As organisations broaden the scope and depth of what they report to the market, investors are demanding the same ‘investment-grade’ quality as provided in the company financials. This means the role of external auditors in providing independent assurance is vital.
In an environment where trust is a burning platform for businesses, Boards have the critical responsibility to ensure that all forms of information reported to the market are robust and accurate.
As companies progressively enhance their suite of corporate reporting and share insight into their business model and strategy (commonly referred to as Integrated Reporting), Boards must ensure the same level of integrity that is applied to financial information is extended across all subject areas.
They must uphold Principle 4 of the ASX Corporate Governance Principles and Recommendations which specifies that “a listed entity should have formal and rigorous processes that independently verify and safeguard the integrity of its corporate reporting”.
A key element in meeting this requirement is assurance provided by internal and external audit professionals.
If Boards gain audit assurance on all topic areas in an integrated report, this will also increase a Board’s confidence in the integrity of its reporting, increase the confidence of investors and stakeholders in the accuracy of reports, and contribute to building all-important market trust.
For all corporate reporting issued, Boards will typically seek assurance over compliance with the basis of preparation.
To achieve this, Directors will look to a mix of internal controls and management sign-offs, internal audit reviews and independent external audit and assurance. These steps should be documented in a Board approved Assurance framework, and summarised in the Report’s basis of preparation.
Assurance from an independent auditor in key areas of disclosure will provide deeper confidence to investors in the information they are working with, thereby enhancing trust through greater transparency.
Given the non-mandatory status of integrated reporting, it will be up to the Board to decide what areas of an integrated report are given external assurance. However, having independent assurance over all areas reported will likely be of greatest value for investors and other key stakeholders.
When assuring insight into the company’s strategy or business model, an auditor’s role will not be to assess if the approach is ‘right’ or ‘wrong’, as that is a matter for the company. However, the auditor will need to consider and report on whether the strategy and business model has been explained fairly, and whether the data explains how well these are being implemented.
Topic areas to assure may include the company’s strategic objectives, an overview of the business model, areas of Board focus, value drivers, material risks and opportunities, and completeness and accuracy of material disclosures. There could be diagrams, graphics and key performance indicators with respect to financial and non-financial performance, and risk management outcomes.
Delivering assurance will require the auditor to review and assess certain additional processes, systems and controls, and opine on company assertions, data points and frameworks. Their domain knowledge and experience dealing with data and processes will help ensure an effective and tailored assurance process.
The role of independent auditors is essentially to help ensure the stability of the capital markets. This position does not change when it comes to integrated reporting, with the same rigorous approach required over the broader scope of disclosures.
Financial statement auditors are in an ideal position to lead the provision of, and be accountable for, providing assurance over integrated reports, as their understanding of the company typically runs deep, they apply rigorous assurance methodologies geared to the needs of capital markets, and they are independent. They are inquisitive, have a sceptical mindset, and draw on a raft of assurance techniques to deeply analyse the information provided, before reporting their findings to the Board and the market.
Auditing the broader set of themes in an integrated report will likely require specialist support. For example, industry specialists to assist in assessing the company’s key strategic challenges and related responses. This already happens today, for example treasury specialists are used to support the audit of banks and other financial institutions.
Audit assurance can be taken one step further – it can also opine on the quality of the reporting strategy and performance of the integrated reporting management system, either privately to the Board, or publicly. Whether that assurance is delivered privately or publicly is also a matter for the Board.
Auditors can also help organisations to design and test their integrated reporting management system and underlying internal controls which will be central to accurately capturing, managing and monitoring key matters and including them in the report.
This approach adds to the value of assurance to Boards, investors and other key stakeholders.
In this tech-driven world, auditors must work concurrently with machines, and ask deep, critical questions to ensure the accuracy of source data for reports, and logic of the outcomes. Auditors must be able to understand the language and logic behind the technology, and see how that is influencing the outcomes reported. They can question the parameters of the machine, and whether using a machine or a human is the optimal way of processing and analysing information, and determining and reporting outcomes.
Financial report auditors are already using technology in this way, to undertake routine transaction work and enhance efficiency using robotics, as well as to analyse and correlate data to support their opinions using data analytic techniques and Artificial Intelligence. Using technology in this way on an integrated report helps to provide deeper insight about material value-related information provided to the market.
Independent assurance is vital in helping Board’s to uphold Principle 4 and the company’s reporting strategy, to assist with the right information being collated, analysed and accurately reported. Auditors can offer assurance across the breadth of integrated reports and can engage new technologies to enhance the process.
In short – independent auditors bring to the table the attributes and critical thinking that directors need and investors trust.
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