided
assurance is greenhouse gas emission. It needs to be mentioned that the assurance is provided
to the bank based on their sustainability activities (nab.com.au, 2019).
Westpac – In case of the sustainability reporting of Westpac, it can be seen that the company
has provided the responsibility of providing the necessary external assurance on the
sustainability reporting to PwC. It can be seen from the assurance report of PwC that the
company has provided the necessary assurance to the sustainability report of Westpac by
mentioning the fact that the principles and guidelines of GRI has been followed for providing
the necessary information on the sustainability activity of the company (westpac.com.au,
2019).
Telstra – It was the responsibility on Ernst & Young (EY) to provide the required external
assurance on the sustainability information of the company. It can be seen in the report that
there is limited assurance from the side of EY on the performance disclosure method of the
company in the year 2018. In addition, there is limited assurance from EY on the materiality
principles application by Telstra as per the standards and guidelines of GRI
(wpengine.netdna-ssl.com, 2019).
BHP Billiton – KPMG was responsible for the external assurance of sustainability
information of BHP Billiton and the audit firm has mentioned that they did not have
sufficient awareness on the material misstatements in the company’s sustainability reports.
The area in which KPMG has provided assurance are greenhouse gas emission (bhp.com,
2019).
Future Developments in the Area of Sustainability Reporting and Assurance
Certain specific areas are there in SR and assurance that have potential to be enhanced
further. There has been major progress in the different aspects of SR, but it will not take
many time to be less popular in case certain aspects take place such as global economic
downturn, global recession and doubts in the key stakeholders about the value of SR. These
areas need to be taken into account when considering the future development scope of SR. In
addition, sector-based reporting is another area that can be improved through the
standardization process of the requirements of SR along with the enhancements in data
comparability. Moreover, for enhancing SR, integration of this can be done with the financial
reporting framework which will ensure the enhancement of the requirements of SR (Mock,
Rao & Srivastava, 2013).

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When considering the aspect of assurance in SR, there is a wide opportunity for
improvements in the assurance of SR in the area of more research based cases from the view
point of the firms and external assurance providers. This particular aspect will contribute to
the increase in the interest of the companies for ensuring assurance on the sustainability
reports. This whole aspect will lead to increase in assurance level in sustainability repots
(Mock, Rao & Srivastava, 2013).
Frameworks, Guideline and Standard
The guidelines of Global Reporting Initiatives (GRI) and the Association of Chartered
Certified Accountants (ACCA) can be considered as the main drivers of SR. GRI is an
organization and it has the responsibility to provide the required sustainability reporting
framework. There are two parts in the guidelines of SR; first, Reporting Principles and
Reporting Guidelines, and second, Reporting Guidelines and Standard Disclosures; and the
inclusion of performance indicators can be seen in this. The main components in the first part
of the guidelines are necessary definitions, necessary quality and boundaries for materiality,
sustainability context, completeness, comparability, balance and others. The main
components of the second part of the guidelines are profile, strategy, approach of the
management and performance indicators. These are the main guidelines and standards of SR
(del Mar Alonso‐Almeida, Llach & Marimon, 2014).
Assurance Guidelines and Procedures
There are certain guidelines and procedures used by the auditors to provide the
assurance engagements. These guidelines put the obligation on the auditors to make
compliance with the principles of ISAE 3000 to structure and complete the assurance
engagements. In order to complete this responsibility, the auditors of the companies must
follow certain steps; these steps are the ethical requirements, quality control, engagement
acceptance, planning, utilization of the expert’s work, collection of the needed evidence,
necessary documentation and others. It needs to be mentioned that these steps must be
completed while providing the necessary engagement assurance. At the same time, auditors
must comply with these guidelines and procedures for the purpose of engagement assurance
(Junior, Best & Cotter, 2014).
Conclusion
The above discussion indicates towards the major advantages of CSR and SR
activities for the success of overall business. Both CSR and SR assists the companies to

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report on their financial and non-financial performance. The above discussion also indicates
towards the need of external independent assurance for establishing credibility and reliability
on the information in sustainability reports. The above discussion also mentions about certain
companies that undertakes SR with external assurance; such as BHP Billiton, NAB and
others. As per the above discussion, sector-based reporting is one of the areas that can be
enhanced in future for the overall improvement in SR. The above discussion also mentions
about the guidelines of GRI as the required guidelines for SR. In addition, the auditors are
needed to comply with ISAE 3000 for the assurance engagement.

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Answer to Question 2: Internal Memo
To: The Senior Audit Partner of Chase and Fearnley
From: Audit Manager
Re: Independence Requirements and Independence Issues
Date: 30.03.2019
This memo sheds light in the potential issues on the aspects of auditor’s independence from
the given cases.
Baxter Aviation Limited (BAL)
Threats of Independence – Threat of audit independence occurs at the time of providing
non-assurance services to the client by the auditor. In the provided scenario, there can be
occurrence of self-interest threat, self-review threat and advocacy threat in case BAL receives
non-assurance services from Chase and Fearnley as BAL would become the largest client of
Chase and Fearnley in terms of revenue. Due to this, there can be compromise in the audit
objectivity as Chase and Fearnley has the chance to earn huge money by providing non-audit
services to BAL (Kouakou, Boiral & Gendron, 2013).
Threat Elimination – Not providing the non-assurance services to BAL would be the
greatest safeguard to eliminate these threats. After that, Chase and Fearnley should include an
audit members in the audit team of BAL who did not audit the accounts of the company
(apesb.org.au, 2019).
Recommendation – Since, safeguards can be applied to reduce the threat to an acceptable
leve, the recommendation for Chase and Fearnley is to accept the audit engagement of BAL.
Max Maxim Global Limited (MMG)
Threats of Independence – The provided information indicates towards the fact that there is
a close relationship between Emily Matthews and the management of MMG because she was
earlier appointed for facilitating the new e-commerce computer program of the company.
Since, the presence of any relation between the auditor and the audit client can lead to the
familiarity threat of audit independence, this situation can also lead to familiarity threat of
audit independence due to the possibility that Emily can be too sympathetic to the audit client
due to the presence of close relation (Tepalagul & Lin, 2015).

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Threat Elimination – Not assigning the responsibility for conducting the annual audit of
MMG is the main safeguard that can be applied in this particular situation. This will be
helpful in the elimination of the familiarity threat (Quick & Warming‐Rasmussen, 2015).
Recommendation – Since, it is possible to reduce the familiarity threat to the acceptable
level, the recommendation for Chase and Fearnley is to accept the audit engagement of
MMG. However, in this process, they are needed to ensure the fact that Emily does not get
the responsibility to conduct the audit of MMG as it will make the risk of familiarity threat
severe.
Granger Freight Services Pty Ltd (GFR)
Threats of Independence – It can be seen from the given case that $462,000 is the due audit
fees for Chase and Fearnley from GFR for the audit of 2017 and 2018 and they are going to
start the audit of 2019 in two weeks. Since, the presence of overdue audit fees can lead to
self-interest threat of audit independence, the present situation also leads to self-interest threat
of audit independence because of the fact that this unpaid fees can bring major influence on
the audit behaviour and audit judgements (Abdul Wahab, Mat Zain & Abdul Rahman, 2015).
Threat Elimination – Bringing an additional member in the audit engagement team having
no part in the audit of GFR can be considered as the key safeguard in this scenario. This step
is majorly needed for the reduction of the self-interest threat of audit independence in the
provided scenario.
Recommendation – The recommendation to Chase and Fearnley is that they can accept the
audit of GFR due to the fact that necessary safeguards can be applied for the reduction of this
particular independence threat to the safe level (Samsonova-Taddei & Siddiqui, 2016).
Wilcox System Solutions (WSS)
Threats of Independence – It can be seen from the given case that there is a friendship
between John and David for many years; and for this reason, David was agreed in attending
the mediation process as a negotiator on the request of John. David is the audit manager of
Chase and Fearnley by profession. Since, close relation between the audit client and the
auditor creates the familiarity thereat and advocacy threat occurs when auditor promotes the
business of the audit client, there can be both familiarity and advocacy threats in this
particular situation. The main reason is that the auditor can become too sympathetic towards
the client that can compromise the audit judgments and behaviour of the auditor (Ojo, 2015).

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Threat Elimination – Not attending the mediation process by David can be considered as the
main safeguard in this particular scenario as it will reduce the advocacy threat. At the same
time, Chase and Fearnley needs to ensure the removal of David from the audit of WSS as it is
the key safeguard for the reduction in the familiarity threat of audit independence (Burnett,
Chen & Gunny, 2018).
Recommendation – The recommendation for Chase and Fearnley is that they can accept the
audit of WSS due to the fact that necessary safeguards can be applied in this situation for the
reduction in these independence threat to the acceptable level.

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References
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threat to auditor independence?. Journal of Accounting in Emerging Economies, 5(2),
222-246.
Apesb.org.au. (2019). APES 110 Code of Ethics for Professional Accountants. Retrieved 26
March 2019, from
https://www.apesb.org.au/uploads/standards/apesb_standards/standard1.pdf
Bhp.com. (2019). Sustainability Report 2018. Retrieved 26 March 2019, from
https://www.bhp.com/investor-centre/-/media/documents/investors/annual-reports/
2018/bhpsustainabilityreport2018
Burnett, B., Chen, H., & Gunny, K. (2018). Auditor-provided lobbying service and audit
quality. Journal of Accounting, Auditing & Finance, 33(3), 402-434.
Cheng, B., Ioannou, I., & Serafeim, G. (2014). Corporate social responsibility and access to
finance. Strategic management journal, 35(1), 1-23.
del Mar Alonso‐Almeida, M., Llach, J., & Marimon, F. (2014). A closer look at the ‘Global
Reporting Initiative’sustainability reporting as a tool to implement environmental and
social policies: A worldwide sector analysis. Corporate Social Responsibility and
Environmental Management, 21(6), 318-335.
Flammer, C. (2013). Corporate social responsibility and shareholder reaction: The
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Hopkins, M., (2017). CSR and international development. In CSR and Sustainability (pp. 88-
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Ioannou, I., & Serafeim, G. (2017). The consequences of mandatory corporate sustainability
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1-11.

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Junior, R. M., Best, P. J., & Cotter, J. (2014). Sustainability reporting and assurance: a
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Kouakou, D., Boiral, O., & Gendron, Y. (2013). ISO auditing and the construction of trust in
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