The audit consideration of environmental matters

Abstract

Purpose -This paper seeks to examine the responses of New Zealand auditors to the promulgation of Audit Guidance Statement (AGS) 1010: The Consideration of Environmental Matters in the Audit of Financial Statements and the consequent impact on audit practice. Design/methodology/approach -This study adopts an interpretive methodology. It draws on dual research methods -interviews with 27 senior auditors, and a critical analysis of AGS-1010. Legitimacy theory informs the interpretation of the findings. Findings -The findings point to significant gaps in the guidance AGS-1010 provides and reveal its limited impact on practice, which seems to reflect "business as usual" in regard to the audit of environmental matters. However, AGS-1010 does appear to serve a ceremonial, legitimating role by supporting practising auditors' efforts to appear responsive to concerns about this emergent accountability issue.Research limitations/implications -The findings highlight the practical challenges that exist in the audit of environmental matters, and point to the need to scrutinise the role of auditors in providing opinions on the financial reports of firms whose activities give rise to material environmental matters. Practical implications -The findings suggest points for reflection for a profession that relies on maintaining its societal legitimacy, but which is failing to pursue or achieve best practice in the audit of environmental matters. Originality/value -This paper presents a novel critique of AGS-1010 and a first examination of how New Zealand auditors are dealing with environmental matters in light of this professional promulgation. The findings contribute to the international literature by exploring the relatively neglected role of the auditor in advancing the "greening of accounting".

Bridging the gap between academia and standard setters

“…The academics gained prestigious funding and publishing opportunities. As shown in Table I, the Chiang (2010) and Chiang and Northcott (2010), who studied current practices of auditing environmental matters informed by New Zealand's equivalent of the International Auditing Practice Statement 1,010 The consideration of environmental matters in the audit of financial statements (IAASB, 1998). Chiang (2010) found auditors were reluctant to consider non-financial impacts in a financial statement audit.…”

“…First, a wealth of academic literature analyses constituents' lobbying and whether the promulgated standards reflect that lobbying (Watts and Zimmerman, 1978;Tandy and Wilburn, 1992;Baskerville and Pont Newby, 2002;Zeff, 2002;Durocher and Fortin, 2010). Second, academic research assesses the impact of standards on accounting and auditing practice (Gold et al, 2012;Chiang, 2010;Chiang and Northcott, 2010;Asare and Wright, 2012;Aversano and Christiaens, 2014) and teaching (Cordery, 2013). Third, researchers develop projects separately or in combination with standard setters, analysing issues facing accounting and auditing standard setters (Ewert and Wagenhofer, 2012).…”

“…Further awareness-raising examples are Chiang (2010) and Chiang & Northcott (2010) (IAASB, 1998). Chiang (2010) found auditors were reluctant to consider non-financial impacts in a financial statement audit.…”

“…Secondly, academic research assesses the impact of standards on accounting and auditing practice (e.g. Gold, Gronewold & Pott, 2012;Chiang, 2010;Chiang & Northcott, 2010;Asare & Wright, 2012;Aversano & Christiaens, 2014) and teaching (e.g. Cordery, 2013).…”

Environmental Awareness and The Role of Public Accounting Professional Bodies in Indonesia: A Brief Reflection

“…Based on the legitimacy theory, accountancy should have the legitimacy from the public as source of the profession sustainability (O'Donovan, 2002). Chiang and Northcott (2010) suggested the reflection from the accountant to retain the societal legitimacy by giving the best practice in environmental problems. In relation to the issue, this study would like to see the perspectives and roles of the accountant profession in retaining the societal legitimacy in the framework of improving the environmental awareness.…”