FACTORS HINDERING THE CONDUCT OF AUDITS OF CORPORATE SOCIAL RESPONSIBILITY REPORTS: EVIDENCE FROM POLAND

24 2022, XXV, 1 Business Administration and Management 10.15240/tul/001/2022-1-002 FACTORS HINDERING THE CONDUCT OF AUDITS OF CORPORATE SOCIAL RESPONSIBILITY REPORTS: EVIDENCE FROM POLAND Anna Bartoszewicz1, Anna Rutkowska-Ziarko2 1 University of Warmia and Mazury in Olsztyn, Faculty of Economic Sciences, Institute of Economics and Finance, Poland, ORCID: 0000-0002-6872-780X, [email protected]; 2 University of Warmia and Mazury in Olsztyn, Faculty of Economic Sciences, Institute of Economics and Finance, Poland, ORCID: 0000-0001-6073-3386, [email protected]. Abstract: This article presents the results of empirical research conducted among audit firms in Poland regarding the factors hindering the provision of non-financial information verification and attestation services. The rapidly developing practice of non-financial reporting among socially responsible entities in Poland does not translate into the number of reports that are subjected to external audits. Despite the unquestionable need to confirm the reliability of non-financial data, services of this type are not provided by the majority of audit firms. The primary aim of the article is to identify the factors hindering the performance of audits of non-financial reports in Poland. The article identifies the entities operating in the Polish audit market in terms of selected features. The authors provided answers to three main research questions: What percentage of audit firms in Poland carry out the verification of non-financial reports? What is the size and the level of employment of audit firms in Poland? What factors hinder, in the auditors’ practice, the performance of audits of nonfinancial reports? To achieve the objective, a survey research was conducted among audit firms under the supervision of the Polish Agency of Audit Oversight. The theoretical basis of the article included a literature study on the audit of non-financial reports as well as an analysis of regulations governing this subject matter in Poland. This study is the first such review of factors that condition the use of such an important tool as an audit in non-financial reporting. The obtained study results indicate that only 2.3% of audit firms perform audits of CSR reports. The main factor that limits audit firms in the performance of this type of services is the low demand in this regard. Moreover, the audits of non-financial reports are limited by insufficient staff. Keywords: Audit, non-financial reporting, CSR, corporate social responsibility, audit, assurance, verification. JEL Classification: M42, Q56. APA Style Citation: Bartoszewicz, A., & Rutkowska-Ziarko, A. (2022). Factors Hindering the Conduct of Audits of Corporate Social Responsibility Reports: Evidence from Poland. E&M Economics and Management, 25(1), 24–41. https://doi.org/10.15240/tul/001/2022-1-002 Introduction In recent years, non-financial reporting has become a global practice used by businesses almost all over the world. Its dynamic development can be also recently observed in Poland, which is reflected in the growing number of corporate social responsibility (CSR) reports published voluntarily by enterprises. Their scope includes non-financial results obtained within the environmental, social and economic area and informs about the risk associated with the initiatives undertaken by companies. EM_1_2022.indd 24 23.3.2022 9:36:21 25 1, XXV, 2022 Business Administration and Management Although the data contained in CSR reports are informative to stakeholders and are used in the decision-making process, there is a certain concern that they may lack reliability (compare with Dal Maso et al., 2020). It is not out of the question that companies, while promoting their activities, will disclose only selected, usually positive, aspects of their operations. Therefore, it appears reasonable to subject the disclosures presented in CSR reports to an audit, which, in this context, means an independent and objective verification of the non-financial information contained in the report, and their attestation (confirmation) in terms of reliability. Until 2018, non-financial reporting in Poland was voluntary for all entities. This was changed by the Polish transposition of Directive 2014/95/EU of the European Parliament and of the Council of October 22, 2014, under which nearly 300 Public Interest Entities in Poland were obliged to disclose non-financial information. Poland implemented the provisions of Directive 2014/95/EU in the area of reporting of extended non-financial information by means of: The Act of December 15, 2016, amending the Accounting Act (Journal of Laws of 2017, item 61), and the Act of May 11, 2017, on statutory auditors, audit firms, and public oversight (Journal of Laws of 2017, item 1089). Three forms of reporting non-financial data are permitted. The first form is a statement in the area concerned, presented as a separate part in the report. The second option is a separate report on non-financial information, drawn up along with the activity report. The third form permits latitude in non-financial reporting while providing for the possibility of including their own, national, European Union, or international principles selected by the entity, with the reporting entity having to indicate them. It should be emphasized that the issuance of EU Directive 2014/95/EU, which the Member States were required to transpose into national legislation, was a breakthrough in non-financial reporting in Europe. Its content has indicated a clear direction towards greater business transparency and responsibility as regards the social and environmental issues. It should be noted that 22 countries drew the reporting framework from the Directive, while the others adapted it to the existing guidelines, and the auditor’s involvement in confirming nonfinancial data was adopted by 19 Member States, including Poland (Fărcaș, 2020). The reporting of information these 300 Public Interest Entities in Poland is to be confirmed by an independent third party that issues a statement in this regard. Other entities decide themselves whether to commission the attestation of non-financial data and, additionally, to subject them to a full audit, as there is no mandatory obligation to do so. It should be noted that regulations do not indicate clearly who is to confirm non-financial information. In practice, this role is assigned to the statutory auditor, since the process of disclosure verification and the methodological aspects of auditing non-financial reports are very similar to a financial review. It can therefore be assumed that a statutory auditor is a competent person in this area. A study conducted by Wiśniewska (2015) in the area of the verification of corporate social responsibility reporting on a group of 32 Polish companies found that the data confirmation services in this regard were provided in the entities under study by three groups of units: Global Reporting Initiative (GRI), consulting and audit firms and other consulting firms. Involving audit firms in the process of verification may prove to be an appropriate solution, as these entities have both the relevant experience gained in the course of auditing financial reports, access and the ability to link non-financial information with financial data and have appropriate IT tools for providing services of this type. The aforementioned components render the audit process coherent and well-targeted, which may bring measurable effects in the auditor’s practice. It is difficult to indicate the actual level of audit performance in Poland, as the data in this regard are not yet fully known. The increased reporting practices in recent years may not be consistent with the verification and attestation of the data contained in them (compare Zysnarska-Dworczak, 2016). The rationale behind this statement includes the results of an analysis of sustainable development reports for the years 2001–2010 from 15 countries which indicated an increase in their number, which, unfortunately, did not correlate with the number of reports subjected to external verification. Moreover, in certain countries, e.g., Italy and Sweden, with an increase in reporting, a decrease in the external verification of reports was noted (Zysnarska-Dworczak, 2016). It is also difficult to quote the researchers’ observations in this regard, as the topics they EM_1_2022.indd 25 23.3.2022 9:36:21 26 2022, XXV, 1 Business Administration and Management address focus mainly on non-financial reporting carried out by socially responsible entities, while the considerations mainly concern the scope and thematic content of the above-mentioned reports and reporting standardisation. The area of report verification is usually described by companies that commission this type of service and indicates whether a report of a particular company has been or not subjected to verification. There are no analyses of the audit market or the level of services provided by audit firms and the factors that regulate this situation. This indicates a research gap occurring in this area. The authors believe that non-financial reporting audits are rarely performed, with the identification of factors which contribute to this situation being of importance. It is also becoming reasonable to identify a hypothetical link between specific characteristics of audit firms and the barriers that prevent the auditing of non-financial reports. In the course of such considerations, the following research question arose: RQ1: What percentage of audit firms in Poland carry out audits of non-financial reports? RQ2: How large are audit firms in Poland in terms of the turnover obtained and the number of employees? RQ3: How many years of business experience do the firms providing audit services have? RQ4: What factors (in the opinion of audit firms) hinder the performance of audits of nonfinancial reports? The search for answers to the above questions directed the research objective towards the “Identification of factors hindering the performance of audits of non-financial reports in Poland”. The additional objectives of the study included the “Identification of the percentage of audit firms in Poland, being under audit supervision, which will perform an audit of non-financial reports” and the “Characterisation of audit firms in Poland in terms of the employment and the turnover obtained”. The context of the considerations referred to Polish auditors’ practices as regards the verification of CSR reports. The current study contributes to the knowledge in the area of non-financial reporting in two ways: firstly, it characterises audit firms operating in the Polish market and indicates what percentage of these entities perform the services of auditing non-financial reports. Secondly, the study demonstrates the barriers that hinder the audit of non-financial reports, which leads to the conclusion that the implementation of mechanisms eliminating these limitations will successfully contribute to an increase in the number of entities providing audit services in the area of CSR. 1. Literature Review The conducted literature review suggests that despite many scientific papers on non-financial reporting in Poland and worldwide, research concerning verification of non-financial information is still at an early development phase. The importance of the presented subject matter and the need to develop empirical research in this area were emphasised inter alia by Erkens et al. (2015) who conducted a detailed bibliometric analysis of published scientific articles on non-financial information. They recognise that, at the turn of the 20th and the 21st century, there was a change towards a greater number of audits of nonfinancial information. However, an analysis of the research objectives applied in all analysed articles shows that most of them are based on archival methodologies. A significant proportion of the articles are in the form of an essay (25.3% of published articles), while approx. 14.4% are questionnaires or experiments and 8.4% are case studies. Only a small number of the articles are analytical in nature. The authors suggest the necessity of research into, inter alia, the issues of the reliability of non-financial information disclosures, difficulties in auditing CSR reporting and the need for independent audits (Erkens et al., 2015). In foreign publications, the auditing of non-financial reports has been considered in recent years, inter alia by Pucheta‐Martínez et al. (2018), Dal Maso et al. (2020), RivièreGiordano (2007), Kaspina and Samoilova (2020), Coran et al. (2009), and Manetti and Toccafondi (2012). In turn, in Polish scientific publications, the stricte topic of verification and attestation of non-financial information was addressed inter alia by Zyznarska-Dworczak (2016), Hummel & Michalak (2016), Wiśniewska (2015), Wiśniewska and Chojnacka (2016), Kutera and ZyznarskaDworczak (2018) and Bartoszewicz (2018). Having analysed the considerations given by the authors as regards the verification and attestation of non-financial information, three main topics can be distinguished: EM_1_2022.indd 26 23.3.2022 9:36:21 27 1, XXV, 2022 Business Administration and Management  stressing the importance and necessity of performing services of this type in order to increase the reliability of non-financial data;  emphasising methodological difficulties in the performance of non-financial audits;  the effect of specific variables on the quality of these audits. An important aspect in reporting non-financial information is its suitability for stakeholders. The information contained in a CSR report should be characterised by usefulness, completeness, consistency, transparency and, primarily, reliability (Fijałkowska, 2013), which should be confirmed by an independent audit. Hence, it is of importance that they are subjected to an audit. The importance of confirmation services for increasing the reliability of an entity’s performance measures as part of the extended role of statutory auditors was distinguished in the ‘Report of Special Committee for Assurance Services’ (American Institute of Certified Public Accountants – AICPA, 1997). The content of the report suggests that the traditional role of audit in order to increase reliability and introduce an added value to the information being presented should apply whether or not it is financial or non-financial information (AICPA, 1997, as cited in Coram et al., 2009, p. 138). As Manetti and Toccafondi (2012) claim, in order to provide reports on sustainable development, an external supplier informs about the organisation’s performance as regards environmental and social issues. Such an activity increases the quality of information disclosed in corporate social responsibility reports (compare with indications by Manetti & Becatti, 2009, as cited in Sierra-Garcia et al., 2018). Humel and Michalak (2016) add that the assessment of the reporting process functioning and all auditor’s recommendations concerning the functioning of this process are as important as ensuring data reliability. As in the case of auditing financial reports, as part of summarising the work on the verification of non-financial reports, the auditor submits a letter to the Management Board, which summarises their observations and recommendations concerning possible improvements in the reporting process. However, as Lam and Khare (2010) point out, due to the wide thematic range of disclosures presented in non-financial reports, which results from the nature of corporate social responsibility and its multi-faceted character, the authentication of information of this type is a difficult task. In addition, Hummel and Michalak (2016) emphasise the positive side of the audit of nonfinancial reports, claiming that an investment in the verification of non-financial data can make a significant contribution to building a competitive advantage. The companies that report non-financial data and subject them for verification achieve better results and higher performance in financial markets, and are much less sensitive to market-wide downward trends, because thanks to the reliable disclosure of significant data, all information is already discounted and reflected in the share market. Zysnarska-Dworczak (2016) points out, however, that despite the entities being focused on ensuring the highest quality of reports, regulations do not oblige entities to apply specific solutions including, in particular, to external verification of the data being presented. Thus, the entities themselves decide whether to subject non-financial information to external verification. In turn, Sierra-Garcia et al. (2018) note that although the Directive does not require the verification of the content of a non-financial report, in many countries this is done by an independent external service provider to increase the reliability and diligence of the information being presented. However, according to the research conducted by Wiśniewska (2015) in the area of verification of Corporate Social Responsibility reports in Polish companies which submitted reports in 2013 and 2014 to the competition ‘Social Reports’ in Poland in 2013, out of 32 reports submitted for the competition, 15 were subject to external verification, which accounted for 46.9%. In 2014, out of 31 submitted reports, 19 were subject to external verification, which accounted for 61.3%. Therefore, the number of reports verified by external experts increased by 14.4%, which may indicate an increase in companies’ awareness of the need to authenticate non-financial data presented in reports. It is worth stressing that the study involved companies that have submitted their reports to the competition, hence it can be assumed that they understand the idea of non-financial reporting, and can see the need to confirm the information contained in CSR reports. It is, however, difficult to determine whether this trend for increasing the verification of reports has been maintained. This statement may be based on the fact that the process EM_1_2022.indd 27 23.3.2022 9:36:21 28 2022, XXV, 1 Business Administration and Management of methodological auditing non-financial information can be a significant difficulty, therefore audit firms may not be willing to provide services of this type. As Krasodomska (2014) notes, non-financial data containing issues of the environment, respecting human and workers’ rights, and the prevention of corruption and bribery are descriptive information with a different structure, language, style and narrative methods, which uses industry-specific terms, therefore it is a challenge for auditors to assess them objectively. This problem was also addressed by Kaspina and Samoilova (2020). In their opinion, one of the aspects hindering the practical performance of attestation assignments concerning non-financial information is the lack of established criteria for the performance of non-financial reporting. Reports concerning sustainable development are most often drawn up in accordance with the Global Reporting Initiative’s (GRI) guidelines for sustainable development reporting. In such a case, a statutory auditor will follow the standard procedures for the attestation service. The situation is different in the case of reports drawn up by foreign entities, in accordance with other countries’ rules, and the very criteria for their implementation. In this case, it is difficult to select the tools for testing. Furthermore, it is difficult to determine the very significance of the investigation. At the same time, a problem arises: how to determine the appropriate approach to sampling? The selective approach results from the fact that the auditor’s resources are limited, and the performance of a full audit is almost impossible, therefore a sample should be selected for auditing, and the reliability of information should be assessed based on the sample, which, in the case of non-financial information, may be an uneasy task. The positive side of the audits of nonfinancial reports is indicated by the results of the study conducted by Pucheta-Martínez et al. (2018). They show that auditing firms from the so-called ‘big four’, and the fees for an audit performed by the firms under study encourage CSR reporting. They believe that large audit firms play an important role in disclosing information on CSR, which may help mitigate the information asymmetry between managers and stakeholders. In turn, Dal Maso et al. (2020) investigated the relationship between the confirming services performed by the same audit firm in the area of CSR and financial reports. They assessed positively the effect of such a situation on the assessment of the continuation of the company’s operations. On the other hand, Rivière-Giordano (2007) points out that firms should consider subjecting non-financial information to an audit, as it is practiced in the area of financial information authentication. He proposes an audit of social information as a measure confirming the reliability of such data. It should be emphasised that an increasing number of traditional investors (i.e., investors who are not specifically guided by the CSR-related investment strategy) are including CSR results to their decisions concerning the selection of shares and obligations (Durand et al., 2019), hence it is justified to subject the published information to audits. Despite much evidence found in the literature, which indicate the need to verify non-financial reports and the confirmation of non-financial information by the auditor, as previously mentioned, the authors believe that the services of this type are practiced among few audit firms in Poland. In order to verify the practice in this regard, and to determine the factors which hinder the audits of CSR reports, an empirical study was conducted. 2. Research Methodology and Data The article used the survey research. The study was conducted between October and November 2020 on a population of 1,410 audit firms under the supervision of the Polish Agency of Audit Oversight (PANA). The selection of the indicated group for the study was motivated by the fact that these entities are supervised by the above-mentioned Agency, which is an independent institution focusing its activities on building trust in financial information. PANA exercises independent supervision over statutory auditors, audit firms and professional self-governing bodies of statutory auditors and ensures that the audits of financial services and attestation services are appropriately performed by statutory auditors. Such a measure contributes to an increase in investor security and economic turnover. The activities of the Agency are supervised by the Minister of Finance, inter alia by means of appointing and dismissing PANA bodies, granting its statutes and approving a financial plan and a financial report. The list of 1,410 firms is available on the PANA website (as of October 15, 2020). When EM_1_2022.indd 28 23.3.2022 9:36:21 29 1, XXV, 2022 Business Administration and Management the study was initiated, the contact details of particular firms listed on the PANA website were subjected to preliminary verification. The repeated records and the entities for which there were shortcomings were deleted. 1,293 entities were qualified for the further stage of the study. The survey was addressed to all entities representing the study population. By assumption, the study was intended to be a complete population study. However, not all respondents provided comprehensive answers to all questions. The issue is described in detail below. The respondents’ willingness to provide answers to individual questions was the only criterion for the inclusion of a particular audit firm in the sample. Therefore, it could not be assumed that it was a random sample, and it was not advisable to apply statistical estimation methods. For this reason, the study employed the descriptive statistics method, including interdependence testing using Cramer’s V. This is a measure of the independence of variables, which can be applied for variables in all measurement scales. It can take values from the interval of [0; 1], where ‘0’ indicates stochastic independence, and ‘1’ indicates a deterministic dependence. The study was conducted using the CATI (Computer Assisted Telephone Interview) technique, where the respondents were either contact persons indicated on the PANA website or persons indicated by them as competent to answer the questions concerned. The measurement tool was an interview questionnaire comprised of seven questions on the characteristics of the firms under study, the provision (or lack thereof) of the service of non-financial report auditing in the area of CSR and the factors that hinder the performance of services of this type. The contact with a respondent was successfully established for 1,109 audit firms, with some firms refusing to participate in the study. 774 firms answered a single question concerning their performance of non-financial report verification, which enabled the conclusion as to how many of them perform the services of CSR report verification. It was found that 18 entities were audit firms that performed audits of non-financial reports, while the other entities (756) were audit firms that did not provide services of this type. Ultimately, 235 respondents provided answers to all the questions asked. 226 of them are firms that do not perform audits of non-financial reports, and only nine of them provided services in this regard. Due to the very low representation of audit firms that provide services in verifying nonfinancial reports and the adopted objectives of the study, further empirical considerations omitted the entities which provide services of this type. On the other hand, the answers provided by 226 respondents from audit firms, that did not perform audits of non-financial information, were subjected to a detailed analysis. Their operations are mainly focused on auditing financial reports. The direction of the adopted research enabled the characterisation of this group of audit entities, and identified the reasons for their failure to perform audits of non-financial reports. The survey checked what difficulties in the provision of services in the area of CSR auditing were most often indicated by respondents from these entities. It should be stressed that a sample of 774 entities was used only to determine the percentage of audit firms providing services of CSR report auditing. All other analyses were carried out based on a sample of 226 firms which performed no verification of non-financial information. 3. Empirical Results and Discussion According to the study results, out of 774 audit firms, only 18 (2.3%) perform audits of CSR nonfinancial reports. Most entities do not provide services of this type. Based on a sample of 226 respondents from audit firms which performed no audits of non-financial information, the factors hindering, in the auditors’ practice, the performance of audits of non-financial reports were analysed. Moreover, this group of entities was examined in terms of their experience in the performance of audits of financial reports and the size. The results of the conducted analysis revealed the main features of audit firms in Poland and enabled their characterisation. The size of the entities was considered in terms of the annual turnover, the number of all staff employed at the unit, and the number of auditors working in a particular entity. The company’s experience was described using two variables expressed in years: (1) the length of operation in the market; and (2) the experience in providing financial report verification and confirmation services. According to the respondents’ declarations, 221 entities are micro-enterprises with EM_1_2022.indd 29 23.3.2022 9:36:21 30 2022, XXV, 1 Business Administration and Management a turnover of less than 2 million EUR. Only five audit firms recorded an annual turnover of more than 2 million EUR while not exceeding the 10 million EUR turnover ceiling, which classifies them as small-sized enterprises. Based on the answers to the questions concerning the characteristics of the entities under study, the following were determined: how long these firms had been operating in Polish market (Tab. 1), how many years of experience they had in performing audits of financial reports (Tab. 2) and how many staff they employed (Tab. 3), including auditors (Tab. 4). As indicated by the study results, the youngest of the firms under study started operating in 2020 and the oldest started in 1980. In 1989, in Poland, there was a transformation of its centrally planned economy into the free market economy. It is worth noting that several audit firms that have been operating to date were established before the system transformations. 25% of the entities have been operating for less than 10 years and only 10% for less than 5 years. Nearly one-quarter of audit firms have been operating for 25–30 years, i.e. these are firms that were established at the beginning of the free market transformations in Poland. Approx. 24% of firms have less than 10 years’ experience in auditing activities in the area of financial reports, and 10% have less than 5 years’ experience. More than 75% of entities have been involved in the verification of financial reports for 10 years or longer. More Number of years Number of entities Frequency Cumulative frequency [0; 5) 27 0.1195 0.1195 [5; 10) 29 0.1283 0.2478 [10; 15) 47 0.2080 0.4558 [15; 20) 35 0.1549 0.6106 [20; 25) 24 0.1062 0.7168 [25; 30) 55 0.2434 0.9602 [30; 35) 5 0.0221 0.9823 [35; 40] 4 0.0177 1 Total 226 Source: own Number of years Number of entities Frequency Cumulative frequency [0; 5) 24 0.1062 0.1062 [5; 10) 30 0.1327 0.2389 [10; 15) 40 0.1770 0.4159 [15; 20) 41 0.1814 0.5973 [20; 25) 23 0.1018 0.6991 [25; 30) 47 0.2080 0.9071 [30; 35] 21 0.0929 1 Total 226 Source: own Tab. 1: The length of business operation, in years Tab. 2: The experience in the performance of audits of financial reports EM_1_2022.indd 30 23.3.2022 9:36:21 31 1, XXV, 2022 Business Administration and Management than one-third of the companies that provide services in this regard have been operating for 10–20 years. Having analysed the information provided in Tabs. 1 and 2, one can conclude that among the audit firms under study, entities with extensive experience in the performance of financial audits are predominant. The majority (63%) of the firms are entities employing fewer than five staff, while 85% of the examined firms employ fewer than 10 staff. The firms employing at least 20 staff account for 5% of the population examined. As the study results show, more than 80% of entities employ fewer than four auditors, while 4% of the firms under study employ at least seven ones. It should therefore be concluded that the firms providing services of auditing financial reports in Poland are microand small-sized enterprises in terms of the number of employees. The majority of them are microenterprises that employ highly qualified staff. Due to the low percentage of firms providing services in the area of the verification of nonfinancial reports in Poland (the results of the conducted study indicate 2.3%), the crucial objective was to identify the most important factors contributing to this situation. The respondents had the opportunity to choose from five hypothetical difficulties provided in the questionnaire. Moreover, they could indicate other barriers which, in their opinion, have a considerable effect on the performance of non-financial audits, and constitute obstacles in this regard. Number of employees Number of entities Frequency Cumulative frequency [0; 5) 143 0.6327 0.6327 [5; 10) 49 0.2168 0.8496 [10; 15) 19 0.0841 0.9336 [15; 20) 30.0133 0.9469 [20; 25) 5 0.0221 0.9690 [25; 30) 20.0088 0.9779 [30; 35) 30.0133 0.9912 [35; 40) 1 0.0044 0.9956 [40; 45] 1 0.0044 1 Total 226 Source: own Number of auditors Number of entities Frequency Cumulative frequency [0–4) 182 0.8053 0.8053 [4–7) 35 0.1549 0.9602 [7; 10) 4 0.0177 0.9779 [10; 13) 30.0133 0.9912 [13; 15) 1 0.0044 0.9956 [15; 17] 1 0.0044 1 Total 226 Source: own Tab. 3: Number of employees Tab. 4: Number of auditors EM_1_2022.indd 31 23.3.2022 9:36:21 32 2022, XXV, 1 Business Administration and Management The questionnaire proposed the following factors hindering the performance of audits of non-financial reports: 1. ‘Low demand for such services’; 2. ‘Lack of auditors’ practical knowledge as regards the methodology of performing audits of non-financial reports’; 3. ‘Diversity of permitted standards as regards the performance of audits of non-financial reports’; 4. ‘Difficulties in the assessment of nonfinancial data reliability’; 5. ‘Considerable latitude in drawing up nonfinancial reports by companies’; 6. ‘Other, which ones?’ A summary of the respondents’ answers to the question concerning the difficulties in the performance of audits of non-financial reports is presented in Tab. 5. As demonstrated by the study results, the difficulty in performing audits of non-financial reports, most frequently indicated by the respondents, was too low demand for services of this type; it was indicated by 125 respondents, i.e., more than half of all study participants. Another important limitation is the lack of auditors’ practical knowledge as regards the methodology of performing audits of non-financial reports. This answer was indicated by 64 entities, i.e. almost one-third of the respondents. As part of providing answers to the question concerning the factors hindering the performance of audits of non-financial reports, the respondents had the opportunity to indicate additional barriers that had not been included in the questionnaire. The conducted study demonstrates that 103 respondents (46%) proposed a different factor. The factors were grouped into the following four categories: 1. ‘No assignments’ (factor 7); 2. ‘No time for the provision of an additional service’ (factor 8); 3. ‘A high cost of the service performance, and no experience in this regard’ (factor 9); 4. ‘Too few employees’ (factor 10). A general summary of the answers provided in this regard is presented in Tab. 6. The group of entities which mentioned the factor of ‘No assignments’ may be the audit firms which are prepared, in terms of staffing and substantially, to provide a service of this type, and have it in their offer, but receive no assignments for it. The reason for this may be the lack of legal obligation for most companies in Poland to draw up nonfinancial reports, which also translates into their subsequent verification. Even in the case of voluntary reporting carried out by some entities in the area of CSR, there is no interest on the part of the management in subjecting a report to an audit. Factor 8, ‘No time for the provision of an additional service’, was indicated by firms which, due to the great number of assignments in the area of financial report auditing, show no interest in extending the offer to include the verification of non-financial reports. For some of the respondents (the group indicating factor 9), the performance of audits of non-financial reports is an expensive service which requires Factor Number of entities Percentage 1. ‘Low demand for such services’ 125 0.553 2. ‘Lack of auditors’ practical knowledge as regards the methodology of performing audits of nonfinancial reports’ 64 0.283 3. ‘Diversity of permitted standards as regards the performance of audits of non-financial reports’ 33 0.146 4. ‘Difficulties in the assessment of non-financial data reliability’ 40 0.177 5. ‘Considerable latitude in drawing up non-financial reports by companies’ 42 0.186 6. ‘Other, which ones?’ 103 0.456 Source: own Tab. 5: The number and percentage of indications of a particular factor hindering the performance of audits of non-financial reports EM_1_2022.indd 32 23.3.2022 9:36:21 39 1, XXV, 2022 Business Administration and Management while 4% of the firms under study employ at least seven ones. Moreover, the firms providing services of auditing financial reports in Poland are microand small-sized enterprises in terms of the number of employees. The majority of them are microenterprises that employ highly qualified staff (research question 2). Among the audit firms understudy, entities with extensive experience in the performance of financial audits are predominant. More than 75% of entities have been involved in the verification of financial reports for 10 years or longer (research question 3). In the opinion of audit firms, the main factors that hinder the performance of audits of non-financial reports are the low demand for such services and the lack of auditors’ practical knowledge on the methodology of carrying out a study in the scope discussed. Moreover, additional barriers that hinder the provision of audit services in the area of non-financial reports in Poland are no assignments, no time for the provision of an additional service (in addition to those being currently provided), the high cost of the service, no experience in the area concerned, as well as understaffing in an audit firm (research question 4). In summary, taking into consideration the existing auditing practice in Poland, the authors believe that certain measures need to be taken to increase and standardise both reporting and the provision of audit services in the CSR area. These include: (1) a national solution in the legal area, which would involve the introduction of an obligatory requirement of a legal audit of nonfinancial reports for all firms that publish nonfinancial reports; (2) solutions in the methodological area, which would indicate the need to confirm the reliability of data based on the performance of complete audits based on uniform audit standards and methodological guidelines in the area concerned; (3) the promotion of good audit practices by auditors’ organisations in a particular country, which would provide a reference point for certain solutions that may be applied in the area of data verification and confirmation. Such a measure would be a support and recommendation for the audit sector; (4) European harmonisation of standards as regards the preparation of non-financial reports, and in relation to the performance of the audit of the information provided in CSRs. Such a measure would facilitate the performance of a data assessment, and enable the comparison of the information being verified with the information provided in other entities’ reports; (5) unification of regulations being implemented at the level of all European Union countries as regards auditing of non-financial information. In this context, it should be noted that non-financial reporting and an audit of information provided in CSR report not only concerns Poland, as it is a global problem that requires certain solutions to be developed at the entire EU level. Hence, it is important to develop uniform standards and regulations that will apply in all countries. The authors are of the opinion that undertaking the above measures would both enable a reduction in the existing barriers occurring on the audit service market and increase the number of non-financial report audits being implemented. Thus, the main added value in the above-mentioned measures would primarily be an increase in the quality of non-financial information and an assurance to stakeholders about its reliability. In view of the widespread problem related to the verification and assessment of non-financial data occurring in many countries, subsequent studies on the subject concerned should be carried out. The authors of the article believe that future research in the CSR area should focus primarily on the methodological aspect of non-financial reports. Research in this area would provide an opportunity to create a certain framework and methodological guidance for auditors carrying out the audits concerned. A further step in the research should be an expansion of the study population to include advisory entities which could also confirm non-financial information. Conducting studies of a similar nature in other countries would allow a comparative analysis to be carried out. 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