Previous research has shown that obtaining independent assurance of corporate social responsibility (CSR) reporting has capital market benefits and that these benefits are amplified when accountants provide the assurance. Yet, little is known about whether and the manner in which CSR assurance improves the quality of CSR reporting, and whether accounting providers improve reporting quality to a greater extent than non-accounting providers. This study uses the unique setting of CSR restatements to examine these issues. We present theoretical and empirical evidence supporting a competitive advantage of using accounting firms as assurance providers as they not only identify inaccuracies in previous reports earlier than non-accounting providers, but also prevent future reporting inaccuracies. CSR assurance, from either type of provider, also leads to improved reporting definitions, scopes, and methodologies that require restatements for comparability. Results also indicate that CSR reporting frameworks (e.g., GRI) are not a substitute for obtaining CSR assurance as the latter has incremental benefits over GRI usage in terms of identifying errors and reporting improvements. These results have implications for public policy makers considering the merits of mandating CSR assurance and for organizations assessing the relative benefits and costs of preparing GRI-based CSR reports, obtaining CSR assurance, and choosing between accounting vs. non-accounting CSR assurance providers.

Introduction

Independent assurance of corporate social responsibility (CSR) reports has become a standard business practice with nearly twothirds of the largest 250 global companies having their CSR reports independently assured (KPMG, 2015). This demand for CSR assurance is driven by a need to convince stakeholders that the firm is appropriately managing its environmental and social risks (Simnett et al., 2009). CSR assurance appears to be effective in this respect as it reduces firms’ cost of capital and reduces analyst forecast errors and dispersion, especially when accounting firms provide the assurance (Casey and Grenier, 2015). Yet, there is only scant empirical evidence on how CSR assurance achieves these capital market benefits. Do capital market participants simply have more confidence in firms’ reported CSR performance due to the CSR assurance report or is the reporting also of higher quality? Further, if the reporting is of higher quality, what are the competitive advantages of accountants in improving reporting quality? This study uses the unique setting of restatements of CSR reports to shed light on these important questions. KPMG (2011) reports that approximately one-third of the largest 250 global companies and approximately one-fifth of 3400 companies across 34 countries have restated previously-issued CSR reports.1 A CSR report is deemed to be “restated” when a subsequent CSR report indicates that the previous report had an error or omission (i.e., errors) or was otherwise updated to improve or enhance definitions, scopes, and/or estimation/calculation methodologies (i.e., non-errors), necessitating previously-issued metrics to be restated for comparability (KPMG, 2011). See Appendix A for examples of both types of restatements. Consistent with KPMG (2011), we consider CSR restatements as “good,” and a positive step forward for improving CSR quality and effectiveness (i.e., part of the maturation process of CSR reporting). That is, in contrast to the mature financial reporting setting where restatements can be indicative of management incompetence (or in some cases fraud), CSR reporting is still in its relative infancy where errors are somewhat expected and where definitions, scopes and methodologies should be significantly improving over time.