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Sustainability Accounting, Management and Policy Journal
Governance, firm-level characteristics and their impact on the clients voluntary

sustainability disclosures and assurance decisions
Michael Kend
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Michael Kend , (2015),"Governance, firm-level characteristics and their impact on the clients
voluntary sustainability disclosures and assurance decisions", Sustainability Accounting,
Management and Policy Journal, Vol. 6 Iss 1 pp. 54 - 78
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SAMPJ
6,1
Governance, firm-level
characteristics and their impact
on the clients voluntary
54 sustainability disclosures and
assurance decisions
Michael Kend
Accounting Department, RMIT University, Melbourne, Australia
Abstract
Purpose The purpose of this study is to consider three distinct bodies of literature and uses
stakeholder theory as the premise of this study. The first deals with corporate sustainability reporting
and voluntary disclosure behaviour, and corporate governance at the firm level, the second deals with
the decision to utilize assurance services (voluntary adoption) and the third relates to the choice of
auditor/assurance provider.
Design/methodology/approach This study investigates these issues using archival data from
some of the Top 200 listed companies in 2010 from the countries Australia and the UK. The final
matched-pair sample consists of 220 listed companies.
Findings The study finds that audit client size and the strength of corporate governance structures
are significant in explaining the decision to produce a standalone sustainability report. Whereas few of
these variables provide any explanatory value on the voluntary decision to assure the sustainability
report, the existence of an active and diligent audit committee does have positive significance. Finally,
the existence of an active and diligent sustainability committee is significant in explaining the choice of
assurance provider where a member of the auditing profession was selected by the firms management.
Originality/value Few studies (if any), have found a link between governance characteristics,
sustainability report production, and assurance provider. The current study attempts to address this
knowledge gap, and also considers the assurance work by professionals outside the auditing profession,
and identifies which governance and firm-level characteristics may explain demand for their assurance
services. This current study, assists to understand the low incidence of assurance and what might be
necessary to increase demand for this type of assurance.
Keywords Sustainability reports, Assurance services
Paper type Research paper
1. Introduction
Since the past decade, sustainability reporting has moved into mainstream corporate
life, and very few corporations do not have a sustainability strategy in place according
to KPMG one of the large Big Four accounting firms (KPMG, 2005, 2008, 2009, 2010).
While sustainability reports have become something of a feature on the corporate
Sustainability Accounting,
Management and Policy Journal agenda in some parts of the world, the majority of business organisations do not
Vol. 6 No. 1, 2015
pp. 54-78
Emerald Group Publishing Limited
2040-8021
Thanks to those that participated in the RMIT research seminar series in 2012, and visiting Prof
DOI 10.1108/SAMPJ-12-2013-0061 Rob Gray from St Andrews, Scotland.
undertake this type of standalone voluntary reporting (Higgins et al., 2013). Further, for Voluntary
those that do undertake this type of standalone reporting, external sustainability sustainability
assurance attached to the sustainability report is uncommon. For example, in 2010, of
the 1,793 global companies that filed sustainability reports with the Global Reporting
disclosures
Initiative, only 37 per cent claimed external assurance of those sustainability reports
(Borkowski et al., 2011). The main aim of this paper is to investigate the relation between
selected governance characteristics and firm-level characteristics, and company choice 55
in relation to the production and assurance of standalone sustainability reports.
The specific research questions are:
Are there different firm-level and governance characteristics between those audit
clients in the sample that choose to release a standalone voluntary sustainability
report and those that do not release such a report?
clients in the sample that choose to have external assurance statement with their
standalone voluntary sustainability report (considered as other assurance
services) and those in the sample that do not have any assurance statement with
their standalone sustainability report?
clients in the sample that have a Big Four audit firm provide an assurance
statement on their standalone voluntary sustainability report and those audit
clients that have a non-accounting firm (other assurance provider) provide this
assurance statement?
This study examines the sustainability reports of the Top 200 companies listed on the
Australian Securities Exchange (ASX) and the London Stock Exchange (FTSE) in
Australia and the UK, and selected governance- and firm-level characteristic differences
between them. Australia and the UK have both seen substantial auditor independence
reforms, leading the way in this area of reform with legal backing of their respective
auditing standards. Lack of independence leads to quality problems and threats to the
capital markets if the auditors function is not of value. Gray (2000) reasons that good
quality attestation is essential for reliability of information conveyed in sustainability
reports to fulfil its role in developing transparency and accountability. He also adds that
there has been no research into auditors practices and concerns regarding the
attestation of social data, but auditors have de facto responsibility for social and
environmental reports that are published separately or as a part of financial statements.
This study considers three distinct bodies of accounting literature, and uses stakeholder
theory as the premise of the study. The first deals with corporate sustainability
reporting and voluntary disclosure behaviour and corporate governance at the firm
level, the second deals with the decision to utilize assurance services (voluntary
adoption) and the third relates to the choice of auditor/assurance provider.
The process of sustainable reporting is governed by the principle of accountability
and concerns the reflection of the aspirations and needs of all stakeholder groups,
requiring consideration of powerless stakeholders including future generations and the
environment (Wallage, 2000, p. 55). The process of sustainable reporting is complex
because of many different stakeholder groups and the infinite number of sustainability
issues. Interests of different stakeholder groups per issue may even conflict, leading to
SAMPJ dilemmas to be managed by the companys board (Wallage, 2000). There is increasing
6,1 demand for companies and their boards to consider the impact of the companys present
activities on future generations and the powerless stakeholders (Wallage, 2000; Gray,
2006). There are arguments in favour of generally accepted standards for sustainability
reporting. The relationship(s) between social, environmental and financial performance
and assurance services are increasingly significant in this context and this significance
56 is reflected in considerable growing interest in the accounting, business and political
communities. Gray (2006) suggests that voluntary sustainability reporting, social
responsibility and financial performance may not be mutually constitutive and
mutually reinforcing as has been suggested; however, no mention is made of voluntary
sustainability report assurance which is important to the principle of accountability,
and why companies may or may not choose this type of service. Assurance work adds
credibility to such reports and information, and helps provide stability to markets and
their operations. This study helps us understand which selected governance and
firm-level characteristics assist in explaining the production of standalone

sustainability reports and the voluntary engagement of external assurance work on
those reports, and therefore, advances our understanding of which companies are more
likely to focus on their accountability to stakeholders.
A substantial body of literature from a wide spectrum of theoretical positions
concludes that social and sustainability disclosures are an important phenomenon used
by corporations for a variety of purposes (Gray et al., 2001). Such disclosures
particularly from larger corporations have been steadily increasing in both size and
complexity over the past two decades (Gray et al., 2001). These disclosures are now
attracting increasing attention from stakeholders and regulators, and the manner or
format of the disclosures is considered important in how corporations are attracting this
increased exposure to social and environmental issues (Gray et al., 2001). In the UK, at
least, corporate social and sustainability disclosure is related to corporate
characteristics of size, profit and industry affiliation (Gray et al., 2001). However, more
research is needed before we can claim any unique relationship between any measure or
method of disclosure and any corporate characteristics. Some empirical studies find
evidence that the presence of the audit, compensation and nomination committees in the
board positively affect voluntary disclosures, although not strictly sustainability
disclosures, as few studies have investigated that perspective (OSullivan et al., 2008).
The current study contributes to the accounting literature by doing so.
Finally, very little is currently known about assurance on sustainability reports, with
the exception of some descriptive research surveys that have been undertaken (Simnett
et al., 2009). Assurance provides several benefits, it helps reduce agency costs (Carey
et al., 2000), and confers greater user confidence in the accuracy and validity of the
information provided. The information provided needs to have perceived and actual
credibility. Assurance plays an important role in this. The literature has reported the
value obtained by using assurance (Simnett et al., 2009), and the incremental value
associated with high-quality assurance (Craswell et al., 2002). Assurance is related to
a desire to improve credibility of the disclosed information, and the general public may
assume that the financial auditor is the most appropriate professional service provider
to provide that credibility. Evaluating the role of assurance and choice of assurance
provider in the international market, is more suitable in a voluntary reporting setting
(e.g. sustainability reporting), than a regulated financial statement setting (Simnett et al.,
2009). There is a clear need for an improved definition of social responsibility and a Voluntary
better audit instrument (Kok et al., 2001), so until this is addressed, the verification of sustainability
sustainability reports will continue to be a very challenging assurance service for
financial auditors (Wallage, 2000; Simnett, 2012), and further research is needed by
disclosures
academics in this area. Assurance of sustainability reporting in the annual reports is not
considered in this study as that assurance is of a different level, reasonable and not
limited assurance, therefore in reality we are dealing with different types of assurance 57
services that are not comparable, one being a full financial statement audit, the other
being a review engagement. A review engagement usually involves substantially less
audit procedures and time (in terms of hours billed) and therefore is usually less costly
compared to a full-year financial statement audit (annual report). Therefore, the level of
assurance provided is only limited assurance.
The current study finds that audit client size and the strength of corporate
governance structures are significant in explaining the decision to produce a standalone
sustainability report. Also the existence of an active and diligent audit committee does
have a positive significance on the decision to assure a standalone sustainability report.
Finally, the existence of an active and diligent sustainability committee is significant in
explaining the choice of assurance provider where a member of the auditing profession
was selected by the firms management.
The next section conveys some of the relevant literature from accounting sources.
Section 3 develops the hypotheses used in this study. Section 4 explains in detail the
method or approach used in this study. Section 5 analyses and interprets the findings
and discusses their implications. Section 6 provides concluding remarks.
2. Literature review
This section is divided into two parts, the first examining the international studies on
sustainability report disclosures, and selected governance characteristics and the
second on selected firm-level characteristics, voluntary assurance and auditor choice.
2.1 Sustainability reporting, and how corporate governance characteristics influence

voluntary disclosures
Sustainability accounting in its contemporary form, which involves issuing a report on
social performance of an organization, started in the 1970s (Gray, 2000). Sustainability
reporting emerged on the corporate scene nearly 30 years ago and has evolved as a key
mechanism through which business organisations would manage a transition to a new
business landscape dominated by greater concern and consciousness about
sustainability (Higgins et al., 2013). A number of studies have since examined various
aspects of sustainability reporting, including the alleged potential of financial markets
to contribute to social responsibility and sustainability. For example, Murray et al.
(2006) explored whether there is any relationship(s) between social and sustainability
disclosure and the financial market performance of the UKs largest companies. They
found no direct relationship between share returns and such disclosures. Neither had
such a relationship been expected, in keeping with prior literature (Murray et al., 2006).
Extensive research, in an attempt to identify the relationship between corporate social
and financial performance by investigating companies annual and financial reports,
has shown largely inconclusive results (Varenova et al., 2013).
SAMPJ Brammer and Pavelin (2006) argue that the composition of the board of directors
6,1 should impact sustainability disclosures. That is, non-executive independent board
members may be better aligned with external stakeholder interests and this may lead to
better sustainability disclosure. However, when they tested this relationship
empirically, they did not find a statistically significant relationship. Therefore, in the
current study, board composition is not considered. In terms of sustainability
58 performance, Kassinis and Vafeas (2002) hypothesised that certain aspects of corporate
governance would impact whether firms violate environmental laws. They focus on four
aspects of corporate governance: board composition, board size, outside directorships
and inside directorships. Kassinis and Vafeas (2002) focus board composition in an
unusual way, by examining whether the board is composed of directors who have an
industry affiliation with the company arguing that familiarity leads to poor
sustainability performance. They interestingly find a statistically significant
relationship between environmental lawsuits and the number of peers who sit on the
board.
Higgins et al. (2013) explores why 23 of Australias top 200 companies do not
undertake voluntary sustainability reporting. Their study is situated in the context of a
considerable literature that promised numerous benefits to be derived from this type of
reporting. Their paper uncovers various social and organisational factors that raise
some new questions about legitimacy theory, corporate accountability and the spread
and uptake of this organisational practice. A question that arises when looking at more
than one country, however, is whether firm-level factors can be examined in isolation
without considering the country-level issues. For example, in Australia, what is the
impact of the ASXs Good Corporate Governance Principles and similar regulations, on
the measures of corporate governance in the model, and is there an equivalent impact in
the UK? It is possible that there are implications that will produce differences between
Australia and the UK; however, they are difficult to precisely measure. This is further
discussed when sensitivity test results are conveyed below.
According to the KPMG (2008) study, many companies still do not make the
connection between corporate governance and sustainability reporting. In fact, only a
small percentage of companies actually show a link corporate governance and corporate
responsibility in their reports (Dilling, 2009). Past studies (such as Dilling, 2009) have
not been able to find a significant association between corporate governance
characteristics and sustainability reporting; therefore, there is a need for more research.
Also there have been a number of studies that hypothesized a link between discrete
aspects of corporate governance, sustainability disclosure and/or environmental
performance (Cong and Freedman, 2011). OSullivan et al. (2008) finds that audit quality,
measured also by the frequency of meeting of the audit committee, is positively
associated with the decision to disclose forward-looking information in the annual
report. Allegrini and Greco (2013) hypothesize that the presence of the audit, nomination
and compensation committees, composed by a majority of independent directors, is
positively associated with the level of voluntary disclosure. The audit committee
meeting frequency also show a positive impact on the amount of information voluntarily
disclosed. They also find that board committees and board composition have no
relationship with voluntary disclosure; however, Allegrini and Greco (2013) do not
consider sustainability and governance committees. This research can be further
extended by considering audit, governance and sustainability sub-committee
membership. Even mandated SR disclosures and governance characteristics could be Voluntary
further investigated, but that is beyond the scope of the current study, which deals only sustainability
with voluntary sustainability disclosures. Overall, there is a need for research to find
some association between corporate governance characteristics and voluntary
disclosures
sustainability reporting.
2.2 Firm-level characteristics, voluntary assurance of sustainability reports and 59

auditor choice
Companies are recognizing the potential comparative advantages of publicly disclosing
their goals related to non-financial and financial performance measures and then
reporting on how well they achieve those goals (Srivastava et al., 2011). So voluntary
sustainability disclosures and assurance initiatives and the method or format of these
disclosures will be heavily dependent on company strategies to obtain these
advantages, improve long-term performance and risk management related to litigation

exposure and potential liability arising from the companys operating activities.
Considering first the most recent research on the assurance of sustainability reports,
the largest international study completed thus far is that by Simnett et al. (2009). They
examine a sample of 2,113 companies that produced a sustainability report from
31 countries, from the period 2002 to 2004. Simnett et al., (2009), identify several factors
associated with the decision to voluntarily purchase assurance, and factors that affect
the choice of assurance provider. They hypothesize that a companys need to enhance
credibility through assurance and choice of assurance provider will be a function of
company-, industry- and country-related factors. When it comes to examining
company-related factors the Simnett et al. (2009) study uses controls that are well
established in the literature on voluntary demand for assurance such as sales, leverage
and return on assets. The current study, which focusses more on selected firm-level
characteristics, considers client size, client fees (both audit and sustainability), profit
margin, sales growth and several corporate governance variables. At the company level,
the Simnett et al. (2009) study provides inconclusive evidence, instead finding at the
country-level, that companies operating in stakeholder-oriented countries are more
likely to choose the auditing profession as an sustainability report assurance provider.
So one of the contributions of the current study is to consider more company-level
factors, such as Dilling (2009) considered, but for more than one industry.
Dilling (2009) completed an international study focussing only on one industry that
examines sustainability reports and related quality. The study examined 124 companies
from 25 countries and the results convey that companies located in Europe that are
active in the energy sector and have a higher profit margin as more likely to produce
high-quality sustainability reports. On the other hand, companies with higher long-term
growth rates are less likely to produce sustainability reports. Dilling (2009) considered
selected company-level factors, but not the choice of assurance provider. The current
study uses these company-factors and applies them to an analysis that considers what
the study Simnett et al. (2009), completed for the country-level drivers and thus
providing empirical findings to help explain whether a company will produce a
voluntary sustainability report, whether the company will have it assured and what
company-level factors determine the selection of the sustainability report assurance
provider. The results of Kolk and Perego (2010) provide evidence that companies
operating in countries that are more stakeholder oriented and have a weaker governance
SAMPJ enforcement regime are more likely to adopt a sustainability assurance statement.
6,1 Further, the demand for assurance is higher in countries where sustainable corporate
practices are better enabled by market and institutional mechanisms. Their exploratory
findings also indicate that the likelihood of choosing a large accounting firm as
assurance provider increases for companies domiciled in countries that are
shareholder-oriented and have a lower level of litigation.
60 Another international study that examines the choice of sustainability report
assurance provider is that of Perego (2009) which used a logistical regression to analyse
a sample of 136 international companies. This study found that companies from
countries with weaker governance systems are more likely to choose a Big Four
accounting firm as the sustainability report assurance provider. Which is not consistent
with the Simnett et al. (2009) findings. Also Perego (2009) reports that country-level
factors related to the quality of the legal environment should be considered before
selecting an independent sustainability report assuror. There is a need to refine the
theoretical framework investigated in these papers and Perego (2009) suggests

considering additional company-level drivers of voluntary sustainability assurance
services. Only a small number of empirical studies have examined the demand drivers
for the voluntary adoption of assurance, mainly because in most developed economies
assurance of financial reports is mandated by law (Simnett et al., 2009; Cho et al., 2014).
In a study examining the period of 2002 to 2004, Mock et al. (2007) investigated a
worldwide sample of 130 companies that issued assured sustainability reports, and
contributed to this literature by considering the levels of assurance provided and the
factors that affect the level of assurance provided. Also they consider the type of
assurance provider (Big Four and non-Big Four) and the nature of the assurance service
provided. Mock et al. (2007) find that more than half of the assured sustainability reports
were issued in the European Union (67 per cent), and that 65 per cent of assured reports
were reviewed by non-Big Four auditors. This finding related to the non-Big Four
maybe isolated to the European Union because other studies have noted that many
smaller companies that are filing corporate sustainability reports are not seeking
external assurance services (Borkowski et al., 2011). Interestingly the Mock et al. (2007)
study finds that the non-Big Four rely more on the AA1000 framework, whereas the Big
Four firms tend to rely on international standards. A more recent study by the same
authors Mock et al. (2013) investigates the development of assured sustainability reports
during this centurys first decade. More specifically, it presents basic descriptive data on
a sample of 148 sustainability reports published in 2006 and 2007 and contrasts this
sample with the sample discussed in Mock et al. (2007). The prior study examined a
sample of 130 assured sustainability reports issued between 2002 and 2004. Some
important differences are observed related to whether the assurance provided applies to
both the quantitative and qualitative assertions made in the report (significantly
negatively associated with the Big Four in the 2002-2004 period, but not significant in
2006-2007).
Other studies have focussed on the contents of the sustainability assurance
statements (Deegan et al., 2006a, 2006b) and questioned the independence of the
assurance providers (Patten, 1991; ODwyer and Owen, 2005; ODwyer, 2011; and
ODwyer et al., 2011). The Deegan et al., studies focus on assurance statements released
in Australia, the UK and Europe and found major inadequacies in the content, scope and
conclusions of these statements, leading the authors to question the value of the
assurance work. ODwyer and Owen (2005) raised question-marks regarding the Voluntary
independence of the assurance exercise, as well as revealing a large degree of sustainability
management control over the assurance process. Park and Brorson (2005) also reveal
concerns from Swedish firms over this assurance exercise stating that cost concerns and
disclosures
question-marks over the value of the assurance were conveyed by participants in their
study.
61
3. Hypotheses development
Organisations that release a standalone sustainability report as opposed to those that
use a different format for disclosure of the same type of information, are assumed to be
adopting a disclosure strategy to manage a broad range of stakeholders (Deegan, 2007),
some that are considered powerful enough to demand a standalone report (using the
managerial perspective to stakeholder theory). Owen et al. (2000) suggested that
subsuming the ideals of accountability and transparency to commercial motivations is

simply part of managerial capture. They raise the concern in their study that these
stakeholders are not generally included in collaboratively designing social performance
within organizations, nor are they approached to provide feedback on subsequent
sustainability reports, so it is merely a one-way process. Perhaps only the most powerful
stakeholders have any chance of consultation opportunities where possible. It is
expected that these organisations will be larger in size (measured by market
capitalization), the literature consistently speculates that larger companies will make
greater use of voluntary disclosure of information related to their social and
environmental activities (Gray et al., 2001) and will be paying on average higher audit
fees, which is traditional correlated with larger company size (Houghton and Ikin, 2001).
These organisations are expected to be fast growing, more profitable companies (Gray
et al., 2001), that have strong corporate governance structures in place, including an
active and effective board of directors (H1). Given the costs associated with producing
these standalone reports voluntarily the more profitable, growth companies that can
afford well-developed governance structures are predicted to be the companies most
likely to produce these reports to satisfy powerful stakeholders demanding this type of
voluntary disclosure, where some consultation process exists. The role of stakeholder
theory is to help analyse these results:
H1. Different firm-level and governance characteristics will be significant in
determining which audit clients in the sample choose to release a standalone
voluntary sustainability report and which do not release such a report.
For sustainability reporting to be successful it needs to be integrated with the overall
mission and the resulting strategies of an organisation. This includes an efficient
inter-linkage between corporate governance and the SR program (Dilling, 2009). Many
multinationals have over time started to pay attention to board supervision and the
structuring of sustainability responsibilities in addition to compliance, ethics and
verification (Dilling, 2009). The audit committee is of the key aspects of board,
management and auditor supervision. Of these organisations that release a standalone
sustainability report it is therefore predicted that those that have a voluntary assurance
statement with the sustainability report, will have an active and diligent audit
committee, and again be fast growing, more profitable companies (Gray et al., 2001) that
can afford this type of assurance service, above and beyond the traditional generic
SAMPJ financial statement audit. Therefore, the audit committee is considered more than
6,1 simply ceremonial or symbolic, as it is considered the key driver ensuring effective
oversight of the organisations sustainability disclosures, requiring independent third
party sustainability report assurance (Beasley et al., 2009). Sustainability reporting aims
to provide stakeholders with a clear picture of company values and principles,
governance and management values (Dilling, 2009). The audit committee is predicted to
62 be effective in this regard (H2):
H2. Different firm-level and governance characteristics will be significant in
determining which audit clients in the sample choose to have external assurance
statement with their standalone voluntary sustainability report and those that
do not have any assurance statement with their report.
Prior studies support a positive relation between the establishment of audit committees
and financial reporting quality. In the current study, it is anticipated that a higher level
of corporate governance is positively related to the publication and assurance of a

standalone sustainability report. Firms with audit committees are less likely to
manipulate earnings (Dechow et al., 1996), have more reliable financial reporting
(McMullen, 1996) and are more likely to voluntarily disclose information (Ho and Wong,
2001). However, it has been argued that the mere existence of an audit committee does
not necessarily translate into better financial reporting quality (Kalbers and Fogarty,
1993). Both audit and sustainability committees could be considered intervening
variables rather than predictors of the decision to adopt voluntary assurance, if one
assumes, for example, that an active audit committee affects the choice of setting up
these governance structures and in turn they impact on the dependent variables.
However, in this study, these assumptions are not made; therefore, they are used as
explanatory variables. Research on audit committees has yet to extend the boundaries of
accounting research and often questions are raised about the appropriateness of the
measures of audit committee effectiveness, and the various dimensions investigated
(Bedard and Gendron, 2010). Theoretically and methodologically, this area of
accounting research has the capacity to further develop.
Assurance statements are part of the dialogue process with these stakeholder groups
and are an important part of sustainability reporting and verification. Organisations
must continually adapt operating and disclosure strategies. Information, including
financial accounting and social performance information, is a major element used to
manage stakeholders. Under stakeholder theory, these disclosures depend on
expectations of powerful stakeholders if the managerial perspective of stakeholder
theory is accepted. Stakeholder theory is essentially a market forces approach in which
resources and the provision or withdrawal of those resources determine the type of
voluntary sustainability disclosure as a given point in time (Cunningham, 2011).
Hiring its auditor for sustainability report assurance could compromise that
auditors independence in appearance as these other assurance services are seen as
lucrative and perhaps this may also increase fee dependency on the one audit client. Fee
dependency was a major issue to come out of the Enron collapse, as 30 per cent of the
revenue stream of Arthur Andersens Houston office came from Enron Corporation
alone (Houghton and Ikin, 2001). As a result of these concerns, some audit clients will not
hire their financial statement auditors for sustainability report assurance. However,
some corporations will not factor in these concerns as most of the bad press and
subsequent regulatory restrictions (such as Sarbanes Oxley Act, 2002) have been Voluntary
directed at non-audit services and not at other assurance services like review sustainability
engagements. Thus, their decision not to hire their financial statement auditors may
have more to do with economic considerations such as fees charged. Therefore, it is
disclosures
predicted that auditors that charge premium audit fees are also likely to charge higher
fees for other assurance services, and this maybe a reason why some corporations
engage assurers from outside the auditing profession and not merely because of 63
independence in appearance concerns.
Organisations that choose the auditing profession to assure their sustainability
report, are more likely to select their financial statement auditor to provide this service,
due to company specific knowledge, expertise and synergies (knowledge spillovers),
perhaps leading to cost savings, whereas other organizations that prefer to engage
another accounting firm to assure their sustainability report, are expected to have an
active and diligent sustainability committee, that is involved in developing a
sustainability strategy. These companies will either select another accounting firm or
choose a provider not from the auditing profession (e.g. environmental consultant)
because they are concerned about audit independence in appearance (H3):
H3. Different firm-level and governance characteristics will significantly explain
why some audit clients in the sample have a Big Four audit firm provide an
assurance statement on their standalone voluntary sustainability report and
other audit clients in the sample have a non-accounting firm (other assurance
provider) provide this assurance statement.
We are also assuming that such organisations are interested in becoming sustainability
leaders, and seek enhanced credibility of their disclosures and have sought other
services, not just sustainability report assurance from a non-accounting firm. The
danger is that this becomes a skillfully controlled public relations exercise where there
is no real change in corporate governance structures, and the agenda is just monopolized
by consultants and/or corporate management (Owen et al., 2000). This may help explain
why accounting firms have less sustainability report assurance work than they claim to
have. In terms of explaining why accounting firms are not selected to provide this type
of assurance, a possible explanation is the premium fees they charge; thus, it is expected
that there will be a negative association between other assurance service fees and the
decision to choose an accounting firm. Independent assurance is costly from the
auditing profession, and as Park and Brorson (2005) report firms are concerned about
the value of sustainability report assurance and its related cost. Therefore, higher audit
and other assurance fees means the preferred sustainability report assurance provider
will not be from the auditing profession, if the organizations focus is more on cost
savings. Post-Enron, there is far less provision of non-audit services for audit clients,
thus providing assurance on a sustainability report would most likely not impair
independence. Therefore, the spill-over argument may have better explanatory power
when examining the joint provision of audit and non-audit services. The current study
does not investigate this notion however future research should consider this.
4. Data
This research attempted to identify and observe as many sustainability reports as
possible that were published in the year 2010 by Top 200 listed FTSE and ASX
SAMPJ companies in both the UK and Australia (i.e. total population 400). Both countries have
6,1 a shared heritage and there are many Top 200 listed companies from each country
operating in each others region. Companies that produce no standalone sustainability
report or any other voluntary sustainability disclosures are not considered, as they tend
to be smaller and outside the Top 200. The sustainability reports examined typically
have sections discussing the companys impact on the environment (i.e. air quality,
64 biodiversity, waste and recycling), also on community (i.e. charity work, youth), etc. As
a decision rule, these reports also had to be titled Sustainability Report. The major
source of these reports was the Global Reporting Initiative database
(www.globalreporting.org), other databases, like OSIRIS and general searches for
annual reports on Google. This study comprises all the Top 200 listed companies that
released sustainability reports in both the UK and Australia. In total, 220 companies in
both the UK and Australia are considered in this study out of a possible 400 listed
companies, 110 companies that released a standalone sustainability report (50 in

Australia and 60 from the UK) and 110 that did not released a standalone sustainability
report but some other form of voluntary disclosure (50 in Australia and 60 from the UK)
matched on size (market capitalization). This allowed the analysis (stage one) were the
firm-level characteristics unique to those that produce a standalone sustainability report
could be identified. The other 180 companies did not either release a standalone
sustainability report, or disclose any type of voluntary sustainability information on
their corporate websites or in their annual reports. These 180 companies out of the
population of 400 are not used in this study. In Australia, most of these ASX listed
sample companies were from the Banking, Consumer, Materials and Energy sectors
(64 per cent of the Australian sample). In the UK, most of the FTSE listed sample
companies were from the Banking, Consumer, information technology and energy
sectors (60 per cent of the UK sample). Because of these industry differences, the
companies were matched on size not industry. Of the 110 UK and Australian companies
that released a sustainability report, 68 companies (62 per cent) had independent
assurance statement attached to the standalone sustainability report. This study
identified that in 26 cases out of 68 in total (38 per cent), the assurance provider was a
member of the auditing profession (Table I). To compare and analyze both countries
some data had to be converted into British pounds.
5. Research model
The research approach used here is similar to Dilling (2009) adding the extra dimension
of assurance and other fees; however, the statistical model is different, given the
sequential nature of the decision points that follow through the research questions.
The research model is tested using a sequential logit analysis, which addresses the
sequential notion of the decisions:
the listed companies decide either to produce a standalone sustainability report or
include this information using another format;
for companies that produce a sustainability report deciding whether their
sustainability report is assured or not; and
those that assured their sustainability report deciding whether to choose the
assurance provider from the auditing profession or not.
KPMG Deloitte PwC E&Y

No. of sustainability sustainability sustainability sustainability Other sustainability No sustainability
Country companies clients clients clients clients assurance providers report assurance
Sustainability report assurance

Australia 50 (100%) 2 (4.0%) 0 0 6 (12%) 24 (48%) 18 (36%)
UK 60 (100%) 0 2 (3.4%) 8 (13.3%) 8 (13.3%) 18 (30%) 24 (40%)
Statutory audits
Australia 50 (100%) 16 (32%) 10 (20%) 8 (16%) 16 (32%)
UK 60 (100%) 14 (23.3%) 14 (23.3%) 20 (33.3%) 12 (20%)
companies
the sample
share of
statutory audits of
assurance and
Big Four market
Table I.
65
disclosures
sustainability
Voluntary
sustainability report
SAMPJ Table I provides more insight in regards to these decisions and the number of
6,1 observations. The model tested is as follows:
SR_RELEASED/SR_ASSURED/PROVIDER f
(FIRM CHARACTERISTICS, GOVERNANCE, CONTROL VARIABLES) (1)
66 In the first step of the analysis, SR_RELEASED takes on the value of 0 in the case of a
sustainability report not being released, and 1 where the report was produced in the year
2010. In the second step which only includes a subset of the observations,
SR_ASSURED takes on the value of 0 in the case of the sustainability report not being
assured, and 1 where the report is assured. And finally, in the third step using a further
subset of the observations, PROVIDER takes on the value of 0 where the sustainability
report assurance provider is not from the auditing profession, and 1 where the assurance
provider is a member of the auditing profession.

A set of corporate governance variables are used: ACMEET is the number of audit
committee meetings in the year 2010, ACMEB is the number of members on the audit
committee, BDMEET is the number of board of directors meetings in 2010, BDMEB is
the number of members on the board of directors, SCOMM indicates the value 0 where
the company has no sustainability committee, and 1 where there is such a committee,
SCMEB is the number of members on the sustainability committee, GCOMM indicates
the value 0 where the company has no governance committee, and 1 where there is such
a committee, and GCMEB is the number of members on the governance committee.
Market capitalisation is used as a company size proxy and control variable for the
period 2010, so the average is taken from the start and the end of the period, and the
natural log function is applied to the result using the British Pound as the currency
LN(SIZE). Same with audit fees LN(FEE) and other assurance fees LN(OTHERFEE),
again converted to British Pounds. Other assurance fees are an indirect measure of
sustainability report assurance fees, this is not an accurate measure, and a recognized
limitation of the study, as the specific sustainability report assurance fee is not disclosed
separately in the annual reports. Because sustainability report assurance is considered
as other assurance services the variables audit fees and other assurance fees are
included in the model. They are likely to affect both the demand for assurance services
and the choice of provider. There is a risk of multicollinearity in the multivariate
analysis because audit fees and client size are usually highly correlated therefore
causing bias, so in the models other assurance fees are run separately from audit fees,
while controlling for client size.
COUNTRY represents either the UK equal to 1 or Australia equal to 0 for the Top 200
listed companies in the sample; however, with some organizations cross-listed in both
countries, these are dropped for robustness test. For example, when an organization is
cross-listed, governance structures tend to have a common effect on disclosure and
assurance choice behaviours which minimises country differences. Based on the
voluntary demand for sustainability assurance literature (Gray et al., 2001), other
company control variables are needed, so for profitability, PMARGIN which is profit
divided by sales, and for recent sales growth the variable 2YRGROW is used. Given
before the global financial crisis (GFC) sales were stronger for most companies a shorter
term view on sales growth was considered only taking in the past two years, which
would be more representative of what companies are experiencing throughout the year Voluntary
2010. Pre-GFC sales would mask the reality of the current economic climate. sustainability
disclosures
6. Results
6.1 Descriptive results
As explained earlier, the analysis was focussed on the Top 200 listed companies in both
the UK and Australia, as smaller companies rarely produce a sustainability report. 67
Table I shows that of the 60 companies that produce a sustainability report from the
UKs Top 200, around 40 per cent do not have an assurance statement attached to their
report. In Australia, it is slightly lower with only 36 per cent not having the
sustainability report assured. However, in Australia, most of the assured sustainability
reports have an assurance provider that is not from the auditing profession (48 per cent),
whereas in the UK, it is much lower at around 30 per cent. In Australia, 16 per cent of the
observations had an audit firm provide sustainability report assurance, whereas in

the UK, it was found to be higher at 30 per cent. There does not seem to be dominance by
the auditing profession in these two countries when sustainability report assurance is
observed. Of the companies that produce a sustainability report, Table I reveals that in
Australia these are mainly audit clients of KPMG and Ernst & Young (32 per cent each)
and in the UK they are mostly audit clients of PwC (33.3 per cent).
Within Australia and the Big Four accounting firms, Ernst & Young provides the
largest share of sustainability report assurance (12 per cent), whereas in the UK again
Ernst & Young has the largest share with PwC both at 13.3 per cent (Table I). In
Australia, there were only two observations where the financial statement auditor was
also the sustainability report assurance provider (Sydney and Perth), whereas in the UK,
this was higher with four observations found, all located in London. When observing
sustainability report assurance not provided by the auditing profession, in Australia,
this was predominantly in Melbourne and Sydney, whereas in the UK, there were only
observations found for London and Edinburgh. There are no industry-related matters
that indicate in either the UK or Australia that sustainability report assurance is more
dominate in one industry over the rest. In Australia, the consumer-related companies
appear to select other assurance providers not the auditing profession for sustainability
reports, whereas in the UK, most of the consumer companies had no assurance with their
sustainability reports. In Australia, the Materials industry tended towards no
assurance, whereas in the UK, the Property industry registered no observations with
sustainability report assurance.
According to the results shown in Table II for listed companies that have a
sustainability report, and those that disclose the same information using a different
format (Decision 1), it can be stated that the variables for the two countries are not
significantly different for the two related sample pairs. More specifically, there is a
significant difference between the two group means for the variable Auditor (p 0.002),
Market Capitalisation (p 0.035), Profit Margin (p 0.008), Sales Growth (p 0.004),
number of Board of Directors meetings (p 0.007), the existence of a Sustainability
Committee (p 0.001), the number of members of the Sustainability Committee
(p 0.001), the existence of a Governance Committee (p 0.008) and the number of
members of the Governance Committee (p 0.001).
The results shown in Table II for listed companies that have a sustainability report
assured by an independent provider, and those that do not have report assurance
6,1
68
Table II.
SAMPJ
for mean and

Descriptive statistics
distribution variables
Decision 1 Decision 2 Decision 3
Variables Yes No p-value Yes No p-value Yes No p-value
b b
Country 0.932 0.788 0.273b
UK 60 60 36 24 18 18
Australia 50 50 32 18 8 24
Auditor 0.002b 0.001b 0.041b

Big Four 110 64 68 42 26 42
Other 0 46 0 0 0 0
Ln(Size) Mean (SD) Mean (SD) Mean (SD) Mean (SD) Mean (SD) Mean (SD)
Mkt Capitalization (in Pounds) 8.730 7.386 0.035c 8.862 8.510 0.791c 8.950 8.804 0.256c
(0.992) (1.192) (0.966) (1.021) (1.990) (0.896)
Ln(Fees)
Audit (in Pounds) 6.715 5.310 0.900c 6.854 6.490 0.996c 6.643 6.980 0.591c
(1.117) (1.191) (1.103) (1.129) (1.039) (1.140)
Other Assurance (in Pounds) 2.673 2.123 0.800c 4.805 4.721 0.547c 4.904 4.930 0.648c
(1.211) (1.182) (1.085) (1.042) (1.185) (1.232)
Profitability and Growth

PMARGIN 12.400 (1.870) 18.100 (7.996) 0.008c 13.800 (1.591) 10.300 (1.443) 0.241c 16.400 (1.622) 12.200 (1.162) 0.094c
2YRGROW Two-year sales growth 0.740 (1.193) 1.940 (0.655) 0.004c 0.860 (0.340) 0.540 (0.103) 0.813c 0.490 (0.064) 1.090 (0.504) 0.577c
Corporate governance
ACMEB Audit Committee members 5 4 0.647c 5 5 0.010c 5 5 0.610c
ACMEET Audit Committee meetings 5 3 0.119c 6 4 0.012c 7 5 0.018c
BDMEB Board of Directors members 11 6 0.274c 11 10 0.378c 13 11 0.361c
BDMEET Board of Directors meetings 10 9 0.007c 10 9 0.503c 11 9 0.029c
SCOMM Sustainability Committee 0.001a 0.001a 0.001a

Yes 46 2 30 16 20 10
No 64 108 38 26 6 32
SCMEM Members 5 3 0.001c 5 5 0.051c 6 4 0.210c
a a
GCOMM Governance Committee 0.008 0.005 0.001a
Yes 18 2 14 4 10 4
No 92 108 54 38 16 38
GCMEM Members 5 3 0.001c 5 8 0.679c 5 4 0.001c
a b c
Notes: Fishers exact test, Pearsons chi-square and two-tailed t-test
(decision 2), it can be stated that the variables for the two countries again are not Voluntary
significantly different for the two related sample pairs. More specifically, there is a sustainability
significant difference between the two group means for the variable Auditor (p 0.001),
the number of members on the Audit Committee (p 0.010), the number of Audit
disclosures
Committee meetings (p 0.012), the existence of a Sustainability Committee (p 0.001)
and a Governance Committee (p 0.005).
According to the results shown in Table II for listed companies that have a 69
sustainability report assured by a member of the auditing profession, and those that do
not have assurance provided by the auditing profession (Decision 3), it can be stated that
the variables for the two countries again are not significantly different for the two
related sample pairs. Given Table II, with all the descriptive statistics shows that there
are no significant differences between the countries Australia and the UK, this indicates
they are good for comparative purposes, thus justifying the selection of these two
countries. More specifically, there is a significant difference between the two group
means for the variable Auditor (p 0.041), the number of Audit Committee meetings
(p 0.018), the number of board of director meetings (p 0.029), the existence of a
Sustainability Committee (p 0.001) and a Governance Committee (p 0.001).
6.2 Multivariate results

The following sections are broken down into the various decision points discussed
earlier:
the decision to produce a standalone voluntary sustainability report;
the decision to have the voluntary sustainability report assured; and
the choice of the assurance provider for the voluntary sustainability report.
6.3 Decision to voluntarily produce a standalone sustainability report

The results indicate that there are different firm-level characteristics between those that
produce a standalone sustainability report and those that do not produce a voluntary
standalone sustainability report, but disclose this information via a different format
(Table III, Decision 1). Those that produce a standalone sustainability report tend to
have a Big Four auditor, are larger companies which have both or either a Sustainability
or Governance Committee, and have more representatives on their Audit Committee
than the companies that choose a different format of disclosure. The study finds a
negative significance between the countries the UK and Australia, when it comes to
producing a standalone voluntary sustainability report ( 1.831, p 0.1, two-tailed)
in Table III. The negative sign for the Beta on the countries indicates the UK produces
more voluntary sustainability reports than Australian companies. However, there is a
significant positive difference found between those that have a Big Four auditor and
those that have a non-Big Four auditor ( 1.905, p 0.1, two-tailed), in both countries
consistent with expectations. Choice of auditor is usually significantly related to client
size, so expectedly given these observations are matched on size, LN(SIZE) is positive
significant also ( 1.857, p 0.1, two-tailed) to the decision of producing a standalone
sustainability report. The literature has consistently speculated that larger, more
profitable corporations will make more use of voluntary disclosure of information about
their social and environmental activities (Gray et al., 2001). This would then translate to
audit fees which are usually correlated with client size; however, the study does not find
that audit fees paid are significant in the decision to produce a voluntary sustainability
6,1
70
controls
Table III.
SAMPJ
Sequential logit
decision points and

analysis for all three
Variables Beta p-value Variables Beta p-value Variables Beta p-value
Decision 1: To Produce a Decision 2: To assure the Decision 3: Choice of

Sustainability Report (0/1) Sustainability Report (0/1) Assurance Provider (0/1)
Country
Australia/UK (?) 1.831* 0.035 Australia/UK (?) 1.412* 0.083 Australia/UK (?) 0.261 0.399
Auditor
Big Four/other () 1.905* 0.030
Ln(Size)
Mkt Capitalization () 1.857* 0.033 Mkt Capitalization () 0.820 0.209 Mkt Capitalization (?) 0.336 0.372
Ln(Fees)
Audit () 0.246 0.806 Audit () 0.207 0.838 Audit () 1.168 0.128
Other Assurance () 0.316 0.615 Other Assurance () 0.709 0.307 Other Assurance () 0.609 0.276
Profitability and Growth

PMARGIN () 0.397 0.692 PMARGIN () 1.466* 0.075 PMARGIN (?) 0.500 0.331
2YRGROW Two-year 2YRGROW Two year 2YRGROW Two-year
sales growth () 0.112 0.910 sales growth () 1.749* 0.044 sales growth (?) 0.974 0.341
(continued)
Variables Beta p-value Variables Beta p-value Variables Beta p-value
Corporate Governance
ACMEB Audit ACMEB Audit ACMEB Audit
Committee members () 1.546* 0.063 Committee members () 0.229 0.820 Committee members (?) 0.458 0.326
ACMEET Audit ACMEET Audit ACMEET Audit
Committee meetings () 0.283 0.270 Committee meetings () 1.556* 0.064 Committee meetings (?) 0.465 0.324
BDMEM Board of BDMEM Board of BDMEM Board of
Directors members () 1.730 0.389 Directors members (?) 1.215 0.116 Directors members (?) 0.657 0.259
BDMEET Board of BDMEET Board of BDMEET Board of
Directors meetings () 1.196 0.234 Directors meetings (?) 0.131 0.448 Directors meetings (?) 0.516 0.306
SCOMM Sustainability SCOMM Sustainability SCOMM Sustainability
Committee (?) 2.006** 0.024 Committee (?) 0.579 0.283 Committee () 2.987*** 0.003
GCOMM Governance GCOMM Governance GCOMM Governance
Committee () 2.029** 0.022 Committee (?) 0.895 0.189 Committee (?) 2.553** 0.019
adj. R2 0.636 adj. R2 0.259 adj. R2 0.409
N 220 N 110 N 68
Notes: Significantly different from zero at the *** , ** and * significant at p 0.01, p 0.05 and p 0.1 levels, respectively, for two-tailed tests.
Table III.
71
disclosures
sustainability
Voluntary
SAMPJ report. Likewise, profit margins and sales growth were not found to be significant to this
6,1 decision-making process, which is unexpected. In relation to governance structures
consistent with expectations the existence of the Governance Committee ( 2.029,
p 0.05, two-tailed), Sustainability Committee ( 2.006, p 0.05, two-tailed) and the
numbers on the Audit Committee ( 1.546, p 0.1, two-tailed) were all positively
significant in explaining the decision to produce a standalone sustainability report. In
72 sum, many of the variables that are significant seem to be size related, and it is not
surprising that larger companies that have more stakeholders to satisfy are more likely
to issue a standalone voluntary sustainability report.
6.4 Decision to voluntarily purchase standalone sustainability report assurance

Investigating only the listed companies that release a standalone voluntary
sustainability report, this study finds different firm-level characteristics between those
that purchase assurance for their voluntary sustainability report and those that do not
engage an assurance provider for their report (Table III, Decision 2). The more profitable
companies that are experiencing sales growth tend to purchase this assurance service,
and also have a more active audit committee than the companies that choose not to
engage an assurance provider for their voluntary sustainability report. Again the study
finds a negative significance between Australia and the UK, when it comes to the
decision to assure a voluntary sustainability report ( 1.412, p 0.1, two-tailed) in
Table III, thus indicating more UK companies are choosing to purchase assurance with
their sustainability reports than Australian companies. Client size and audit fees do not
provide any explanatory value on the decision to purchase sustainability report
assurance; however, as expected, profitability ( 1.466, p 0.1, two-tailed) and sales
growth ( 1.749, p 0.1, two-tailed) do indicate positive significance. Consistent with
expectations, the number of audit committee meetings was significant positive
( 1.556, p 0.1, two-tailed) but not the number of audit committee members. Thus,
there is some weak support for the notion that the active and more diligent audit
committees will play an important role in the decision to ensure the sustainability report
comes with assurance from an independent provider, indicating that these committees
are more than just symbolic. Evidence in relation to audit committees has been
somewhat mixed. For example, Deli and Gillan (2000) found that the likelihood of a firm
having a completely independent and active audit committee is negatively related to
firm growth opportunities, but positively related to firm size and leverage. Turley and
Zaman (2004) claim that there is no automatic relationship between the adoption of audit
committee structures and the achievement of particular governance effects. Therefore,
finding only weak support may be reasonable given these issues, and the results of past
research (such as DeFond et al., 2005; Gendron and Bedard, 2006). Although research
results (Deli and Gillan, 2000) suggest that a greater proportion of independent members
tends to increase audit committee effectiveness, the current study does not consider
independence of members because studies such as Bedard and Gendron (2010) find no
evidence or knowledge about the functional form of the relationship or about the
benefits of having only independent members instead of a majority.
6.5 Choice of sustainability report assurance provider

Finally, investigating only the listed companies that have their standalone
sustainability report assured, there are different firm-level characteristics between those
companies that choose a member of the auditing profession for this type of assurance Voluntary
and those that choose a provider not from the auditing profession (Table III, Decision 3). sustainability
The companies that select the auditing profession have either a Sustainability and/or a disclosures
Governance Committee, and are more likely to engage their financial statement auditor
to undertake this other assurance service, than engage another member of the auditing
profession. The study finds no significant relationship between the countries Australia
and the UK, when it comes to choice of sustainability report assurance provider in 73
Table III. Consistent with expectations, the existence of a Sustainability Committee has
a positive significance ( 2.987, p 0.01, two-tailed) on the decision to choose a
reputable assurance provider from the auditing profession, thus supporting the
predicted direction. The coefficient is large at 2.987, indicating the choice has economic
significance, and that there are potential marginal effects of paying higher audit and
other assurance service fees. The existence of a Governance Committee also has a
significant positive ( 2.553, p 0.05, two-tailed) on the decision to choose a provider

from the auditing profession to help enhance the credibility of the sustainability report
disclosures, with similar economic significance related to paying premium service fees.
So these results help explain why companies might be selecting an assurance provider
from the auditing profession, but they do not explain why most of this assurance work
is going to organisations outside of the auditing profession. Audit fees are negative in
the expected direction but are not significant in explaining why the auditing profession
is not being selected for voluntary sustainability assurance work. It is clear that
company-specific factors do not help explain this and perhaps it is country factors like
Simnett et al.s (2009) report, that in stakeholder-oriented countries, there is a greater
likelihood that a member from the auditing profession will be selected as the assurance
provider. So future research should consider other non-company-level factors that may
explain why the accounting firms are not being engaged as we would expect, given their
reputations. Perhaps there are economic or marketing factors at play here, or maybe
issues related to the legal environment in specific countries.
7. Sensitivity analysis
It was important to include both countries in the analysis to ensure that there are
sufficient observations, and that there is an international perspective to the
investigation; however, it is possible that either the UK or Australia could be influencing
the results. In analyzing the countries separately, there were no significant differences,
apart from Australia having slightly larger memberships on the Board of Directors of its
companies. This may be due to the countrys governance standards or policies, such as
the ASXs Good Corporate Governance Principles discussed before; however, overall,
both the UK and Australia have reasonably comparable rules and standards, so
precisely measuring these differences is difficult. In terms of the industry perspective,
including dummies for INDUSTRY fix-effects does not alter the results, and as reported
before, there does not appear to be one or sub-group of industries that make these
decisions (to produce a sustainability report, to assure a sustainability report, etc.) more
so than any other industry observed for these Top 200 listed companies in both
countries. In sum, there are no industry-related matters in either the UK or Australia that
indicate that voluntary sustainability reporting and assurance is more likely in one
industry over the others.
SAMPJ 8. Conclusion
6,1 This study aims to further our understanding of the market for assurance services
provided on voluntary standalone sustainability reports and some company-specific
factors associated with the choice of producing a standalone sustainability report, the
demand for voluntary assurance and the choice of assurance provider. This study
provides further insights into the market for assurance of sustainability reports, and the
74 market share captured by the auditing profession in both Australia and the UK.
The study finds that in both the UK and Australia, only a minority of the Top 200
listed companies release a separate standalone sustainability report; however, most of
these reports do come with limited assurance in the form of a review engagement.
Interestingly, less than 40 per cent of these review engagements were conducted by a
member of the auditing profession, indicating that the Big Four and smaller accounting
firms do not have any dominance in this area of work. In Australia, in particular, the
auditing profession seems to have little market share in providing this type of service,
with other organizations such as Net Balance and ERM appearing to dominate in terms
of providing sustainability advice, research and assurance. In both countries, Ernst &
Young appear to be most active in the provision of this type of assurance service, from
the auditing profession perspective.
In these two countries, there does not appear to be any industry affect in terms of
determining the production of a voluntary sustainability report, and the choice of
assuring such a report and the choice of assurance provider. Industry-wide factors were
not the focus of this analysis, and only considered in sensitivity testing; however, these
results are not consistent with the findings in Simnett et al. (2009) on industry fix-effects.
However, it is difficult to compare the studies given the differences in sample sizes and
various levels of analysis. As mentioned before, there were no significant differences
between the two countries, with Top 200 listed companies operating in both countries,
these two English-speaking countries with a shared heritage are good for comparative
purposes.
With respect to the decision of producing a standalone sustainability report, larger
companies that had a Big Four auditor were more likely to produce such a voluntary
sustainability report than smaller companies that have a smaller shareholder base, and
a non-Big Four auditor. Consistent with Simnett et al. (2009), these companies with a
greater need to enhance credibility according to stakeholder theory will better manage
their stakeholder base by providing additional disclosures such as those in a
sustainability report. Unexpectedly, audit fees, profitability, and sales growth were not
found to be significant in explaining this production decision, which is not consistent
with Dilling (2009) findings in relation to profit margins; however, as predicted, strong
governance structures were significant. Thus, unlike Dilling (2009), the current study
does find evidence of a significant association between selected corporate governance
characteristics and voluntary sustainability report production. Therefore, this study is
one of the first to find some association between corporate governance characteristics
and voluntary sustainability reporting. More research is however needed in this area of
accounting research.
The results of this study generally support the empirical predictions that the
incidence of assurance of voluntary sustainability reports is higher for companies that
have a more active and diligent audit committee, although the support for the model is
only weak. Studies that find a positive association with audit committee effectiveness do
so based on the characteristics examined in this current study. Bedard and Gendron Voluntary
(2010) report in decreasing order of proportion as follows: sustainability
presence of an audit committee (69 per cent); disclosures
number of audit committee meetings (30 per cent); and
audit committee size (22 per cent).
Consistent with Cohen et al. (2010), the audit committee is found to be an effective tool in 75
a strong corporate governance structure and not merely symbolic or ceremonial.
Company size and audit fees do not appear to drive the decision to assure a voluntary
sustainability report; however, as expected, profitability and sales growth are
significant in this decision.
Finally, some of the key findings in this study are that the existence of a
sustainability committee is an important influence on the choice of sustainability report
assurance provider, and that these committees and companies appear to prefer
assurance from the auditing profession. Given the above observed and reported lack of
dominance by the auditing profession in this area of work, this is an interesting result.
However, most listed companies observed in both the UK and Australia do not have a
sustainability committee, or even a governance committee. Overall audit fees and other
assurance service fees were not found to be significant in explaining the choice of
sustainability report assurance provider, which was unexpected. However, as
explained, the limitations of this study the measure of sustainability report fees does
contain noise, as these observations would include other assurance services not just
sustainability assurance work. Other factors such as technical skills or engagement risk
also impact on reported fees. Another limitation of the study was that it was limited to
only two countries, and that the sample size is reasonable but small. Future research
should consider an expanded analysis of several countries in a post-GFC period. Also
future research should consider the significance of management control over the scope
of assurance and the limitations in scope and content of the assurance statements
produced by the auditing profession and how this may undermine their value and
credibility (Adams and Evans, 2004). These important areas are beyond the scope of the
current paper and would require another study with a specific focus.
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expectations gap, Journal of Corporate Citizenship, Vol. 2 No. 14, pp. 97-115.
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evidence from Italian listed companies, Journal of Management and Governance, Vol. 17
No. 1, pp. 187-216.
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Corresponding author
Michael Kend can be contacted at: [email protected]
For instructions on how to order reprints of this article, please visit our website:
www.emeraldgrouppublishing.com/licensing/reprints.htm
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Sustainability Accounting, Management and Policy Journal

Governance, firm-level characteristics and their impact on the clients voluntary

Downloaded on: 03 April 2015, At: 03:52 (PT)

firm-level characteristics assist in explaining the production of standalone

2.1 Sustainability reporting, and how corporate governance characteristics influence

2.2 Firm-level characteristics, voluntary assurance of sustainability reports and 59

advantages, improve long-term performance and risk management related to litigation

theoretical framework investigated in these papers and Perego (2009) suggests

subsuming the ideals of accountability and transparency to commercial motivations is

of corporate governance is positively related to the publication and assurance of a

companies, 110 companies that released a standalone sustainability report (50 in

KPMG Deloitte PwC E&Y

Sustainability report assurance

provider is a member of the auditing profession.

observations had an audit firm provide sustainability report assurance, whereas in

for mean and

Auditor 0.002b 0.001b 0.041b

Profitability and Growth

SCOMM Sustainability Committee 0.001a 0.001a 0.001a

6.2 Multivariate results

6.3 Decision to voluntarily produce a standalone sustainability report

decision points and

Decision 1: To Produce a Decision 2: To assure the Decision 3: Choice of

Profitability and Growth

Variables Beta p-value Variables Beta p-value Variables Beta p-value

6.4 Decision to voluntarily purchase standalone sustainability report assurance

6.5 Choice of sustainability report assurance provider

significant positive ( 2.553, p 0.05, two-tailed) on the decision to choose a provider

Cunningham, S. (2011), Theoretical perspectives of corporate environmental disclosures in

No. 1, pp. 89-98.

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