EXECUTIVE SUMMARY

To satisfy the information needs of external and internal stakeholders, more organizations are measuring and reporting on their social and environmental performance. CPAs can play an important role in providing the needed information and helping to verify its accuracy.

Corporate sustainability reporting (CSR) involves reporting financial and nonfinancial information to key stakeholders on the company’s operational, social and environmental activities and its ability to deal with related risks.

The most dominant CSR regulations are those of the Global Reporting Initiative (GRI), which issued its first comprehensive reporting guidelines in 2002 and its G3 Reporting Framework in October 2006. As of October 2006, more than 1,000 international companies had registered with the GRI and issued corporate sustainability reports using its standards.

An opportunity exists for CPAs to audit the information companies present in corporate sustainability reports. As of yet interested parties have not fully agreed on what information can and should be audited. Concern exists about the suitability of the criteria used to prepare the reports and what performance and reporting standards the auditor should use.

A joint task force of the AICPA and the Canadian Institute of Chartered Accountants (CICA) concluded the 2002 GRI standards had not yet reached a point where they were suitable criteria to be considered generally acceptable and allow a set of generally accepted assurance standards for CSR reports to be developed. Two exposure drafts offered by accountants in the Netherlands on assurance engagements related to sustainability reporting are currently under review by international accounting organizations including the AICPA.

Brian Ballou , CPA, PhD, is an associate professor of accounting at Miami University in Oxford, Ohio. His e-mail address is balloubj@muohio.edu . Dan L. Heitger , PhD, is an assistant professor of accounting at Miami University (Ohio). His e-mail address is heitgedl@muohio.edu . They are codirectors of the Center for Governance, Risk Management and Reporting at the Richard T. Farmer School of Business. Charles E. Landes , CPA, is vice-president, AICPA professional standards and services. He oversees technical activities, including the Auditing Standards Board, and also is the AICPA’s representative on COSO. His e-mail address is clandes@aicpa.org .

Mr. Landes is an employee of the American Institute of CPAs. His views, as expressed in this article, do not necessarily reflect the views of the Institute. Official positions are determined through certain specific committee procedures, due process and deliberation.

aced with increased pressure from internal and external stakeholders, more organizations are measuring and reporting on their social and environmental performance as well as the usual financial reporting measures. Stakeholders have been pressing companies to publicly report this information either in annual financial reports to shareholders or in voluntary corporate performance reports. The worldwide growth of socially responsible investment funds, investment rating systems such as the Dow Jones Sustainability Index and investment policy disclosure requirements also have put financial pressures on companies to make these nonfinancial disclosures.

Of the investors, portfolio managers and securities analysts who responded to a survey, 79% called annual reports an important tool in making decisions. An even greater number—90%—said the reports should go beyond financial and shareholder issues to include topics such as environmental sustainability and corporate governance.

As this trend grows, so, too, will the role of accountants and auditors. CPAs within organizations will play a key role by providing and measuring the social and environmental information, using their skills to improve its quality and facilitate its use to make sound business decisions in areas such as investment appraisal, budgeting and strategic planning. Auditors also will have a significant role in verifying the accuracy of the reported information as well as the systems and practices from which it is derived. This article provides all CPAs with an overview of corporate sustainability reporting and the role it may play in businesses worldwide.