Corporate governance and the use of external assurance for integrated reports

Abstract

Research Question/Issue This paper investigates the relationship between the use of external assurance for testing integrated reports (ESG assurance) and firm‐level governance features: the board of directors, the audit and/or risk committee, and the internal audit department. Data are collected from South Africa where integrated reporting and corporate governance practices are mature and listed companies have had more time to implement ESG assurance than in other countries. Research Findings/Insights Monitoring attributes of boards of directors promotes the use of ESG assurance which provide both limited (moderate) and reasonable (high) assurance. The monitoring attributes of the audit and risk committees limit the use of limited assurance but are associated with the greater use of reasonable assurance. In contrast, internal audit functions are not affecting the use of ESG assurance. Theoretical/Academic Implications The study provides one of the first accounts of how firm‐level governance promotes or reduces the use of external assurance in an integrated reporting context. The research also frames ESG assurance as part of the broader corporate governance machinery rather than seeing assurance and governance as separate issues. Practitioner/Policy Implications Overall, the findings suggest that ESG assurance is an important part of a combined assurance model. As those charged with governance become more proactive in ensuring the credibility of their organizations' corporate reports, they not only choose to appoint an external assuror but also rely on more extensive testing designed to provide higher levels of assurance.

The impact of corporate governance on integrated reporting (IR) quality and sustainability performance: evidence from listed companies in South Africa

“…Among all the corporate governance mechanisms, the audit committee possesses the highest potential in protecting shareholder interest by safeguarding the quality of financial reporting (Davidson et al , 2005). Moreover, given the complexities associated with IR, the effectiveness of audit committees is relevant for the reporting process (Raimo et al , 2021), and it is associated with the greater use of reasonable assurance (Maroun, 2022).…”

Research on extended external reporting assurance: An update on recent developments

“…In the South African context, Maroun (2022) investigates the association between audit committees and other corporate governance characteristics and companies' decisions regarding the level of assurance (limited vs. reasonable). The analysis is based on integrated reports prepared by the top 50 companies (by market capitalization) listed on the Johannesburg Stock Exchange (JSE) publishing an integrated report from 2013 to 2016.…”

Configurational analysis of corporate governance and corporate social responsibility reporting assurance: understanding the role of board and CSR committee

“…According to Farooq et al (2021), effective board composition is associated with a high degree of materiality assessment in CSR reports. Maroun (2022) recently posits that the monitoring attributes of boards of directors can foster the use of assurance services pertaining to environmental, social and governance (ESG) matters. Such services can encompass both limited assurance (of a moderate degree) and reasonable assurance (of a high degree).…”