Sustainability assurance

Oct 01, 2018
Professional judgement and intuition pervade materiality decisions in the arena of sustainability assurance.


In the past decade, as the number of companies issuing sustainability reports has grown substantially, there has been an increased demand for the assurance of these sustainability reports (sustainability assurance). This has resulted in challenges to the auditing profession whereby financial audit-related concepts, such as materiality, are transferred to arenas characterised by ambiguous qualitative data or to environments unsuited to financial audit techniques.

For example, most of the data in sustainability reports is not supported by the rigour of double-entry bookkeeping, which can therefore lead to different types of material misstatement risk. Moreover, there has been a limited development of criteria to assist in assuring and determining the materiality of the narrative information prevalent in these reports. So, what do we mean by materiality? And how do practitioners operationalise it in sustainability assurance?

Ambiguous meaning

Materiality is a central concept within the craft of financial audit, in terms of planning the audit and designing audit procedures as well as evaluating whether the financial statements give a ‘true and fair view’ and comply with generally accepted accounting principles. The extent of audit testing undertaken is determined by the choice of materiality level that is applied.

Materiality commonly functions as a threshold which determines significant errors or omissions that are deemed relevant to the decision-making of a set of users. Since June 2013, auditors are required, in accordance with International Auditing Standard 700 (Revised), to include in their audit reports an explanation of the planning and materiality levels used in the audit and to outline how materiality influenced the scope of the audit. Yet, materiality has resisted precise codification in professional auditing guidance with its determination commonly deemed to be a matter of professional judgement. It has been described as an ambiguous concept and its ambiguity is only amplified when it is transferred to new assurance spaces like sustainability assurance.

Guidance for practitioners has emerged that is frequently modelled on how materiality is conceived in financial audit. For example, the auditing profession distinguishes materiality in non-financial assurance from financial audit in International Standard of Assurance Engagements 3000. This guidance is much less precise than that for financial audits in that intended user groups are much broader and not as easily identified as they are in financial audit. Their needs are also not so easily ascertainable. Therefore, what materiality means and how it is operationalised in sustainability assurance engagements are important questions to explore.

An uncertain arena

In an in-depth study with accountant and non-accountant assurors (published in Accounting & Business Research journal in 2018), we uncovered that the determination of materiality in sustainability assurance drew heavily on developments in financial audit.

While these procedures required some adaptation in the sustainability assurance arena, their widespread acceptance and usage in financial audit lent them legitimacy among non-accountant assurors. Non-accountant assurors in our study willingly embraced the overarching financial audit methodology, although they did not fully understand it. The financial audit methodology offered them a degree of comfort which they felt enabled them to cope with the uncertainties and ambiguities associated with making materiality assessments in sustainability assurance. For example, materiality thresholds of 2%, 5% and 10% were offered as rather ‘off the cuff’ percentages that assurors were unable to explain beyond that they were used in financial audit.
In this way, the financial audit methodology offered them a convenient means of retrospectively rationalising intuitive decision-making, which was essential in allowing the subjects to present themselves as competent in the new assurance environment. However, the limited level of critical reflexivity by them in this regard is somewhat worrying.

Collaboration and structure

Overall, our study offered the impression of an interactive, collaborative process that brought confidence and cohesion to the decisions surrounding materiality in sustainability assurance.

These interactions operated not only within the assurance team (accountant assurors and non-accountant assurors) and between assurors and auditees, but also between the financial audit and sustainability assurance teams. The latter interaction promoted benefits that underplayed the necessity for ‘Chinese walls’, which are deemed essential in financial audit.

We also uncovered an alliance forming between accountant and non-accountant assurors, whereby they respected each other’s unique expertise and operated collectively to construct a consensus around the materiality determination and assessment process. Both types of assurors felt in no sense threatened by their differences and instead viewed their diversity as contributing to a more informed and assured determination of materiality with each having an important role to play.

Professional judgement and intuition permeated decisions surrounding the assessment of material stakeholders, material elements and qualitative disclosures in sustainability reports. Deciding on whether the auditee had identified all material stakeholders was not straightforward, as the process for judging this task was not documented in a written methodology. Turning to the Global Reporting Initiative (GRI) guidelines in sustainability reporting for assistance created uncertainty as these guidelines defined stakeholders as including any group that invested in, or had any type of relationship with, an organisation. Hence, assurors’ decisions sometimes came down to “logic and common sense” or a “feeling” that the auditee had identified all material stakeholders based on the assurors’ knowledge of the business. Similarly, professional judgement and intuition pervaded their assessment that all material elements had been reported in the sustainability reports. Nonetheless, having some sort of structure to draw on in the form of the GRI guidelines provided assurors with a legitimate rationale to support and inform their judgements, while leaving them free to exercise their judgement.


What materiality means in sustainability assurance remains ambiguous. However, this is of less concern once assurors’ intuition and professional judgement continue to remain strong when making decisions regarding materiality in sustainability assurance. Furthermore, promoting a collaborative environment whereby synergies between accountant and non-accountant assurors are created will only lead to improved materiality decision-making in the future.

Mary Canning is an Associate Professor at University College Dublin; Brendan O’Dwyer is a Professor of Accounting based at both the Alliance Manchester Business School and the University of Amsterdam Business School; and George Georgakopoulos is an Assistant Professor at the University of Amsterdam Business School.