Radhi Mousa Al-Hamadeen PhD Thesis

324 Pages·2007·2.24 MB·English

ASSURANCE OF CORPORATE STAND-ALONE REPORTING :
EVIDENCE FROM THE UK
Radhi Mousa Al-Hamadeen
A Thesis Submitted for the Degree of PhD
at the
University of St. Andrews
2007
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University of St-Andrews

Assurance of Corporate Stand-alone Reporting: Evidence from
The UK

Radhi Mousa Al-Hamadeen

A thesis submitted in fulfilment of the requirements of the Degree of Doctor of
Philosophy in Accounting

University of St-Andrews / School of Management
St-Andrews, UK

August 2007
ii
Declarations

I, Radhi M. Al-Hamadeen, hereby certify that this thesis, which is approximately
92,000 words in length, has been written by me, that it is the record of work carried out
by me and that it has not been submitted in any previous application for a higher degree.

Date: 10 August 2007 Signature of candidate ……………………..

I was admitted as a research student in [October, 2003] and as a candidate for the
degree of PhD in [October, 2003]; the higher study for which this is a record was carried
out in the University of St Andrews between [2004] and [2007].

Date: 10 August 2007 Signature of candidate ……………………..

I hereby certify that the candidate has fulfilled the conditions of the Resolution and
Regulations appropriate for the degree of PhD in the University of St Andrews and that
the candidate is qualified to submit this thesis in application for that degree.

Date: 10 August 2007 Signature of supervisor …………………….

In submitting this thesis to the University of St Andrews I understand I am giving
permission for it to be made available for use in accordance with the regulations of the
University Library for the time being in force, subject to any copyright vested in the work
not being affected thereby. I also understand that the title and abstract will be published,
and that a copy of the work may be made and supplied to any bona fide library or
research worker, that my thesis will be electronically accessible for personal or research
use, and that the library has the right to migrate my thesis into new electronic forms as
required to ensure continued access to the thesis. I have obtained any third-party
copyright permissions that may be required in order to allow such access and migration.

Date: 10 August 2007 Signature of candidate ……………………..
iii

To My Father
iv

Abstract

Since the early 1990’s the number of corporate stand-alone reports produced by various
organisations worldwide has increased considerably (Kolk, 2004; Owen, 2006). It is
argued that introducing an assurance statement with the stand-alone report may
contribute to enhancing the credibility of the reported information (FEE, 2002; Dando
and Swift, 2003; ACCA and AccountAbility, 2004).

This thesis reports on a multi-level analysis of assurance statements attached to stand-
alone reports that were produced by the UK FTSE100 companies during the reporting
years 2000-2004. Drawing on a research instrument (which itself has been informed by
previous literature, namely O’Dwyer and Owen, 2005) as well as the most recent
assurance guidelines and standards (such as FEE, 2002; GRI, 2002, AA1000AS, 2003;
and ISAE3000, 2004), this thesis examines the extent to which assurance statements
disclose information about crucial elements of the assurance engagement, the amount of
disclosure as well as factors associated with the information disclosed. In this context,
particular attention is given to issues of independence of the assurance provider; the
methodology used to conduct the assurance engagement; the degree to which
stakeholders have been engaged and their issues taken account of within the assurance
process; and assurance results (namely presentation of the assurance opinion, findings
and recommendations).

The research results suggest that, despite the increased amount and quality of information
disclosed within the assurance statements over the years, engagement of stakeholders and
taking adequate account of their issues within the assurance process is still lacking
compared to other dimensions of assurance. In the absence of generally accepted stand-
alone reporting criteria and assurance standards for this type of reporting, various
assurance approaches have emerged and these correspond to the nature of the assurance
provider (for example, accountancy, consultancy and certification body). The FTSE100
companies (in almost in two-thirds of the conducted engagements) rely most heavily on
v
consultancy firms for assurance and as a result, this approach dominates UK assurance
practice. As a consequence, there are noticeable variations in the assurance
methodologies, results of the assurance engagements (findings, opinions and
recommendations) and shape of the assurance statements over the study. There are also
changes that emerge over time and these are most strongly associated with the standards
that are used to govern the assurance engagement and also the type of information being
assured. These findings raise concerns about whether it is possible to harmonise
assurance practice of the corporate stand-alone reports. This thesis concludes with some
practical implications for the assurance of stand-alone reports, as well as
recommendations for future research.
vi

Acknowledgement

First of all, thanks to Allah who granted me the capability to complete this work. I would
like to express my gratitude to my supervisor, Prof. Jan Bebbington. I am greatly
indebted to her for advice, invaluable support, encouragement and successful guidance
throughout the conduct of this study. Sincere thanks should also go to my sponsor, Al-
Hussein Bin Talal University in Jordan, for their financial support during the whole
period of my study.

I would also like to thank: Prof. David Owen, Prof. Michael Power, Prof. Nancy Kamp-
Roelands, Prof. Brendan O’Dwyer, Prof. Markus Milne and David Collison for their
help, comments and advice during preparation of this thesis. I wish to acknowledge the
useful comments and suggestions given by my colleagues in the BAA Doctoral
Colloquium, the ScotDoc Management Conference, the CSEAR Summer School, and the
BAA/ICAS Colloquium. Special thanks also to all my colleagues, friends and the entire
staff at the School of Management/University of St-Andrews for their encouragement and
support. I am also grateful to Marion Cobban for her assistance in editing this thesis.

To my mother, sisters and brothers who suffered a lot during the period of my study, I
would like to say many thanks for your support, patience and blessings. Finally, I would
like to thank my dear wife Ghadeer, for her great support and help during the period of
my study.
vii
Table of Contents

Declarations.......................................................................................................................ii
Abstract.............................................................................................................................iv
Acknowledgement............................................................................................................vi
Table of Contents............................................................................................................vii
List of Appendixes..............................................................................................................x
List of Tables....................................................................................................................xi
List of Figures.................................................................................................................xiii
List of Abbreviations.....................................................................................................xiv

Chapter One: Introduction.......................................................................................1
1.1 Introduction..................................................................................................................1
1.2 Research questions and approach of the thesis.........................................................2
1.3 Objectives of the study.................................................................................................4
1.4 Summary of the previous work on assurance of the stand-alone reports..............5
1.5 Limitations of the research.........................................................................................7
1.6 Structure of the research.............................................................................................7

Chapter Two: An Overview of the Corporate Stand-alone Reporting and
Assurance ...................................................................................................................10
2.1 Introduction................................................................................................................10
2.2 Corporate stand-alone reporting..............................................................................10
2.2.1 Definition of and motivations for stand-alone reporting......................................10
2.2.2 Contents of the corporate stand-alone reporting...................................................13
2.2.3 Attributes of the corporate stand-alone reporting.................................................15
2.2.4 Trends of the corporate stand-alone reporting......................................................17
2.3 Assurance....................................................................................................................21
2.3.1 Definition and overview of assurance practice.....................................................21
2.3.2 Types of assurance engagements..........................................................................25
2.3.3 Levels of assurance...............................................................................................31
2.4 Assurance of corporate stand-alone reports............................................................33
2.4.1 Definition of assurance of the stand-alone reporting............................................33
2.4.2 Emerging standards in assurance of stand-alone reports......................................36
2.4.2.1 The International Auditing and Assurance Standards Board (IAASB) of the
International Federation of the Accountants (IFAC).................................................39
2.4.2.2 Fédération des Experts Comptables Européens (FEE)..................................42
2.4.2.3 The Institute of Social and Ethical Accountability (AccountAbility)...........44
2.4.2.4 The Global Reporting Initiative (GRI)..........................................................47
2.4.3 Comparison of the assurance standards................................................................49
2.4.4 Trends in assurance of stand-alone reports...........................................................51
2.5 Conclusion..................................................................................................................55
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Chapter Three: Assurance of Corporate Stand-alone Reporting: the
Academic Literature..................................................................................................57
3.1 Introduction................................................................................................................57
3.2 The role of audit and assurance in the society........................................................57
3.3 Previous literature on assurance of corporate stand-alone reporting..................62
3.4 Implications from the prior previous literature for the current research............75
3.5 Conclusion..................................................................................................................76

Chapter Four: Research Methodology and Methods....................................78
4.1 Introduction................................................................................................................78
4.2 Philosophical assumptions.........................................................................................78
4.2.1 Assumptions about the social science...................................................................78
4.2.2 Assumptions about the nature of society..............................................................81
4.2.3 Burrell and Morgan Paradigms.............................................................................81
4.2.4 Chua Classifications..............................................................................................83
4.2.5 Laughlin Framework.............................................................................................85
4.3 Objectives and philosophical assumptions of the study.........................................86
4.4 Research methods......................................................................................................88
4.4.1 Qualitative research methods................................................................................89
4.4.2 Quantitative research methods..............................................................................90
4.4.3 Mixed methods approach......................................................................................91
4.5 The research methods for the current study...........................................................92
4.6 Research instrument..................................................................................................95
4.6.1 Design of the instrument.......................................................................................96
4.6.2 Sections of the research instrument......................................................................97
4.6.3 Reliability of the instrument...............................................................................116
4.7 Data gathering process............................................................................................119
4.7.1 Population of the study.......................................................................................120
4.7.2 Collecting the assurance statements....................................................................121
4.8 Conclusion................................................................................................................123

Chapter Five: Descriptive Analysis of Data of the Study...........................123
5.1 Introduction..............................................................................................................124
5.2 The stand-alone reporting and assurance practice of the FTSE100...................124
5.3 Characteristics of the reporting companies...........................................................125
5.3.1 Size of the reporting companies..........................................................................126
5.3.2 Sectors of reporting companies...........................................................................127
5.4 Characteristics of stand-alone reports...................................................................129
5.4.1 Type of the stand-alone report.............................................................................130
5.4.2 Source of stand-alone report................................................................................131
5.5 Characteristics of the assurance providers............................................................133
5.5.1 Type of assurance provider..................................................................................133
5.5.2 Number of assurance providers engaged in the assurance practice.....................134
5.5.3 Competencies of the assurance providers............................................................136
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5.6 Characteristics of the assurance statements..........................................................138
5.6.1 Title/name of the assurance statement.................................................................138
5.6.2 Addressee of the assurance statements................................................................142
5.6.3 Level of the assurance pursued............................................................................144
5.6.4 Standards used during the assurance process......................................................148
5.6.5 Terms used to express the assurance opinion......................................................152
5.6.6 Assurance fees.....................................................................................................156
5.6.7 Additional information disclosed on the assurance statements...........................158
5.7 Conclusion................................................................................................................160

Chapter Six: Results of the Content Analysis and the Statistical Tests163
6.1 Introduction..............................................................................................................163
6.2 Dimensions of the assurance process......................................................................164
6.2.1 Independence of the assurance provider.............................................................164
6.2.2 Methodology of the assurance process...............................................................170
6.2.2.1 Pre-assurance procedures.............................................................................170
6.2.2.2 Assurance procedures..................................................................................176
6.2.3 Engagement with the stakeholders within the assurance process.......................183
6.2.4 Results of the assurance engagement..................................................................186
6.2.4.1 Opinion expressed in the assurance statement.............................................187
6.2.4.2 Findings of the assurance engagement........................................................191
6.2.4.3 Recommendations presented in the assurance statement.............................193
6.3 Results of the content analysis................................................................................197
6.3.1 Number of pages of the assurance statement......................................................198
6.3.2 Results of the content analysis framework.........................................................199
6.4 Results of the statistical analysis.............................................................................202
6.4.1 Framework for hypotheses development and statistical analysis.......................203
6.4.1.1 Developing the research hypotheses............................................................204
6.4.1.2 Statistical tests used in the study..................................................................205
6.4.2 Results of the hypotheses testing........................................................................209
6.4.2.1 Independence of the assurance provider......................................................211
6.4.2.2 Methodology of the assurance process........................................................213
6.4.2.3 Engagement with the stakeholders within the assurance process................219
6.4.2.4 Results of the assurance engagement...........................................................221
6.5 Conclusion................................................................................................................226

Chapter Seven: Conclusions.................................................................................243
7.1 Introduction..............................................................................................................243
7.2 Conclusions of the study..........................................................................................243
7.3 Practical implications of the current study...........................................................257
7.4 Areas for future research........................................................................................260

Bibliography..............................................................................................................249

Appendixes..................................................................................................................264