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1、Competencies and thinking skills required in modern auditing for dealing with sustainability assuranceTACT Public Sector Auditing Symposium 2008, Midrand, 30 January 2008Anton Du ToitAcademic Director: AccountingMonash South AfricaTelephone: 083 252 0910E-mail: Anton.Dutoitbuseco.monash.eduAbstractB
2、est practice in corporate governance (including sustainability reporting) has prompted the accountant and auditor to start considering non-financial information. The competencies and thinking skills of sustainability assurance providers (particularly auditing firms) are insufficiently listed or desc
3、ribed in existing literature and in assurance reports. This paper explores which competencies and thinking skills auditing firms should possess in this regard. It was found that there is an urgent need for research to be done in this area. It is recommended that international guidelines and literatu
4、re should include the relevant competencies and thinking skills.Key wordsassurance provider/auditoraudit of non-financial informationauditing firm competenciescompetencies of assurance providercorporate governancestandards on assurancesustainability assurancesustainability reporting1.IntroductionFor
5、 many years during the previous century, large companies and corporations produced and published only one kind of stakeholder report the annual report. The annual report includes the annual financial statements, audited by an external and independent auditor, usually belonging to and accredited by a
6、 professional body which is a member of the International Federation of Accountants (IFAC). The International Financial Reporting Standards (IFRSs) is used as a benchmark for financial reporting and disclosure (UNCTAD 2006). In recent years the annual report has become supplemented by a non-financia
7、l section on sustainability (a corporate sustainability report, called a “sustainability report” in this paper), either included in the annual report or published separately (ACCA 2004, Du Toit 2007).The sustainability section or report is often audited to some extent, resulting in an assurance repo
8、rt. This field is called “sustainability assurance”, which is often provided by auditing firms. (The terms “auditing firm” and “auditor” are used throughout this paper. However, “accounting firm” and “accountant” are sometimes used in the literature in the same sense.) The auditor and the auditing f
9、irm involved in sustainability assurance should possess certain competencies and skills that are referred to in documents on professional standards and in other literature. These competencies required are, however, very seldom listed or properly described in literature and in research reports and pa
10、pers. Furthermore, these competencies are almost never mentioned or described in the report of the assurance provider.As there is insufficient research on and information about the competencies of the assurance provider, this paper explores which competencies and thinking skills an auditing firm sho
11、uld possess as an assurance provider.The research approach on which this paper is based is interdisciplinary (covering, amongst other, accounting, auditing, business management, social and health sciences, language sciences), which means that the traditional model of hypothesis and empirical researc
12、h applies to some extent only (Wilson 2003).The scope of this paper is the competencies and thinking skills of the assurance providers (literature survey in paragraph 3). There are two types of assurance providers, broadly speaking. They are the major auditing firms and “other” assurance providers,
13、such as certification bodies. Literature from both these sources were included in the literature survey. The most comprehensive description of competencies was found in the publications of the “other” assurance providers. The most important source in this regard was from the International Register o
14、f Certificated Auditors (IRCA 2007) . In this publication, only the competencies of the “Lead Sustainability Assurance Practitioner” were reviewed, as this qualification level bears the closest relationship to an auditing firm.The discussion in this paper excludes any reasons for having sustainabili
15、ty reports and even for having assurance on these reports.A brief introduction to corporate governance is set out in paragraph 2, to provide a framework for further discussion.The paper provides, in a literature review, a background to the field of sustainability reports and sustainability assurance
16、. It continues to review literature on the competencies and thinking skills required of assurance providers. These are all done in paragraph 3.2.Corporate Governance introductionA proper definition of corporate governance is provided by Payne (2002):Corporate governance can be defined as the manner
17、in which an organisation is directed and controlled with a view to ensuring the achievement of its objectives in a sustainable manner within an environment of accountability to its stakeholders. It is about leadership with integrity.The King III report of the King Committee on Corporate Governance i
18、s on its way (IoD Bulletin 2007). It will take into account the changes in the Companies Act (amendments of 14 December 2007, as well as the Companies Bill that will replace the old Companies Act in its entirety), the Auditing Profession Act, and the Prevention and Combating of Corrupt Activities Ac
19、t (Act 12 of 2004).Over and above these, the public sector auditors have to take into account the PFMA (Public Finance Management Act, Act 1 of 1999, as amended by Act 29 of 1999), the MFMA (Municipal Finance Management Act, Act 56 of 2003), the Public Audit Act (Act 25 of 2004) and other requiremen
20、ts such as the Protocol on Corporate Governance in the Public Sector (Department of Public Enterprises 2002). All these documents contain reference, to a smaller or larger extent, to quite a number of corporate governance best practices, such as having proper audit committees (each contains at least
21、 a section on this requirement). It simply means that public sector auditors have to broaden their scope beyond the auditing of financial data only. It is, however, noteworthy that not one of the documents listed here, contains any reference to the word or concept “sustainability” or “corporate gove
22、rnance”. The PFMA and the MFMA do refer to “financial governance” and “corporate plan” and the MFMA requires the audit committee to ensure “effective governance”.The Code in King II (IoD 2002) is applicable (amongst others) to Public sector enterprises and agencies that fall under the PFMA and the L
23、ocal Government: MFMA including any department of State or administration in the national, provincial or local sphere of government or any other functionary or institution, exercising a power or performing a function in terms of the Constitution or a provincial constitution; or exercising a public p
24、ower or performing a public function in terms of any legislation, but not including a Court or a judicial officer, unless otherwise prescribed by legislation.To put corporate governance and the current King II (IoD 2002) in proper business perspective, one must go back to the basics of ethics and bu
25、siness ethics.Corporate governance is a new term used in formalising old principles laid down over many decades and centuries in the field of business ethics. Corporate governance is a part of business ethics. Business ethics, again, is part of ethics, which is even wider (Du Toit 2007)The relations
26、hip between ethics, business ethics and corporate governance can be graphically depicted as in Figure 1.King II (2002) states the following:By its very nature, corporate governance has an ethical dimension that can be viewed as the moral obligation for directors to take care of the interests of inve
27、stors and other stakeholders.EthicsBusiness ethicsCorporateGovernanceFigure 1. The relationship between ethics, business ethics and corporate governance (Du Toit 2002 as quoted by Du Toit 2007)The following descriptions are based on research performed by Du Toit (2007):Ethics (morality) is the study
28、 of what is good and right amongst people. If one acts in such a way that one does what is best for the people around one and for oneself, one acts ethically or morally. Ethics, therefore, involves the choices people make in dealing with other people.The “Golden Rule” remains: Do unto others, as you
29、 would like them to do unto you.Business ethics deals with ethics in business. It therefore deals with ethics in the business world. People in business should make the correct decisions, and they should also act morally or ethically.Business ethics is the ethics applied in business when making decis
30、ions, so that the decisions are good and right for the business and/or also for other people (persons, communities or structures) influenced by those decisions.The decisions of a business are made by the directors and, to a lesser extent, by the management. In making decisions, they have to consider
31、 the effect of each decision on all people and structures involved.If a business takes other peoples/parties interest into consideration, what does it actually mean? It means that the following ethical principles should be involved: Honesty Integrity Keeping promises Loyalty to the business enterpri
32、se, to the government, the business world, society, customers, owners, management and employees. Fairness Caring for others Respect for others Responsible citizenship Pursuit of excellence AccountabilityIf a business should abide by these principles, everyone will be loyal to the business and will r
33、espect it. Society, government, other businesses, clients and employees will also respect it. The business will thrive and grow.Taking all of the above into account, one should identify all the relevant stakeholders of a business in order to determine the responsibilities between the various stakeho
34、lders, and all that remains then, is to act ethically towards each of them, based on the principles above. The directors are people acting on behalf of a company or business, so they should consider all the stakeholders involved.The following internal stakeholders are involved: The shareowners (shar
35、eholders) or owners, The board and directors, The committees of the board, Management, Company secretary, The company or business itself, Internal audit, and The employees.The shareowners have shares in the company, for which they expect a good return on investment. They elect the directors, and in
36、exchange they expect at least an annual report and other relevant communications. Some of the directors also have shares and are, therefore, shareowners as well. The board of directors appoints various board committees, for example the audit committee, for certain tasks and they expect regular repor
37、ts from them.The directors appoint management and the company secretary to run the company on a daily basis. Management has to report regularly to the board of directors and also has to submit financial statements as part of the annual report to the board.Management manages the company and appoint e
38、mployees. They are responsible to keep accounting records and have a good system of internal control in order to produce reliable financial statements. Management must work with purpose, according to certain values, in order to use the correct strategies to reach the companys goals. Management has t
39、o be aware of risks for the business and must also identify opportunities. Furthermore, management has to prepare non-financial information, some of which has to do with corporate governance, and which also includes information that will form part of the annual report.Although management are respons
40、ible for all these functions, the final responsibility lies with the directors, which must ensure that accounting records are kept within a good system of internal control. They must ensure that reliable financial statements are produced which they are able to approve. They must determine the purpos
41、e and values of the company in order to determine the strategies to reach the companys goals. The directors must identify all the business risks and opportunities. They must ensure that non-financial information is prepared and they are responsible to report on corporate governance in the annual rep
42、ort. In the final instance, the directors are in a position of trust and they are fully accountable to the company as a separate legal entity.The audit committee liaises with the external auditor and also review the plans and work of the internal audit department. The internal audit department audit
43、s accounting records and management reports and also audits efficiency and other non-financial information. This gives some assurance to the external audit that the system of internal control is working. It also gives assurance to the audit committee and finally the board that the company is well ru
44、n and that internal control is working and that the information supplied is reliable. The internal audit department has to liaise with the external auditor.Central in the company is its purpose and values, from which the strategies are developed to reach its purpose.The above describes the company a
45、nd its internal stakeholders as such.The external stakeholders are the following:The external auditor is one of the external stakeholders, who has to audit the annual financial statements of the company in order to express an opinion on the fair presentation of these statements to the shareowners. T
46、his is very important for the shareowners, as the external auditor is independent from the company and its directors and management. They have contributed capital to the company and they want to be assured that the financial information they receive is reliable. The shareowners appoint the external
47、auditor at the annual general meeting. The external auditor relies on the work of the internal audit, and also liaises with the audit committee.The other external stakeholders are found in the following three environments: The community or communities in which the company is operating; Society in ge
48、neral local, national and international; and Environmental and green issue stakeholders.The relevant external stakeholders involved in these three environments are: Potential investors who might become shareowners; Government (local and national); South African Revenue Services (SARS), who wants to receive taxation from the company; The investigative media; Ethical and green issue pressure groups; The public in general and other companies, as customers, clients or consumers; Suppliers; and Industry, partners and competito
