Audit by Ernst&Young
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Audit by Ernst&Young
Content, procedure and objectives of the Sustainability Audit
Transparency and credibility
Sustainable entrepreneurial activity is becoming an important competitive factor for more and more companies. Many companies already publish a Sustainability Report today and, in doing so, make their orientation towards sustainability transparent and render this process open to scrutiny and verification as a strategic instrument of company leadership.
Even though uniform standards are not yet in place today for Sustainability Reporting, the sectors of the report devised by the Global Reporting Initiative (GRI) have in the meantime become the generally accepted guideline. This standardization means that the Sustainability Report has become less arbitrary. It has not only become verifiable and comparable within a particular branch, but in general.
Going beyond the orientation provided by the GRI standards, more and more companies are having their reports verified by an independent third party, for example, an auditing company. This certifies that the information presented in the report corresponds to the facts both quantitatively and qualitatively and the audit gives advice on how to further optimize the reporting and the internal processes involved in this. This in turn increases the credibility and creates more transparency as well as providing options for strategic action.
However, what is contained in an audit and how is it carried out?
Scope, depth and objectives of the audit
Like the compilation of the Sustainability Report itself, the audit of the report is also based on the principle of voluntariness. Companies themselves can define how extensive and in-depth the audit should be. For example, an audit can concentrate exclusively on the quantitative information in the report (ecological, social and economic indicators) or go beyond this to look at the qualitative statements, including either individual parts of the report or the entire Sustainability Report.
As for how in-depth the audit should be, the organization generally chooses between an audit and a so-called auditing review. In case of an audit, the auditing procedures aim to conclude on the completeness and accuracy of the data and information presented in the report which are as accurate as possible. An audit includes the validation of the reporting system (audit of structure and function), an assessment of the internal controlling system, the processes, analytical audit procedures as well as the individual auditing of data and statements. The objective of limited review is to give a critical appraisal of the report on the basis of questionnaires, plausibility assessments and, if required, individual audits. The auditing review is therefore significantly less thorough than the audit and focuses mainly on the report’s plausibility.
The auditor’s main task is to assess the reporting criteria used by the company (mostly based on the GRI) to ascertain whether they are commensurate, that is, whether they are relevant, complete, reliable, neutral and coherent in light of the reality within the company, and whether the report as a whole is correct, clear and complete.
How the audit is carried out
For Ernst & Young, the structural organization of the audit procedure into the following phases has proved its worth:
Kick-off meeting
First of all, the company and the auditor sit together to ascertain what the company expects from the audit and a rough time schedule is drawn up. The aim is to come up with an auditing plan that is specially designed for the company.
Phase 1
The auditor gains an overview of the company’s sustainability management. In this phase, companies should be prepared for questionnaires and an inspection of the internal guidelines and descriptions of procedures so that the auditor can gain an understanding of the local and central data collection processes as well as the quality assurance measures that are carried out. In this phase, the auditor also aims to make a preliminary risk assessment with regard to the compilation of the report and/or the data collection process, so that he can make use of the knowledge gained when laying down what the audit should include, for example, the scope of random sampling.
Phase 2
In this phase, the quantitative data and/or qualitative statements are audited using random samples. This is usually undertaken by making site visits at selected locations within the company, which are chosen on the basis of the auditor’s own observations about what is essential. During a site visit, the auditor gains an overview of the data collection and data processing methods on location. Moreover, he reproduces selected indicators and statements using calculations, documents and other audit trails. Excellent preparation of the site visit is a prerequisite for its smooth running. For example, the respective contact partners on location can agree in advance on an interview schedule with the sustainability auditors in a telephone conference and they can already specify what materials should be made available beforehand.
Phase 3
Here, the data which have been collected locally by the company are aggregated, i.e. collected, compiled and evaluated centrally. In this process, it is particularly important from the auditor’s point of view that the documentation of the process consolidation is provided in full and can be inspected and reproduced. The auditor must be able to verify that the requirements concerning the correctness and completeness of data processing have been fulfilled by the company. This is checked for example, through an analysis of data provided and by reconstructing the aggregation of individual statements with random samples.
Phase 4
Entails a critical review of the Sustainability Report by the auditor. In this phase, the auditor should make sure that the decisive indicators (Key Performance Indicators – KPI) in the report are presented completely and correctly. Moreover, the auditor checks to see that the report does not contain any misleading information.
To finalize the Sustainability Report Audit, the company is provided with a summary of the results in the form of an independent certificate in line with the objectives contractually agreed between the company and the auditor before the audit was carried out (scope and depth of the audit). In addition, the company is given feedback in the form of a management letter which is addressed to the management and the Sustainability Department. In a final meeting, the company and the auditor discuss the existing strengths of the company’s sustainability processes and systems and the potential for improvement which has been identified.
