The document discusses the history and development of social and environmental assurance engagements. It notes that such engagements arose in the 1980s due to increasing pressure on companies to report on their social and environmental impacts. Various standards and regulations were introduced over subsequent decades in the UK and US. The role of auditors in providing assurance on social and environmental reporting is expected to continue increasing given the emphasis on issues like carbon emissions and environmental damage caused by businesses.

1. Developments in Social and Environmental
assurance engagements

2. Contents
Part A............................................................................................................................................................. 3
Introduction .............................................................................................................................................. 3
History ....................................................................................................................................................... 4
British Standard (BS 7750) .................................................................................................................... 6
Europe’s Eco management and audit scheme (EMAS) ......................................................................... 6
ISO 14001 .............................................................................................................................................. 6
Summary ................................................................................................................................................... 8
Part B............................................................................................................................................................. 8
Conclusion ................................................................................................................................................... 11
Reference .................................................................................................................................................... 12
Developments in Social and Environmental assurance engagements Page 2

3. Part A
Introduction
The Social and environmental auditing refers to the auditing of organizations social and
environmental reporting requirements and reporting thereon going beyond financial statements
auditing. In this case auditors are providing assurance services to the organizations social and
environmental activities. This entire concept is called triple bottom line reporting, ie social,
environmental and economical performances of the organizations are reported by the
management. Under this triple bottom line reporting concept following areas are covered in
each reporting category.
 Environmental
Energy consumption and alternative energy sources
Water consumption
Carbon Emission
Recycling activities
Product content
Biodiversity
Organic foods
 Social
Community Investments made by the organization
Working condition of the organization
Human right conditions
Health and nutrition
Anticorruption and bribery
 Economical
Financial performance
Corporate Governance
Financial objectives
Accountability and transparency
Developments in Social and Environmental assurance engagements Page 3

4. History
The development in social and environmental accounting and auditing started in mid 1980’s. At
that time the shareholders of companies whose involved in manufacturing, mining, chemical
operations draw attention to the fact that companies should report not only its financial results
but to account company’s impact to the social and natural environment also. However, as
per the International chamber of commerce (ICC) a US consultancy firm, Auther D little was
conducting environmental audits around the world from 1920s.(Porter & Brenda,2003)
This reveals that the social and environmental auditing has not just aroused in 1980s. However,
fast growing requirement of the environmental reporting and auditing has resulted by the
environmental disasters taken place due to the activities of the companies and related
regulations in those industries.
As per the survey conducted by KPMG from 1993 to 2002 following results were shown.
Year survey carried out % of companies producing separate social
and environmental report
1993 13%
1996 17%
1999 24%
2002 28%
(Source: KPMG 2011)
Accordingly over the past decade demand has increased to regulate corporate activities and
thus such organizations are responsible for the social and environmental damage that they
cause.
In some companies, the bonuses of top level executives are linked to the sustainability
reporting. Accordingly the bonus of the CEO of retail giant king fisher is directly linked to the
sustainability reporting. (Reporting, 2012, Ernst & young global Limited, page 8)
With the demand arising with this regard, countries all around the world has paid much attention
to the introduction of laws and regulations relating to social and environmental activities of
companies. As a result, In UK the environmental protection act was introduced in 1990 as the
Developments in Social and Environmental assurance engagements Page 4

5. first step to regulate the social and environmental activities of the companies while countries
such as US has established “Congressional comprehensive environmental response,
compensation and liability act” in 1980 and the “superfund amendment and reauthorization act
in 1986.
Amid the regulations imposed by the government and growing concerns of the share holders, in
early 1980s the companies of both countries started to carry out environmental audits which
generally focus following areas,
 Health and safety requirements of relating to the occupation
 Social and environmental requirements such as carbon emission which relates to obtain
license to carry out the operations.
 Laws and regulations related to production, storage and disposal of hazardous waste
(nuclear waste).
 Liabilities that may arise as a result of disposal of hazardous waste and substance
made in the past.
(Porter & Brenda, 2003)
Until 1990s the environmental audits were aimed at specific requirements such as ensure to
compliance with regulatory requirement related to social and environmental activities and avoid
any financial losses and liabilities. However in early 1990s the scope of those audits were
changed and as a result those audits were proactive in nature and the scope of the audits also
increased.
From 1990s onward environmental audits were considered as valuable source of management
information and providing information relating to reputation of the company. Accordingly
establishing various Environmental Management systems (EMS) was encouraged by the
introduction of several environmental certification methods. Those schemes are,
 British standard (BS 7750) in UK
 Europe’s Eco management and audit scheme (EMAS) in Europe
 ISO 14001 in UK and USA
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6. British Standard (BS 7750)
This is the first Environmental Management system introduced in UK in 1990 as a voluntary
scheme of environmental management and audit. According to this scheme companies are
required to obtain a certification. Subsequently this was amended in 1994 and withdrawn in
1997 with the introduction of ISO 14001 in 1996.
Europe’s Eco management and audit scheme (EMAS)
EMAS was introduced in 1993 as a mandatory social and environmental management and audit
scheme in several specific industries. However this was subsequently changed to voluntary
scheme which applicable to all companies. Under this scheme companies are required to
publish a audited environmental statement annually.
ISO 14001
ISO was introduced in 1992 as a result of RIO earth summit where participants agreed to take
steps to protect environment. Under this scheme companies or parts of companies are required
to obtain a certification.
Environmental audit is a crucial part of the Environmental Management System (EMS) it helps
to function the EMS effectively and to achieve improved performance related to social and
environmental activities.
At the beginning of the new millennium it was revealed that the companies were under severe
pressure to disclose social and environmental information. Such pressure was exert by following
areas,
 Due to the development in the information technology, the activities of the companies
were revealed to the general public than those previously and this has led companies
held more responsibilities and increase performance disclosures relating to social and
environmental.
 The investors of the companies expected information relating to the company’s social
and environmental behavior. As such companies were under pressure to disclose such
information expected by the shareholders. In USA, at the annual general meeting of
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7. British Petroleum (BP) and Coca Cola share holders raised their concerns over climate
changing and recycling of bottles and cans.
 The potential share holders were interested in investing in socially and environmentally
friendly organizations. Accordingly, in 2002 UK FTSE was created a new index which
comprises leading ethical companies which called FTSE4good. Out of 350 FTSE
companies 176 companies were listed in FTSE4good index which shows the company’s’
trend towards social and environmental friendly behavior Further more in USA ethical
investment funds were growing rapidly and were established well. Accordingly it was
revealed that in 1999 funds invested in such funds were amounted to US$ 2 trillion.
 The potential environmental liabilities arise as a result of the activities of the companies
which breach environmental laws and regulations.
Accordingly it can be noted that the both in UK and USA there was a gradual development in
social and environmental reporting and auditing.
Furthermore companies in USA operated in oil, steel, automobile and paper industry came
under severe pressure from Environmental Protection Agency (ERA) to disclose several
information in the internet. In UK the institutional investors requested organizations such as
British Insurers Association to consider social and environmental information of the companies
as well apart from financial information when making investment decisions.
When reporting such social and environmental information companies were face severe
difficulties due to the lack of guideline and proper reporting mechanism. To overcome this,
Global Reporting Initiative guidelines (GRI) were developed and this provide a comprehensive
method of reporting social and environmental information of the organization. Currently GRI is
used by more than 60 countries by more than 3000 private and public companies in various
sectors.
Both in UK and USA companies were adopting GRI and thus auditing of social and
environmental activities and information has became more systematic and comprehensive due
to the efficient and effective reporting of information according to the GRI.
Under the European Eco Management Audit Scheme (EMAS) also the companies are required
to obtain an external certification on the social and environmental information and accordingly
the scope of the audit was decided by the requirements stipulated in EMAS.
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8. Summary
It can be noted that both in UK and USA the requirement for reporting of social and
environmental information was arises in 1980 s and In USA even from 1920s. Thereafter such
growing concern led regulators to impose laws and regulations in relation to the social and
environmental activities of the organizations and this has developed further by the regulators
requiring to disclose such social and environmental information to public. With these
requirements the companies were raised their concern over lack of proper reporting framework
and this has fulfilled by introducing Global reporting initiative (GRI), European Eco Management
Audit Scheme (EMAS) and United Nations Global Compact. Concerns were raised as to the
credibility of those reporting and readers required independent auditors to audit those reporting
and issue independent report on the same. With this requirement the audit in social and
environmental information has developed and it will continue to develop in the future as well
since climate change and social and environmental impact from companies is a growing
concern of the stake holders of the companies.
Part B
In the early 21st century the world has experience lot of environmental catastrophes such as
Tsunami tidal waves in 2004, continuous global warming, Earth quake in Mexico and very
recently the earth quake and tsunami in Japan and the Fukushima nuclear power plant tragedy.
More specifically BP oil spill took place in Gulf of Mexico has resulted severe impact to the
person living in two states and to the natural environment and living species in the surrounding
area. These have raised the concerns of community over the activities of the organization
which will in turn affect to the society and environment such as carbon emission, global
warming, water air and sound pollution, health and safety of the community ect.
Although the activities of the companies affect to the adverse environmental outcomes such as
carbon emission and global warming, such activities cannot be stopped as the business
activities of the organizations needs to be carried out to achieve its corporate objectives. For
example though the BP oil rigging and refinery activities may harm to the environment such
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9. activities cannot be stopped since those activities needs to be carry out to achieve its corporate
objectives as well as those activities are essential to carry out day to day activities of the world
as a whole. Therefore the companies are required to take necessary steps to reduce the
negative impact to the environment by alternative means such as carrying out operations in
environmental friendly manner as per the globally accepted best practices and industry norms.
For Example a BP company may not eliminate the environmental impact it cause to the
environment but company can take steps to minimize the impact and apply modern techniques
and industry best practices in-house to reduce the impact to the environment. Further it can
allocate resources to rebuild or restate environment which affected by its activities.
Further explaining, currently due to the manufacturing activities and from the vehicles it produce
the impact made by the Toyota company to the environment all around the world is very high
however by introduction of Hybrid vehicles which reduce the fuel consumption and thereby
reducing carbon emission the company taken steps to control the negative impact to the
environment and contribute to the sustainable development. Furthermore the company has set
up eco friendly manufacturing plants all around the world instead of manufacturing plant which
adversely affects to the society and environment.
Carbon emission refers to the phenomenon of emit of large amount of carbon dioxide to the
environment which happens by burning fossil fuels and other activities. Carbon emissions
change the climate of the earth and affects to the each and every living being on the earth. In
the recent past countries all around the world experienced unexpected and extreme weather
conditions which resulted due to the climate change. Therefore companies involved in
industries such as oil and gas, mining, nuclear activities, chemical manufacturing industry has
more social responsibility towards society and environment by carrying out their operations in
more social and environmental friendly manner.
Moving towards the development in the technology in the 21 century, the operations of the
companies also became more complex and severely affecting to the social and environment
well being . Therefore the much attention needs to be paid to the social and environmental
reporting made by the company as that is the only source of information that the public can
obtain information about the social and environmental activities of the company.
In the fast moving world the competition of the companies has became to the highest level since
the target segment is becoming limited day by day and profit margins of the companies are
Developments in Social and Environmental assurance engagements Page 9

10. reducing day by day. Further the management of the companies are severely under pressure
from the share holder to achieve corporate objectives through sustainable development while
regulators and environmental friendly groups pressure the company to carry out its operations in
a environmental friendly manner. Amid the pressure on the operational activities of the
companies, they are required to comply with highly strict social and environmental rules and
regulations as well. In this circumstance the most possible outcome will be that the
management of those companies may try to achieve their corporate objectives at the cost of
sustainability development. That is the management will pay attention to the achieving of profit
goals without considering best environmental practices and industry norms which may harm to
its profit targets. Therefore companies may tend to manipulate the social and environmental
information that they make available with the public and pretend that they are compliance with
the relevant social and environmental laws and regulations.
As a example if the management of the BP is under pressure to achieve its profit goals from its
share holders and if they are suppose to carry out their oil mining activities under strictly
regulated and environmental friendly manner which in turn will affect to the profits of the
company adversely, due to the pressure from share holders management may take steps to
carry out its operations in a more profitable manner by which harm to the environment and
violating rules and regulation relating to social and environmental activities and best industry
practices. Thereafter company may manipulate its social and environmental information and
activities which they made public to pretend that it has operated in a social and environmental
friendly manner which will minimize the impact to the society and environment.
Having identified this, most of the influential groups including corporate investors raised their
concern over independent review of these social and environmental reporting and activities
carried out by the companies.
To avoid such manipulation and improve the reliability of the social and environmental
information published by the companies, social and assurance engagements are essential.
Moreover since social and environmental reporting is in developing age it will helps the
organizations to improve their reporting activities by engaging external party who carry out audit
of such information. Those firms may have expertise in specific industry area where the
companies can be benefitted.
Developments in Social and Environmental assurance engagements Page 10

11. Further if the assurance report provide by the auditors is qualified or raised concerns over the
information provided the shareholders and other pressure groups can take necessary steps to
improve those areas.
However attention needs to be given as to whether personnel who is having appropriate
experience and expertise in the relevant industries and technologies carries out the audits.
In this context the social and environmental assurance engagement plays a major role to
provide community with reliable information and help stake holders to take effective decisions.
Conclusion
Therefore it can be agreed to the statement “with the current emphasis on carbon emissions
and damage to the environment that businesses cause and an awareness of social issues, the
role of auditors in providing social and environmental assurance engagements is likely to
increase as we enter into the 21st Century.”
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12. Reference
 Ernst & Young 2011,climate change and sustainability shareholder press board on social
and environmental risk are you ready, Ernst & young global Limited, UK,viewed 04
January 2012, < http://www.ey.com>
 Porter & Brenda,2003,Principles of external auditing, John wiley,NJ USA
 Arens,Elder and Beasley,2011,Auditing and Assurance services, prentice Hall,NJ USA
 Ernst & Young 2011,reporting, Ernst & young global Limited, UK,viewed 04 January
2012, < http://www.ey.com>
 KMPG 2011,KPMG international survey of Corporate social responsibility reporting
2008, KPMG international ,USA ,viewed 4 January 2012,
< http://www.kpmg.com/global/en/Pages/default.aspx>
 Association of Certified chartered Accountants 2011, Association of Certified chartered
Accountants, viewed 4 January 2011, < http://www.accaglobal.com/en.html
 Pricewaterhousecoopers, 2011, Pricewaterhousecoopers, UK,viewed 04 January
2011.< http://www.pwc.co.uk/>
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