5 Literature Review and Hypothesis
Development
5.1 Assurance of Report
Assurance services could be considered a growing field as
more than 200 assurance services were currently found to be
provided. Assurance service aims at providing an independent professional opinion on the quality of corporate information to help stakeholders to take appropriate decisions.
The main characteristic of assurance is that a third independent party provides it other than the reporting firm, which
guarantees the reliability and relevance of the information
for the stakeholders. As a growing field, assurance comprises
several types of services. These services could be divided
into two main categories: attestation services and other
assurance services. The attestation services aim at issuing a
report on an information or assertion that is offered by
another party. This sort of service is the distinguished job
implemented by a Certified Public Accountant (CPA) and a
popular example is the audit of corporate financial statements. While the other assurance services do not require, but
may include, a written report. These services are not
restricted to CPAs, but non-CPA providers also implement
them. They focus on improving the quality of corporate
information used by its stakeholders. The most evolving
example of these services is the assurance of sustainability
reports, which is the concern of this research. Stakeholders
seek transparency in the disclosed information in the sustainability report in addition to the accountability of the
reporting company to the probable sustainable impacts
resulting from the company’s operations (Latridis 2013;
Rupley et al. 2012; Arens et al. 2017). In order to verify the
disclosed sustainability information, there should be an
independent professional third party so that it could be
considered as reliable and accurate for the corporate stakeholders who may lack the required knowledge and experience to verify the disclosed information. The existence of a
third party responsible for auditing the companies’ sustainability reports is an attribute for the quality of the reports, in
which the third party verification about the information
included in the sustainability report, is considered as a
guarantee for the stakeholders about the quality and the
reliability of the report upon which they base their decisions.
The existence of a third auditing party acts also as a motivator and driver for improving the quality of the reports
offered by the companies that will seek to improve the
quality of their report in order to avoid negative audit reports
(Latridis 2013; Daub 2007; Gray et al. 1993; Ane 2012;
Lamberton 2005; Hubbard 2011; Rowbottom and Lymer
2009; Hammond and Miles 2004).
While the research field has been experiencing a gap
around sustainability assurance, the practical field provides a
good level of performance. Whereas the rate of the assured
sustainability reports is increasing by time with a high percentage offered by the big 4 auditing firms (the big 4 are the
biggest international companies providing auditing, assurance, and other accounting related services and they are
Deloitte, EY, KPMG and PWC). In which, it is found that
the number of sustainability reports assured by the big 4 has
increased from 35.4% in the period of 2002–2004 to 51.35%
in the period of 2006–2007. Furthermore, an increase has
remarked in the market share of the big 4 from 60% of the
sustainability reports assured in 2005 to 67% of the sustainability assured reports in 2013. However, despite of their
increasing role in sustainability assurance, the big 4 firms
differ among each other in relation to their participation rate
in the assurance of sustainability reports as follows. In the
beginning of the current decade, KPMG and PWC showed a
greater participation in the sustainability field than Deloitte
and EY. The reason is that, Europe—where KMPG and
PWC are headquartered—promoted the concept of sustainability before the USA—where Deloitte and EY are headquartered. This promotion was significantly highlighted with
the release of the “Europe 2020 strategy” by the European
Commission in 2010, which focuses on developing business
models based on sustainability concepts and strategies. It is
worth mentioning that, KMPG specifically has been playing
the most important role in sustainability reporting among the
big 4 firms and a significant role in SR research and practice.
Since 2008, KMPG is one of the leaders in sustainability
auditing and assurance. In which it is following a business
strategy that is extensively focusing on the effectiveness of
SR and this is obviously reflected in the beneficial surveys
that it continuously holds in this field, which is also considered as one of the important references used in SR
researches. Most of the companies offering high-quality
sustainability disclosures in their reports are audited by one
of the big 4 auditors. As being global firms, the big 4 are
continuously maintaining a certain quality level of assurance
services offered to companies worldwide. It is also found
that in Netherlands—headquarters of KPMG—there is a
positive relationship between sustainability assurance and
corporate accountability for its sustainability activities
(Latridis 2013; Fernandez-Feijoo et al. 2016). This emphasizes the importance of a third independent party to audit
companies’ sustainability reports to ensure the quality of the
reports for the companies’ stakeholders, especially this type
of sustainability-related information that needs a considerable level of knowledge and experience to be verified, i.e.,
credence information. Based on that, the assurance of the
sustainability report is considered as a crucial requirement
190
N. A. El-Rahman
Development
5.1 Assurance of Report
Assurance services could be considered a growing field as
more than 200 assurance services were currently found to be
provided. Assurance service aims at providing an independent professional opinion on the quality of corporate information to help stakeholders to take appropriate decisions.
The main characteristic of assurance is that a third independent party provides it other than the reporting firm, which
guarantees the reliability and relevance of the information
for the stakeholders. As a growing field, assurance comprises
several types of services. These services could be divided
into two main categories: attestation services and other
assurance services. The attestation services aim at issuing a
report on an information or assertion that is offered by
another party. This sort of service is the distinguished job
implemented by a Certified Public Accountant (CPA) and a
popular example is the audit of corporate financial statements. While the other assurance services do not require, but
may include, a written report. These services are not
restricted to CPAs, but non-CPA providers also implement
them. They focus on improving the quality of corporate
information used by its stakeholders. The most evolving
example of these services is the assurance of sustainability
reports, which is the concern of this research. Stakeholders
seek transparency in the disclosed information in the sustainability report in addition to the accountability of the
reporting company to the probable sustainable impacts
resulting from the company’s operations (Latridis 2013;
Rupley et al. 2012; Arens et al. 2017). In order to verify the
disclosed sustainability information, there should be an
independent professional third party so that it could be
considered as reliable and accurate for the corporate stakeholders who may lack the required knowledge and experience to verify the disclosed information. The existence of a
third party responsible for auditing the companies’ sustainability reports is an attribute for the quality of the reports, in
which the third party verification about the information
included in the sustainability report, is considered as a
guarantee for the stakeholders about the quality and the
reliability of the report upon which they base their decisions.
The existence of a third auditing party acts also as a motivator and driver for improving the quality of the reports
offered by the companies that will seek to improve the
quality of their report in order to avoid negative audit reports
(Latridis 2013; Daub 2007; Gray et al. 1993; Ane 2012;
Lamberton 2005; Hubbard 2011; Rowbottom and Lymer
2009; Hammond and Miles 2004).
While the research field has been experiencing a gap
around sustainability assurance, the practical field provides a
good level of performance. Whereas the rate of the assured
sustainability reports is increasing by time with a high percentage offered by the big 4 auditing firms (the big 4 are the
biggest international companies providing auditing, assurance, and other accounting related services and they are
Deloitte, EY, KPMG and PWC). In which, it is found that
the number of sustainability reports assured by the big 4 has
increased from 35.4% in the period of 2002–2004 to 51.35%
in the period of 2006–2007. Furthermore, an increase has
remarked in the market share of the big 4 from 60% of the
sustainability reports assured in 2005 to 67% of the sustainability assured reports in 2013. However, despite of their
increasing role in sustainability assurance, the big 4 firms
differ among each other in relation to their participation rate
in the assurance of sustainability reports as follows. In the
beginning of the current decade, KPMG and PWC showed a
greater participation in the sustainability field than Deloitte
and EY. The reason is that, Europe—where KMPG and
PWC are headquartered—promoted the concept of sustainability before the USA—where Deloitte and EY are headquartered. This promotion was significantly highlighted with
the release of the “Europe 2020 strategy” by the European
Commission in 2010, which focuses on developing business
models based on sustainability concepts and strategies. It is
worth mentioning that, KMPG specifically has been playing
the most important role in sustainability reporting among the
big 4 firms and a significant role in SR research and practice.
Since 2008, KMPG is one of the leaders in sustainability
auditing and assurance. In which it is following a business
strategy that is extensively focusing on the effectiveness of
SR and this is obviously reflected in the beneficial surveys
that it continuously holds in this field, which is also considered as one of the important references used in SR
researches. Most of the companies offering high-quality
sustainability disclosures in their reports are audited by one
of the big 4 auditors. As being global firms, the big 4 are
continuously maintaining a certain quality level of assurance
services offered to companies worldwide. It is also found
that in Netherlands—headquarters of KPMG—there is a
positive relationship between sustainability assurance and
corporate accountability for its sustainability activities
(Latridis 2013; Fernandez-Feijoo et al. 2016). This emphasizes the importance of a third independent party to audit
companies’ sustainability reports to ensure the quality of the
reports for the companies’ stakeholders, especially this type
of sustainability-related information that needs a considerable level of knowledge and experience to be verified, i.e.,
credence information. Based on that, the assurance of the
sustainability report is considered as a crucial requirement
190
N. A. El-Rahman