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AccountAbility

AccountAbility 1000(AA1000) framework

Standards, guidelines andprofessional qualification

Exposure draft - November 1999

The Institute of Social and Ethical AccountAbility

Thrale House, 44-46 Southwark Street, London, SE1 1UN, United Kingdom

Telephone: +44 (0) 207-407-7370; Facsimile: +44 (0) 207-407-7388Website: www.accountability.org.uk; E-mail:

secretariat@accountability.org.uk

http://www.accountability.org.uk/http://www.accountability.org.uk/

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November 1999

AA1000 has been developed to improve the accountability andoverall performance of organisations by increasing qualityin social and ethical accounting, auditing and reporting.

The Institute has facilitated the development of AA1000through work with hundreds of individuals and organisationsworldwide from business, government, and civil society.

Recent years have witnessed increased pressures onorganisations to demonstrate social and ethical performance

and accountability. Organisations have innovated in theirresponses to stakeholders aspirations, including theadoption of various approaches to social and ethical - andmore recently sustainability - accounting, auditing andreporting. Such practices are rapidly deepening andextending to other parts of the business community andother organisations.

There has been a growing concern over the difficulty ofassessing and ensuring the quality of these practices.Civil society organisations, the media and opinion leaders

are challenging their inclusivity, completeness andmeaning. Adopting organisations are increasinglyquestioning their usefulness in strengthening their abilityto measure, manage and improve performance and toeffectively demonstrate this performance. Concerns are alsoemerging as to the competencies and objectivity of thoseoffering services in this area.

These concerns have led to a growing number of standardsand guidelines. Specialised frameworks such as GRI andSA8000 have helped to create islands of clarity in key

areas. AA1000 is a contribution to the furtherclarification of what constitutes good practice inaccountability and performance management. It has beendesigned as a foundation standard and offers a commoncurrency of principles and processes that underpin andtherefore provide reassurance about specialised standards.AA1000 is also designed to function as a stand-alonequality system and process. The suite of applications thatmake up the AA1000 Framework provides the basis forprofessional training and for the specialised applicationof the core standard.

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We are proud to present the progress achieved to date,and we look forward to your contribution to its furtherdevelopment. Please do contribute to its further

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evolution through dialogue and use1.

Yours sincerely,

Simon Zadek,Chair, Institute of Social and Ethical AccountAbility

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Preface

This document includes the complete AA1000 Framework

(standard, guidelines and professional qualification) as itstands in November 1999. An overview of the framework isavailable in a separate document entitled: AA1000:Overview of standard and its applications.

DevelopmentAA1000 has been developed by the Institute, overseen andapproved by its Council, which includes representatives andexpertise from various constituencies and regions.

The development process has included extensive consultation

with the Institutes international membership including itsCorporate Leadership Network2, and through events held inassociation with collaborative institutions and networks inAustralia, continental Europe, India, Nordic Countries,South Africa, the United Kingdom and the United States.

The development of the AA1000 framework has drawn from bestpractice in social and ethical accounting, auditing andreporting, as identified in the practice of adopters andservice providers, the analysis of academics and civilsociety organisations, and existing accountabilitystandards.

The Institute is grateful for the support of all thoseindividuals and organisations that have contributed to thedevelopment of AA1000, and would wish to thank inparticular Arthur D Little Ltd, Bureau Veritas QualityInternational (BVQI), the Department for InternationalDevelopment, KPMG, MacArthur Foundation, New EconomicsFoundation, SGS International Certification Services andArthur D Little.

Next steps and commitmentsThe Institutes approach embraces a user-driven philosophy.AA1000 must be tried, tested, and further developed for itto have value now and in the future. Over the coming years,the Institute will intensify its engagement with users fromall sectors and constituencies in order to assessoperational usefulness and required adjustments in thelight of experience and evolving needs. A particular focuswill be on whether and how AA1000:

Supports more effective stakeholder engagement.

Contributes to specialised standards, guidelines and

tools. Is effective in diverse operating environments

internationally and across different sectors.

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Can build synergy with emerging approaches tointellectual capital and knowledge management.

Links to strategic and operational planning tools andquality models such as the Balanced Scorecard and theBusiness Excellence Model.

Contributes to building accountability in public sectorand civil society organisations as well as within thebusiness community.

Demonstrably enhances overall performance.

The Institute is conscious of the fact that by design theAA1000 already incorporates key elements of the approachesadopted by many leading companies and standardsinitiatives. A bounded piloting programme is therefore notseen as the most effective or cost-efficient route tosecure the necessary experiment, dialogue and learning.Instead, the Institute intends to pursue the followingroutes in developing AA1000:

Member-based testing, workshops, learning networks andsurveys.

Continued contribution to, and learning from, thedevelopment of specialised standards.

Further encouragement and development of chapters andassociated organisations internationally, particularlyin the Southern hemisphere.

Learning through the professional training embedded inthe overall AA1000 Framework.

Consolidation and extension of an integrated researchprogramme.

Web-based dialogue.

Ad hoc learning through the many networks andinitiatives in which the Institute participates.

Through these routes, the Institute commits to: Making regular, publicly available progress reports.

Publishing research on tests and developments of AA1000.

Enhancing and extending the set of tools in the AA1000

Framework. Issuing specialised guidelines, for example

relevant to particular business sectors, and to

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public sector and non-profit organisations.

Regular upgrades of the professional training based onpublished feedback on trials.

Re-issuing an enhanced AA1000 Framework during 2001.

In addition, the Institute commits to further strengtheningits inclusive and transparent approach through continuedinnovation of its own multi-constituency, member-basedgovernance systems and processes. It aspires to nurturing aprofession and associated standards and institutions thatreflect the principles of accountability and performancethat it seeks to advocate and enhance in others.

Contents

Page

1 Executive Summary 6

The foundation standard2 AccountAbility 1000 (AA1000)14

Principles 16Process standards 19

The guidelines:3 Auditing and quality assurance -43guidelines for the social and ethical auditor4 Integrating AA1000 605 Stakeholder engagement846 Accountability assessment

897 First steps 96

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The professional qualification:8 Professional qualification -102competence and qualification requirements for social andethicalaccountants and auditorsAppendices:A Glossary of terms 117B The Institute of Social and Ethical AccountAbility126

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1 Executive Summary

1.1 AccountAbility 1000 The foundation standardIntroductionAccountAbility 1000 (AA1000) is an accountabilitystandard, focused on securing the quality of social andethical accounting, auditing and reporting.It is a foundation standard, and as such can be used intwo ways:

a) As a common currency to underpin the quality ofspecialised accountability standards, existing andemergent.

b) As a stand-alone system and process for managing and

communicating social and ethical accountability andperformance.

Accountability standards and guidelinesRecent years have witnessed a proliferation of standards and

guidelines to support and measure accountability and performance.

These include process standards and substantive performance

standards, standards focused on a single-issue or encompassing a

variety of issues, and mandatory and voluntary standards.

The processes and issues covered by these standards includestakeholder dialogue and social and ethical reporting, organisational

culture, fair trade and ethical trade, working conditions, human

resource management and training, environmental and animal

protection, community development and human rights. Some of the more

notable examples are the:

Australian Criminal Code Act, Caux Round Table Principles for

Business, CERES Principles, EMAS, Ethical Trading Initiative, Forest

Stewardship Council, Global Reporting Initiative, Global Sullivan

Principles, Humane Cosmetics Standard, ICFTU Basic Code of Labour

Practice, Investors in People, ICC Business Charter for Sustainable

Development, ISO 14001, OHSAS18001, PERI Reporting Guidelines, SocialAccountability 8000 (SA8000), South African Government Employment

Equity Act, Sunshine Corporate Reporting, and the US Government

Federal Sentencing Guidelines.AA1000 comprises principles (the characteristics of aquality process) and a set of process standards. Theprocess standards cover the following stages:

a) Planning.

b) Accounting.

c) Auditing and reporting.

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d) Embedding.

e) Stakeholder engagement.

The principles and process standards are underpinned bythe principle of accountability to stakeholders.

Accountability and performanceThe AA1000 process standards link the definition andembedding of an organisations values to the developmentof performance targets and to the assessment andcommunication of organisational performance. By thisprocess, focused around the organisations engagement withstakeholders, AA1000 ties social and ethical issues into

the organisations strategic management and operations.AA1000 aims to support organisational learning andoverall performance social and ethical, environmentaland economic - and hence organisations contributiontowards a path of sustainable development.It seeks to achieve its aim through improving the qualityof social and ethical accounting, auditing and reporting.

What is social and ethical?The terms ethical and social have a number of theoretical andpractical traditions in organisational accountability. For some,

ethical (or ethics) refers to an organisations systems and the

behaviour of individuals within the organisation, whereas social

refers to the impacts of the organisations behaviour on its

stakeholders, both internal and external. For others, ethical

embraces both the systems and individual behaviour within an

organisation, and the impacts of the systems and behaviour on

stakeholders, on the environment, on the economy, etc.

AA1000 recognises these different traditions. It combines the terms

social and ethical to refer to the systems and individual behaviourwithin an organisation and to the direct and indirect impact of anorganisations activities on stakeholders.

Social and ethical issues (relating to systems, behaviour andimpacts) are defined by an organisations values and aims, through

the influence of the interests and expectations of its stakeholders,

and by societal norms and expectations.

Building performance not complianceThe Institute recognises and advocates the need forexperimentation and innovation in embedding the managementof (and accountability for) social and ethical issues inorganisations strategies and operations. Itfurthermore recognises that any useful standard at this

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stage must stimulate innovation above an agreed qualityfloor, rather than encouraging the development of a morerigid compliance-oriented culture.

Therefore in the first instance, the Institute has takenthe decision not to position AA1000 as a certifiablestandard. Rather, its design is intended to encourageinnovation around key quality principles, which at thisstage it considers a more effective approach in takingforward individual adopting organisations and the field asa whole.

AA1000 does, however, incorporate an auditing standardthrough which organisations will provide assurance tostakeholders as to the quality of their social and ethicalaccounting, auditing and reporting. This assurance is onebasis of effective engagement between organisations and

stakeholders, and hence supports organisations strategicmanagement and operations.

Stakeholders: leadership and engagementAn organisations stakeholders are those groups who affect and/orare affected by the organisation and its activities.These may include, but are not limited to: owners, trustees,

employees and trade unions, customers, members, business partners,

suppliers, competitors, government and regulators, the electorate,

non-governmental-organisations (NGOs) / not-for-profit organisations,

pressure groups and influencers, and local and international

communities.

There is growing recognition by organisations that some stakeholders

possess significant influence over them:

a) More information is publicly available on the activity of

organisations and the impact of these activities on

employees, shareholders, society, the environment and the

economy.

b) Stakeholders demand higher standards of behaviour from

organisations.

c) The legitimacy of these demands is more widely recognised by

government, regulators and civil society.

At the same time, organisations recognise the conflicts of interest

they have with stakeholders, and the lack of consensus between and

within stakeholder groups.

This is a dilemma that AA1000 seeks to address. It does not provide

a prescriptive framework for the resolution of conflicts, but it does

provide a process for organisations to begin to address them through

engaging with stakeholders to find common ground and build trust.

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This process of engagement with stakeholders is at the heart of

AA1000. Engagement is not about organisations abdicating

responsibilities for their activities, but rather using leadershipto build relationships with stakeholders, and hence improving theiroverall performance.

1.2 AccountAbility 1000 Applications of the foundationstandardIntroductionAA1000 is focused on improving the overall performance ofadopting organisations.

It therefore supports improvements in financialperformance and the long-term value of the organisation to

shareholders and other owners. It does this by supportingimprovements in other dimensions of performance,particularly social and ethical but also indirectlyenvironmental and economic performance.

Improving performanceThere are a variety of dimensions in which AA1000 can beused to improve organisational accountability andperformance. The following is not a complete list, butillustrates the possible applications of AA1000 to thebenefit of an organisation and its stakeholders:

Measurement The AA1000 standard outlines a process bywhich key performance indicators are identified by anorganisation through engagement with its stakeholders.The organisation and its stakeholders are brought togetherto work towards a common understanding of what mattersabout performance.

Quality management By measuring, communicating andobtaining feedback on its social and ethical performancean organisation will be better placed to understand and

respond to the needs and aspirationsof its stakeholders,and to manage these alongside (and as part of) itsobjectives and targets.

Recruitment and retention of employees By clarifyingits values and reporting on its performance, anorganisation can improve the recruitment of high qualityemployees. The loyalty of existing employees will alsobe supported by evidence of commitment to building abetter organisation and by the development of programmesto improve training and others aspects of employee

welfare. The corollary of this improved loyalty to theorganisation should be increased productivity.

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External stakeholder engagement AA1000 can play a keyrole in building an organisations relationships with itsexternal stakeholders. Consumers, suppliers and widersociety are able to see how an organisations behaviourmatches their aspirations, and are better positioned to

articulate their opinions. An organisation, in turn, willhave more sensitive and accurate information on which tobase decisions, and a climate of increased trust in whichto implement them.

Partnership AA1000 can support the deepening of value-based relations along an organisations supply chain andin other partnership processes. Its adoption represents acommitment by an organisation to working together withpartners to achieve genuine and standardised good practicein relationships.

Risk management AA1000 can be integral to a frameworkfor internal control to enable an organisation toidentify, evaluate and better manage the risks arisingfrom its impacts on and relationships with itsstakeholders. These may include risks to reputation andbrand, and from customer and employee liability suits.

Investors AA1000 can play a critical role in satisfyingthe increasingly complex demands for information frominvestors. For most investors, clear and verifiableinformation about social and ethical performance andstakeholder perceptions and expectations provides avaluable reference point for assessing the quality ofmanagement and the market positioning of an organisation.In addition, the significant growth of ethical funds isgenerating information requirements that AA1000 can assista company in providing in a cost-effective manner.

Governance AA1000 can play a key role in supporting anorganisations governance. The standard feeds into theorganisations control process by which it ensures thealignment of its values and strategy with its behaviourand the outcomes of its activities.Government and regulatory relations The adoption ofAA1000 can play a part in encouraging governments toacknowledge the self-regulating processes thatorganisations are following to improve accountability andperformance. As a reflection of practical and useful bestpractice, AA1000 may also help to ensure that any futureregulation in the field is viable and meaningful.

Training AA1000 facilitates the training and

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the identification of qualified and experienced serviceproviders. Trained social and ethical accountants andauditors will help an organisation, from inside oroutside, to improve its accountability and performance.

Using AA1000AA1000 therefore has a variety of benefits toorganisations and their stakeholders. In addition, it isof benefit to standards developers and to serviceproviders. The benefits to each user group is summarisedin the box below.

AA1000 and its usersAdopting organisations can use AA1000 directly in developing theirpractices, or can use it as a basis for assessing other availablespecialised standards.

Stakeholders, including civil society organisations and directstakeholders (internal and external to the organisation), can useAA1000 to assess and hence to comment on the quality of an adoptersapproach to social and ethical accounting, auditing and reporting.

Service providers can use AA1000 as a recognised benchmark againstwhich to develop and provide services, and as a means of acquiringcompetencies and communicating this to potential clients.

Standards developers can use AA1000 as a reference point for theirspecialised standard, and for communicating the underlying qualitiesof their standard.

AA1000 is designed to encompass the needs andrequirements of adopters from all types of organisation.These include:

a) Large and small organisations.b) Single site organisations, and multi-site, multi-national organisations.c) Public, private and non-profit organisations.The nature of the organisation adopting AA1000 affects itsapproach to the application of the standards. Forexample, a single-site organisation may apply the AA1000standards by:

a) Developing a single social and ethical accounting,auditing and reporting framework.

b) Distributing a single audited report on all aspectsof the organisations operations to its(predominantly local) stakeholders.

In contrast, a large multi- site, multi-national

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organisation may apply the AA1000 standards by:

a) Driving down responsibility for the measurement andimprovement of social and ethical performance tosite-level.

b) Reporting in summary form at group-level the overallactivities and performance of the organisation,incorporating the indicators reported in theorganisations strategic management system.

c) Reporting at site-level the aspects of theorganisations social and ethical performancerelevant to local stakeholders.

d) Using a mixture of auditing methodologies to reflectthe assurance required by stakeholders at group-

level and at site-level.As practice develops, guidelines will be required tosupport the interpretation and implementation of AA1000that recognise the diverse requirements of differentorganisation types, in different sectors and regions.

1.3 The AccountAbility 1000 frameworkIntroductionAA1000 is supported by a set of guidelines and aprofessional qualification as illustrated in figure 1, andoutlined beneath. The guidelines and professionalqualification do not form part of the AA1000 standard, butprovide guidance to different user groups in theapplication and understanding of AA1000. Together, thestandard, the guidelines and the professionalqualification are referred to as the AA1000 framework.Figure 1 The AccountAbility 1000 Framework

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The AccountAbility 1000 Framework

AccountAbility 1000 (AA1000)-The foundation standard

AccountAbility 1000 (AA1000)-The foundation standard

Auditing andquality

assurance

Auditing andquality

assuranceThe

Guidelines

ProfessionalQualification

TheStandard

Stakeholder

engagement

Stakeholderengagement

Accountability

assessment

Accountabilityassessment First steps

First steps

Integrating

AA1000

IntegratingAA1000

Competence

andqualification

requirements

Competenceand

qualification

requirements

Auditing and quality assuranceAA1000 incorporates an auditing standard that defines anaudit process for the adopting organisation. The auditingand quality assurance guidelines support the AA1000 auditprocess by outlining principles and a framework for theconduct of a social and ethical audit. The frameworkcovers a process from agreeing the terms of engagementthrough to reporting. The guidelines recognise that AA1000does not address or answer definitively a number ofauditing issues for which standardisation may proveuseful.

Integrating AA1000AA1000 is designed to integrate quality as expressed inaccountability standards and other management tools, andalso to operate as a stand-alone system for social andethical accounting, auditing and reporting. To reflectthe different needs of users of AA1000, the AA1000integrating guidelines illustrate the relationship betweenAA1000 and other standards and tools, and hence explain

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the two ways in which AA1000 can be understood and used.

Adopters of other standards can use the integratingguidelines to understand how their existing practices fitin with AA1000, standards developers can use theguidelines to position their standards, and serviceproviders and other stakeholders can use them to betterunderstand organisations practices and performance. Atthe same time, the integrating guidelines illustrate thepossible role of other standards and tools in supporting astand-alone process (as defined by AA1000).

Stakeholder engagementEngagement with stakeholders is at the heart of AA1000.Engagement is not about organisations abdicatingresponsibilities for their activities, but rather using

leadership to build relationships with stakeholders, andhence improving accountability and performance.

The stakeholder engagement guidelines begin to explain howorganisations and stakeholders can ensure quality in theconsultation and dialogue that takes place between them.They outline the aims of engagement and describe a numberof methods and techniques to support these aims.

Accountability assessmentOrganisations communications with stakeholders must beunderstood by their stakeholders and be meaningful tothem. AA1000 does not prescribe a specific format, styleor media for the reporting (written and verbalcommunication) of social and ethical performance. Thiswill allow innovation to flourish, but stakeholders taskin understanding the quality of reports may becomeincreasingly difficult. Based on the AA1000 principlesand process standards, the accountability assessmentguidelines help stakeholders to understand the componentsincluded in a report, and the quality of this inclusion.

First stepsAA1000 recognises that organisations may adopt a steppedapproach to addressing their accountability, and will useAA1000 as a model to aspire to over time. The AA1000framework includes a brief discussion of how differentapproaches to social and ethical accounting, auditing andreporting can be understood in terms of a model of

development towards accountability. It also suggests aset of first steps, and considerations for the

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organisation at each step.

Professional qualificationThe AA1000 framework also incorporates professionalqualification guidelines linked to a training andprofessional development programme. This element isdesigned both for service providers and the staff of thoseadopting organisations that practice social and ethicalaccounting, auditing and reporting. Social and ethicalaccountants and auditors will be trained in AA1000 andother accountability standards (social and ethical,environmental and financial) as well as social and ethicalmanagement issues more generally.

The qualification of social and ethical accountants andauditors does not exclude the role of non-qualifiedpersons in promoting the accountability of organisations.The new profession that the Institute is building willinclude social and ethical accountants and auditors, butalso those working in a variety of fields committed to thevalues of social and ethical accountability.

_____________________________

1. Further information on AA1000 can be obtained from the

Institute of Social and Ethical AccountAbility. Comments are

welcome at feedback@accountability.org.uk.

2. The Institutes Corporate Leadership Network includes thefollowing organisations: British Telecom, Diageo, Origin,Shell, South African Breweries.

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2 AA1000 The foundation standard

2.1 IntroductionSocial and ethical accounting, auditing and reporting2.1.1 AA1000 is an accountability standard, focused on

securing the quality of social and ethicalaccounting, auditing and reporting. It comprisesprinciples and a set of process standards.

2.1.2 The AA1000 process can support an organisationsstrategic management and operations, by assisting itto:

a) Align its systems and activities with its values.

b) Learn about the impacts of its systems andactivities, including stakeholder perceptions ofthese impacts.

c) Serve as a part of a framework for internal controlto enable the organisation to identify, evaluate andbetter manage the risks arising from its impacts onand relationships with its stakeholders.

d) Meet the legitimate interest of stakeholders ininformation about the social and ethical impact ofthe organisations activities and its decision-

making processes.

e) Build competitive advantage through the projectionof a defined stance on social and ethical issues.

Accountability2.1.3 To account for something is to explain or justify

the acts, omissions, risks and dependencies forwhich one is responsible to people with a legitimateinterest.

2.1.4 To discharge its accountability, an organisationwill account for its acts, omissions, risks anddependencies. However, in addition to thisaccounting requirement of transparency,accountability also entails a broader obligation ofresponsiveness and compliance (see points a) to c)and figure 2):

a) Transparency concerns the duty to account to thosewith a legitimate interest the stakeholders in theorganisation.

b) Responsiveness concerns the responsibility

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of the organisation for its acts and omissions,including the processes of decision-making and theresults of these decisions. Responsiveness entailsa responsibility to develop the organisationsprocesses and targets to support the continuous

improvement of the organisations performance.c) Compliance concerns the duty to comply with agreed

standards regarding both organisational policies andpractices, and the reporting of policies andperformance.

Figure 2

The definition of accountability

Accountability

ResponsivenessTransparency Compliance

The duty to account The responsibility foracts and omissions

The duty to complywith agreed standards

Users and their information needs2.1.5 The users of social and ethical accounts and reports

(written and verbal communications) include theadopting organisation and its stakeholders.

2.1.6 Its stakeholders are those groups who affect and /or are affected by the organisation and itsactivities. These may include, but are not limitedto: owners, trustees, employees and trade unions,

customers, members, business partners, suppliers,competitors, government and regulators,

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the electorate, non-governmental-organisations(NGOs) / not-for-profit organisations, pressuregroups and influencers, and local and internationalcommunities.

2.1.7 The information needs and performance expectationsof stakeholders are reflected in a wide variety ofissues. These may include, but are not limited to:the organisations values and governance, itsregulations and controls, its operations, the impactof its products / services and investments, itsimpact on other species and the environment, humanrights issues, labour and working conditions issues,and supply chain issues.

2.1.8 The aspirations of stakeholders in their interplaywith the organisation cannot be fully anticipatedprior to the accounting, auditing and reportingprocess. One of the key aims of the process is todiscover and respond to these aspirations throughengagement with the stakeholders.

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ii) PrinciplesIntroduction2.2.1 The AA1000 principles identify characteristics of a

quality process. These principles can be used in

designing and managing an organisations social andethical accounting, auditing and reporting process,and may also be used in assessing the quality of itsprocess.

2.2.2 The hierarchy of the AA1000 principles is as follows(and as illustrated in figure 3):

a) A quality process of social and ethical accounting,auditing and reporting is governed by the principleof accountability (as defined in 2.1.3-4),

b) Organisational accountability is directly addressedby the inclusivity of the social and ethicalaccounting, auditing and reporting process.Inclusivity defines an organisations accountabilityas an accountability to all stakeholder groups.

c) Inclusivity is supported by, and infuses theoperational meaning of, the remaining AA1000principles. These can be divided into three broadgroups, relating to: the scope and nature of theorganisations process; the meaningfulness ofinformation; and the management of the process on an

ongoing basis.

Figure 3

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The AA1000 principles

Accountability

Inclusivity

Transparency

Responsiveness

Compliance

Scope and nature of processMeaningfulness of

informationManagement of process on

an on-going basis

Complete-ness

MaterialityRegularity

andtimeliness

Qualityassurance

Accessi-bility

Informationquality

Embedded-ness

Continuousimprovement

The principle of inclusivity2.2.3 Inclusivity - concerns the reflection at all stages

of the social and ethical accounting, auditing andreporting process over time of the aspirations andneeds of all stakeholder groups - those groups whoaffect and / or are affected by the organisation andits activities. Stakeholder views are obtainedthrough an engagement process that allows them to beexpressed without fear or restriction. Inclusivityrequires the consideration of voicelessstakeholders including future generations and theenvironment.

Principles relating to the scope and nature of the organisationsprocess

2.2.4 Completeness - concerns the unbiased inclusion inthe accounting processes over time of allappropriate areas of activity relating to theorganisations social and ethical performance. Inaddition, there is clear externally auditeddisclosure of what is included and what is excludedand the reasons for any such exclusion. Theorganisation should be prudent in ensuring that

adverse impacts of its activities are notdownplayed, and that uncertain impacts are not

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prematurely documented and reported as certain.2.2.5 Materiality - concerns the need to include

significant information that is likely to affect oneor more stakeholder groups and their assessment ofthe organisations social and ethical performance.The complexity of defining materiality for socialand ethical issues demands inclusive processes ofstakeholder engagement (including an analysis ofstakeholder needs) to assess the significance ofinformation.

2.2.6 Regularity and Timeliness - concerns the need forregular, systematic and timely action of the socialand ethical accounting, auditing and reportingprocess to support the decision making of theorganisation and its stakeholders. The process is a

repeated one, but does not have to be an annualexercise, or if annual it need not follow existingreporting cycles.

Principles relating to the meaningfulness of information2.27 Quality assurance - concerns the audit of an

organisations process by an independent andcompetent third party (auditor) or parties. Theaudit is concerned with building credibility (andproviding assurance) in the process with allstakeholder groups, and hence developing meaningful

stakeholder engagement. The audit process(es) mayinclude a variety of methods, but must alwaysconsider the accuracy / validity of theorganisations reporting and its supportinginformation systems, the organisations compliancewith legislation and other standards, and theinclusivity and completeness of the process.

2.2.8 Accessibility - concerns appropriate and effectivecommunication to the organisations stakeholders ofits social and ethical accounting, auditing andreporting process and its performance. Theorganisation communicates through social andethical report(s), including written and verbalcommunications, and externally prepared auditreport(s). Accessibility implies that eachstakeholder group can easily and cheaply access thematerial communicated.

2.2.9 Information Qualitya) Comparability - concerns the ability to compare

information on the organisations performance withprevious periods, performance targets, orexternal benchmarks drawn from other

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organisations, statutory regulation or non-statutorynorms. External benchmarks are selected for theiraccuracy, relevance and legitimacy to theorganisation and to different stakeholder groups.If the indicators chosen (to measure performance) by

an organisation and its stakeholders are unique tothe organisation, comparability of performance withother organisations may not be possible ornecessary.

b) Reliability - concerns the characteristic thatallows the organisation and its stakeholders todepend on the information provided by the social andethical accounting and reporting to be free fromsignificant error or bias. To ensure reliability,information should be presented in accordance withthe reality of the information and not just itslegal form. In addition, information should bepresented neutrally, and the organisation should beprudent in the inclusion of information and thedescription of the organisations position.

c) Relevance - concerns the usefulness of informationto the organisation and its stakeholders as a meansof building knowledge and forming opinions, and asassistance to decision making. Engagement withstakeholders is an essential part of identifying therelevance of information

d) Understandability - concerns the comprehensibilityof information to the organisation and itsstakeholders, including issues of language, styleand format. Technical and scientific terms shouldbe explained within organisations reporting.

Principles relating to the management of the process on an ongoingbasis

2.2.10Embeddedness or systems integration, concernsmaking the social and ethical accounting, auditingand reporting processes part of the organisations

operations, systems and policy making, and nottreated as a one-off exercise to produce a socialand ethical report. Together with the principle ofcontinuous improvement, embeddedness is concernedwith the knowledge and learning of the organisation,in terms of individuals within the organisation andthe organisations systems.

2.2.11Continuous improvement - concerns recognised andexternally audited steps taken to improveperformance in response to the results of the social

and ethical accounting, auditing and reportingprocess. It is a process that assesses

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progress, reports performance, and sets targets forthe future. The principle of continuous improvementalso refers to the need for continual development ofthe accounting, auditing and reporting processitself within the organisation. Together with the

principle of embeddedness, continuous improvement isconcerned with the knowledge and learning of theorganisation, in terms of individuals within theorganisation and the organisations systems.

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2.3 Process standards

Introduction2.3.1 AA1000 is a process standard, not a substantive

performance standard. That is, it specifiesprocesses that an organisation should follow toaccount for its performance, and not the levels ofperformance the organisation should achieve.

2.3.2 It is a dynamic model for a process of continuousimprovement, each cycle of which has five maincategories of action. The process model isbroadly linear, but stages frequently operate inparallel, and earlier stages may have to berepeated. The stages are described below and

illustrated in figure 4. Throughout the AA1000standard, the process refers to an organisationsprocess of social and ethical accounting, auditingand reporting.

a) The organisation commits to the process, and definesand reviews its values and social and ethicalobjectives and targets (Planning).

b) The scope of the process is defined, information iscollated and analysed, and performance targets andimprovement plans are developed (Accounting).

c) A report(s) (written or verbal communication) onthe organisations systems and performance isprepared, the process (including the social andethical reporting) is externally audited, thereport(s) is made accessible to stakeholders, andstakeholder feedback is obtained (Auditing andReporting).

d) To support each of these stages, structures andsystems are developed to strengthen the accounting,auditing and reporting process and to integrate it

into the organisations activities (Embedding).e) Each process stage (from a) to d)) is permeated by

the organisations engagement with its stakeholders(Stakeholder engagement).

2.3.3 During these stages, the organisation beginsplanning for the next cycle of the processincorporating the experience from previous cycles.

2.3.4 Within this broad process model, the Institutesprocess standards identify a set of steps that anorganisation should follow to help satisfy the

AA1000 quality principles. The processsteps are summarised in table 1.

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Figure 4

The AA1000 Process Model

Planning

Stakeholder

Engage-ment

Accounting

Auditing

and

Reporting

Embedding

Status of the standards2.3.5 The AA1000 process standards are set out (from page

23) together with guidance that assists in theirinterpretation. This guidance also identifies therelationship between the standards and theunderlying social and ethical accounting, auditingand reporting principles.

2.3.6 The Institute recognises that organisations mayadopt a stepped approach to building

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accountability, and will use AA1000 as a model toaspire to over time.2.3.7 It is recognised that a variety of different

approaches to the AA1000 processes, for exampletowards stakeholder engagement, will address thequality requirements identified by the processstandards, and that different approaches will bemore appropriate in different organisation typesand geographies.

2.3.8 Where there is a potential conflict betweenalternative process steps, an organisation shouldrefer to the principles to resolve the conflict.Where there appears to be or there is a conflict ofprinciples, the organisation should make itsdecision to support a long-term goal of

accountability, and disclose this in its social andethical report(s).

Table 1 The AA1000 Process ModelThe AA1000 Process Model

Planning(P)rocess1 Establish commitment and governance proceduresThe organisation commits itself to the process of social and ethical

accounting, auditing and reporting, and to the role of stakeholders

within this process. It defines governance procedures to ensure the

inclusion of stakeholders in the process.

P2 Identify stakeholdersThe organisation identifies its stakeholders and characterises its

relationship with each group of them.

P3 Define / review valuesThe organisation defines or reviews its current mission and values.

AccountingP4 Identify issuesThe organisation identifies issues through engagement with its

stakeholders regarding its activities and social and ethical

performance.

P5 Determine process scopeThe organisation determines, based on engagement with its

stakeholders, the scope of the current process in terms of the

stakeholders, geographical locations, operating units and

issues to be included, and identifies how it plans to account

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for the excluded stakeholders, operations, locations or issues in

future cycles. It identifies the timing of the current cycle. The

organisation also identifies the audit method(s), the audit scope, and

the auditor(s) to provide a high level of quality assurance to all its

stakeholders.

P6 Identify indicatorsThe organisation identifies social and ethical indicators through

engagement with its stakeholders. The indicators reflect the

organisations performance in relation to: its values and objectives;

the values and aspirations of its stakeholders, as determined through

a process of consultation with each group of them; and wider societal

norms and expectations.

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P7 Collect informationThe organisation collects information about its performance in respect

of the identified indicators. The organisation engages with

stakeholders in the design of the collection methods, which allowstakeholders to accurately and fully express their aspirations and

needs.

P8 Analyse information, set targets and develop improvement planFrom the information collected, the organisation:

a) Evaluates its performance against values, objectives and

targets previously set.

b) Uses this evaluation and engagement with stakeholders to

develop or revise objectives and targets for the future, with

a focus on improving performance.

Auditing and reportingP9 Prepare report(s)The organisation prepares a social and ethical report (written or

verbal communication) or reports relating to the process undertaken in

a specified period. The report(s) clearly and without bias explains

the process and demonstrates how the organisations performance

relates to its values, objectives and targets. It includes information

about its performance measured against its key social and ethical

performance targets. The organisation provides comparative information

for previous period(s) to help stakeholders understand the current

performance in the context of prior period trends and in the context

of external benchmarks, if available.

P10 Audit report(s)The organisation arranges and supports the external audit of the

process, including the social and ethical report(s). Support is

provided to the auditor throughout the planning and accounting

processes as appropriate.

P11 Communicate report(s) and obtain feedbackThe organisation communicates information on the process and thesocial and ethical performance of the organisation to all stakeholder

groups. This includes making accessible to all stakeholder groups the

social and ethical report(s) together with the independent audit

opinion(s). The organisation actively seeks feedback from its

stakeholder groups in order to further develop its process.

EmbeddingP12 Establish and embed systemsThe organisation establishes systems to support the process, and the

on-going achievement of its objectives and targets in line with itsvalues. Systems include those to implement and maintain values, to

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manage the collection and documentation of information and to perform

the internal audit / review of the process.

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AA1000 The process standardsEmbedding

Accounting

Auditing &Reporting

Engage-ment

Planning

Establish commitment and governance proceduresP1 The organisation commits itself to the process ofsocial and ethical accounting, auditing andreporting, and to the role of stakeholders within

this process. It defines governance procedures toensure the inclusion of stakeholders in the socialand ethical accounting, auditing and reportingprocess.P1.1 The organisation is guided in its commitment to the

process and its choice of governance structure bythe principle of inclusivity, and hence it reflectsthe aspirations and needs of all stakeholder groupsthrough the entire process.

P1.2 The organisation refers to the legal entity that

assumes responsibility for the process.

P1.3 Stakeholders are defined as those individuals orgroups of individuals who affect and / or areaffected by an organisation or its activities.

P1.4 The governing body of the organisation (e.g. itsboard) is ultimately responsible for the conduct ofthe process. The individual processes may, however,be performed by a variety of members of theorganisation (including trustees, board, managementand employees) and by external advisers and

auditors.

P1.5 The governing body of the organisation makes acommitment to involving stakeholders in the process.The role of stakeholders in the process (and therelationship of this role to the overall process,including the organisations decision-makingprocesses) is clearly communicated to them.

P1.6 The inclusion of stakeholder interests in theprocess may be addressed in a variety of ways.These may include, but are not limited to:

a) Engagement with stakeholders (see all AA1000

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process standards, but especially 7.2-7.6).

b) Formal inclusion of representatives of stakeholderson the governing body or a governing committeeresponsible for, inter alia, the process.

c) Formal representation of stakeholder groups on anaudit panel (see AA1000 process standard 10). Anaudit panel refers to a panel of advisors who arepublicly recognised as either representatives of keystakeholders or experts in the field of social andethical accountability more generally.

d) Stakeholders employed as auditors of the process,including the social and ethical report(s) (seeAA1000 process standard 10).

Embedding

Accounting

Auditing &Reporting

Engage-ment

Planning

Identify stakeholdersP2 The organisation identifies its stakeholders andcharacterises its relationship with each group ofthem.P2.1 The identification of all stakeholder groups is a

key part of ensuring the inclusivity of the processof social and ethical accounting, auditing andreporting.

P2.2 The organisations stakeholder groups may include,

but are not limited to: owners, trustees, employees(e.g. managers, staff and trade unions), customers,members (e.g. of cooperative, mutual or friendlysocieties), suppliers and other partners,competitors, government and regulators, theelectorate (e.g. for public sector bodies), NGO /not for profit organisations, pressure groups andinfluencers, and local and internationalcommunities.

P2.3 The organisation may categorise its stakeholdergroups in various ways, for example, internal and

external, primary and secondary, direct,representative and intermediary, or local and

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international.

P2.4 Whichever categorisation (if any) is used, theorganisation prepares a complete list of itsstakeholder groups.

P2.5 For each stakeholder group, the organisationdescribes its relationship with the group, and itsaims and policies regarding the relationship. Thedimensions of the relationships will differ for eachstakeholder group, and may vary over time. They mayinclude, but are not limited to the:

a) Length of relationship.

b) Nature of relationship.

i) Type of organisation (e.g. supplier, customer).

ii) Number / size of members of stakeholder groups.iii) Frequency of contact.

c) Key events/history of relationship.

d) Organisations perceptions of relationship andexpectations from it.

e) Stakeholders perceptions of relationship andexpectations from it.

P2.6 The on-going process of stakeholder engagement will

assist the organisation in the examination and / orrevision of its stated relationship with eachstakeholder group.

Define / review values

Embedding

Accounting

Auditing &Reporting

Engage-ment

Planning

P3 The organisation defines or reviews its currentmission and values.P3.1 The organisation examines and develops its values on

an on-going (regular and timely) basis. The processof inclusive stakeholder engagement (throughout theprocess) is central to the development of the

organisations values.

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P3.2 The organisations current mission and valuesprovide a framework for the process. They are abasis for understanding the aims and activities ofthe organisation, and provide a base against whichthe organisations performance is assessed.

P3.3 The organisation reviews its current mission andvalues, and formalises them in a statement orstatements available to all stakeholders.

P3.4 The techniques adopted to engage with stakeholdersvary depending on the organisation and the scope ofthe engagement (see AA1000 process standards 7.2-7.6).

P3.5 In a first cycle of the process, the organisationreviews its existing objectives and targets forsocial and ethical performance, and examines theconsistency of its targets with its mission andvalues. In all cycles the organisations objectivesand targets are reviewed as part of the accountingand reporting stages of the process (see AA1000process standards 8 and 11).

Embedding

Accounting

Auditing &Reporting

Engage-ment

Planning

Identify issuesP4 The organisation identifies issues throughengagement with its stakeholders regarding itsactivities and social and ethical performance.P4.1 The organisation is guided by the principles of

inclusivity, completeness and materiality

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in identifying issues.

P4.2 The identification of issues relevant to eachstakeholder group assists the analysis andunderstanding of the organisations activities andperformance. The organisation identifies issues andcase studies that address aspects of selectedissues.

P4.3 The issues may reflect broad themes important to theorganisation and its stakeholders, or may benarrowly defined. They may be drawn from thefollowing categories, but are not limited to them:the organisations values and governance, regulationand controls, the organisations operationalpractices including its marketing, itsaccountability, human rights issues, labour and

working conditions, the organisations supply chain,its product, service and investment impact, itsimpacts on other species and its impact on theenvironment.

P4.4 The issues are examined to assess the likely impactof the organisations activities on the organisationand its stakeholders. This assessment includes aprocess of engagement with stakeholders. Theengagement accurately and fully obtains stakeholderviews in an atmosphere without fear or restriction(see AA1000 process standards 7.2-7.6).

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Determine process scopeP5 The organisation determines, based on engagementwith its stakeholders, the scope of the currentprocess in terms of the stakeholders, geographicallocations, operating units and issues to beincluded, and identifies how it plans to accountfor any excluded stakeholders, operations,locations or issues in future cycles. Itidentifies the timing of the current cycle. Theorganisation also identifies the audit method(s),the audit scope and the auditor(s) to provide ahigh level of quality assurance to all itsstakeholders.P5.1 The organisation is guided by the principles of

inclusivity, completeness and materiality indetermining the scope of the process.

Stakeholders, locations and operations scopeP5.2 The organisation is accountable to all its

stakeholder groups, and for its activities in allgeographic locations and operating units. However,for reasons of time or financial constraints, theorganisation may choose not to include allstakeholders, locations or operations in any cycle

of the process. If a shortlist of stakeholdergroups, locations or operations is identified for acycle, the selection criteria are documented, andcommunicated together with a list of excludedstakeholders, locations and units, and plans forfuture inclusion in the process.

P5.3 If the exclusion of a particular location oroperation is likely to have a material impact on theunderstanding of the operations and locationsincluded, the relationship between the informationincluded and excluded is documented and communicated

in the social and ethical report(s).

P5.4 If the organisation has subsidiaries or jointventures outside the accounting entity the exclusionof which would have a material impact on theunderstanding of the organisations overallactivities, it documents these and communicates themin the social and ethical report(s).

Issues scopeP5.5 In order to provide a complete and inclusive account

it is necessary to account for all issues that arelikely to have a material impact on the

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organisations stakeholders.

P5.6 The rationale and processes of selecting issues forthe process, and the relevance of the issues toparticular stakeholder groups are documented toallow internal and external auditing. In addition,to demonstrate inclusivity and the completeness ofissues identified, the social and ethical report(s)may include stakeholder comments on the selection ofissues (see AA1000 process standard 9).

P5.7 The organisation identifies any changes to the scopefrom any previous cycle. Such changes aredocumented as part of the accounting process andcommunicated in the social and ethical report(s).

Audit scopeP5.8 The social and ethical audit provides quality

assurance to stakeholders concerning the process(including social and ethical reporting). Theorganisation selects the audit method, the auditscope and the auditor(s) to provide an overall highlevel of assurance to all of its stakeholders (seeAA1000 process standard 10).

P5.9 The scope of the audit may include theaccuracy/validity of data and supporting systems,

compliance to the requirements of social and ethicalstandards and guidelines, and the completeness andinclusivity of the process, including the social andethical report(s). It may also include suggestionsto the organisation regarding areas for improvementin the process and social and ethical performance(see AA1000 process standard 10).

P5.10 The scope of the audit is documented by theorganisation. A description of this scope formspart of the audit report of the social and ethical

auditor.TimingP5.11 Each cycle of the process should be completed on a

regular and timely basis. It is recognised that theaccounting, auditing cycle may not match otherreporting cycles, but the rationale for the timeperiod chosen is documented to allow internal andexternal auditing.

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Embedding

Accounting

Auditing &Reporting

Engage-ment

Planning

Identify indicatorsP6 The organisation identifies social and ethicalindicators through engagement with itsstakeholders. The indicators reflect theorganisations performance in relation to: itsvalues and objectives; the values and aspirationsof its stakeholders, as determined through aprocess of consultation with each group of them;and wider societal norms and expectations.P6.1 The organisations choice of indicators to measure

its social and ethical performance is based on theprinciples of inclusivity, completeness, materialityand information quality (comparability, reliability,

relevance and understandability).P6.2 Indicators are pieces of qualitative or quantitative

data that provide information on the performance ofthe organisation.

P6.3 The organisations choice of indicators reflects athree-tier approach covering its values, the valuesof its stakeholders and wider societal values.

a) The first tier of values to be reflected in theindicators is based on the organisations statementof mission and values, and the standards, codes and

guidelines to which the organisation subscribes.

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b) The choice of indicators also reflects stakeholdersviews of the organisations performance against itsvalues and in respect of the specific needs andaspirations of stakeholders. Stakeholder views areobtained through an inclusive process of stakeholder

engagement (see AA1000 process standards 7.2-7.6).Following the initial definition of indicators, theorganisation will refine these and reconcileconflicting opinions through further engagement withstakeholders.

c) The third tier of values reflected in the indicatorsis based on benchmarks established in societies thatare part of the process scope. These may be evidentin legal statute or from the evidence ofstakeholders. The organisation includes indicatorsfor its performance against its legal requirementsfor performance and disclosure.

P6.4 Within these tiers, the organisation selectsindicators that reflect both its processes and theoutcomes of its activities. Outcomes may includethe output of an activity, and / or its impact.

P6.5 Indicators selected are sufficient to provide

coverage of the defined scope of the processincluding stakeholders, geographies, operations andissues.

P6.6 For the second and third tiers of values, theorganisation may choose not to pursue themeasurement of all the indicators identified bystakeholders. Indicators may be suggested forissues outside the direct or indirect power ofinfluence of the organisation; the number and natureof the indicators may exceed resource boundaries;and the number of indicators may weaken the clarityof communication. Where the organisation limits thenumber of indicators suggested by stakeholders, itengages stakeholders in a process of prioritisation.

P6.7 Indicators may be selected individually or as agroup to address a specific issue.

P6.8 The rationale and processes of identifyingindicators are documented to support internal andexternal auditing.

Embedding

Planning

Accounting

Auditing &Reporting

Engage-ment

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Collect informationP7 The organisation collects information about itsperformance in respect of the identifiedindicators. The organisation engages withstakeholders in the design of the collectionmethods, which allow stakeholders to accurately andfully express their aspirations and needs.P7.1 Information about the organisations performance is

available from both:

a) The organisations management information systems,which are embedded in the organisation (see AA1000process standards 12.8-12.11).

b) Engagement with stakeholders. The role ofstakeholders in the collection of informationreflects the AA1000 principles, includingcompleteness, inclusivity and materiality.

P7.2 A variety of methods of engagement may be used by

organisations. These may include, but are notlimited to:

a) One-to-one interviews, face-to-face and distance.

b) Group interviews.

c) Focus groups.

d) Workshops and seminars.

e) Public meetings.

f) Questionnaires face-to-face, by letter, telephone,

internet, or other techniques.P7.3 The methods adopted to engage with stakeholders vary

depending on the nature and size of the organisationand the scope of the engagement the stakeholdersincluded, the complexity and nature of the issuescovered and the geographic location.

P7.4 The choice of method will also be affected by thecapacity of the organisation in terms of financialresources, staff resources and management systems -and by the capacity of its stakeholders.

P7.5 The organisation may use sampling techniques for itsdata collection processes. The samples are

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robust, and ensure that a representative spread ofeach stakeholder category within the process scopeis included. In defining samples, the organisationis aware of key diversity issues, which may includebut are not limited to: the gender, race, age,

disabilities and culture of the samples.P7.6 Regardless of the method chosen, the stakeholders

are encouraged and helped to understand the process(see AA1000 process standard 1.5) and to provideinformation. The organisation also involvesstakeholders in the design of the questions to beaddressed in the processes of information gathering.

P7.7 The rationale and processes of data collection aredocumented to enable internal and external auditingof their appropriateness. For the audit of

stakeholder engagement processes, the organisationallows the auditor to examine documentation and toattend dialogues, unless this raises conflict withother principles of accountability or issues ofsensitivity for stakeholders. These conflicts arediscussed with the auditor.

Embedding

Accounting

Auditing &Reporting

Engage-ment

Planning

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Analyse information, set targets and develop improvementplanP8 From the information collected, the organisation:a) Evaluates its performance against values,objectives and targets previously set.b) Uses this evaluation and engagement withstakeholders to develop or revise objectives andtargets for the future, with a focus on improvingperformance.P8.1 To interpret the information collected and evaluate

performance, the social and ethical accountingapproach links the organisations performance to its

stated values, objectives and targets, incorporatingan analysis of the organisations activities and thekey issues identified by stakeholders.

P8.2 The emphasis and weighting given to particularfindings in the evaluation of the social and ethicalperformance is a matter of judgement. In makingjudgements the organisation seeks to ensure that abalanced, unbiased view of the organisationsperformance is made and that it reflects theprinciples of inclusivity and completeness.

P8.3 The organisation identifies changes to improve itssocial and ethical performance in the future. Itdevelops a plan for the implementation of thesechanges including objectives, targets andprioritised actions. The organisation may alsoreflect on the need for changes to its values andits methods of embedding these within theorganisation, including its processes of social andethical accounting, auditing and reporting.

P8.4 In defining or reviewing its objectives and targets,the organisation considers the legal requirements it

faces concerning social and ethical issues. Itdevelops its targets to be consistent with itsmission and values.

P8.5 The organisations objectives and targets reflectthe issues and activities over which theorganisation has control or can expect to have aninfluence.

P8.6 The targets reflect the principle of continuousimprovement in performance vis--vis its social andethical mission, values and objectives. Where

possible, the organisations targets aremeasurable.

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P8.7 The organisations development of targets includesthe consideration of any comments of the externalauditor regarding future performance targets (seeAA1000 process standard 10).

P8.8 Where possible, the organisation consultsstakeholders on the development of targets andpriorities prior to the preparation and publicationof the social and ethical report(s). Whereconsultation does not take place prior topublication, the organisation revises its objectives

and targets on the basis of engagement with allstakeholder groups after publication (see AA1000process standard 11).

P8.9 The engagement with stakeholders includesconsideration of the issues covered by theorganisations objectives and targets, theindicators used to measure performance, and theselection of the objectives and targets.

Prepare report(s)

Embedding

Accounting

Auditing &Reporting

Engage-ment

Planning

P9 The organisation prepares a social and ethicalreport (written or verbal communication) or reportsrelating to the process undertaken in a specifiedperiod. The report(s) clearly and minimising bias,explains the process and demonstrates how theorganisations performance relates to its values,objectives and targets. It includes informationabout its performance measured against its keysocial and ethical performance targets. Theorganisation provides comparative information forprevious period(s) to help stakeholders understandthe current performance in the context of priorperiod trends and in the context of externalbenchmarks, if available.

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P9.1 The content of the report reflects the AA1000principles, and is inclusive, complete, material,comparable, reliable, relevant and understandable.In defining the structure of the social and ethicalreport the organisation is guided by the principles

of information quality.P9.2 A social and ethical report is a written document or

other communication prepared to reflect the socialand ethical performance of the organisation relatingto its values, objectives and targets.

P9.3 The format of the report will reflect theinformation requirements of the organisationsstakeholders (see also AA1000 process standard 11).

P9.4 The organisation may produce more than one socialand ethical report (in any accounting period) toaddress the information needs of differentstakeholder groups. Where more than one social andethical report is produced, each report shouldclearly indicate its relationship to the othersocial and ethical reports produced by the

organisation for relevant accounting period(s).P9.5 The social and ethical report(s) should indicate the

accounting entity(s) covered by the report(s) andany significant variations from entities covered inthe previous period. It includes informationrelating to the relevant period as well as materialdevelopments, if any, that may have occurred fromthe end of the period to the date of issue of thestatement.

P9.6 The report(s) also includes:

a) Descriptive information, including a statement ofthe organisations:

i) Mission and values.

ii) Governance procedures including the role ofstakeholders.

iii) Structures and processes for dealing withsocial and ethical issues.

iv) Methodology adopted for process, includingthe scope of the exercise and the reasons for

the exclusion of any activities, locations,stakeholders or issues from the process

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cycle.

v) Plans for future cycles of the process.

b) Performanceinformation, which includes informationon the organisations performance against the three

tiers of indicators identified. This includes:i) Information on the organisations performance

against its mission and values, and informationon its performance against standards, codes andguidelines to which it subscribes.

ii) Information on stakeholder identified indicators(including stakeholder commentary on theorganisations performance in relation tostakeholder values) for the current cycle andalso comparative data for previous periods of

account, if appropriate.iii) Information reflecting societal benchmarks

- these include indicators for theorganisations performance against legalrequirements for performance and disclosure.

P9.7 To reflect the principles of information quality,the report(s) may be segmented by the organisationsvalues and objectives, by its issues, by itsindicator categories, by key themes, by itsstakeholders, or by other appropriate methods.

P9.8 If the organisation has completed a cycle of theprocess previously, including a social and ethicalreport(s), it engages with its stakeholders on thestructure, format and content of the social and

ethical report(s) being written.P9.9 The social and ethical report(s) make clear where

issues and indicators are outside the power ofinfluence of the organisation, or where theorganisation is operating in partnership to affectthe indicators.

P9.10 The social and ethical report(s) may also include:

a) Stakeholder commentary on the organisationsselection of issues, indicators and social andethical auditor(s).

b) Commentary attributed to specific stakeholders on

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the organisations performance against its valuesand on salient issues relating to the interplaybetween the organisation and the stakeholder group.

c) An indication of any links with financial andenvironmental information. The statement shouldseek, where possible, to integrate information onsocial and ethical performance with environmentaland financial performance data where this enables abetter understanding of the particular issues or theorganisations decision-making processes.

P9.11 Depending on the information being reported, it maybe appropriate for the organisation to providecomparative information for more than one previousperiod, so that its performance over time can bejudged. Where comparative information is not

available, the reasons for this are clearlyexplained in the report.

Embedding

Accounting

Auditing &Reporting

Engage-ment

Planning

Audit report(s)P10 The organisation arranges and supports theindependent external audit of the process,including the social and ethical report(s).Support is provided to the auditor(s) throughoutthe planning and accounting processes asappropriate.

Audit responsibilities and audit opinionP10.1 Social and ethical auditing encompasses a variety of

methods through which an organisation developsunderstanding of its processes and performance,builds credibility in its reporting, and henceprovides quality assurance to itself and its

stakeholders. This credibility is the basis ofeffective engagement with stakeholders.

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P10.2 An independent social and ethical auditor is aperson or an organisation who is and can be seen tobe independent of the organisation being audited andis in a position to challenge and question theorganisations approach. (See section 3 for

guidelines for the ethical behaviour of the socialand ethical auditor, and for the conduct and outputof the audit.)

P10.3 The organisation appoints an independent externalauditor or auditors to audit the process (includingthe social and ethical report(s)) according to thescope of the audit defined by the organisation (seeAA1000 process standard 5.8-5.9) and to provideassurance as to the quality of the process. Theorganisation selects an auditor(s) that possesseslegitimacy with its stakeholders. The auditor(s)liaise with the organisation to refine the auditmethod and scope to address the level of assuranceidentified by the organisation.

P10.4 The independent social and ethical auditor(s) isappointed from the outset of the scoping process, sothat they can observe the planning of theaccounting, auditing and reporting process and itsexecution.

P10.5 The auditor(s) is responsible for the conduct of thesocial and ethical audit and the production of asocial and ethical audit report, including auditopinion. The audit does not relieve the governingbody of the organisation of its responsibilities forthe overall process.

P10.6 The auditor alone is responsible for writing thesocial and ethical audit report. Where theorganisation has sought advice, either from astakeholder panel or other experts, the auditorremains responsible for the social and ethical auditreport.

P10.7 The nature of the audit report will reflect themethod and scope of the audit and the auditor(s)degree of confidence in their opinion based on thequality of available information.

P10.8 The audit report(s) includes commentary that enablesthe organisation and its stakeholders to understand:

a) The scope of the audit.

b) The relevant professional qualifications of thesocial and ethical auditor(s).

c) The opinion of the auditor(s) regarding thequality of the process and report(s), and the

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assurance that these provide. The opinion mayinclude different levels of assurance for differentparts of the process and report(s).

P10.9 The overall judgement of the external auditor(s) maybe expressed in a variety of forms of audit opinion.For some audits, the assurance given by the auditopinion may be absolute in terms of the absence /presence or correctness / incorrectness of a pieceof information; for other methods the assurance maybe qualitative, indicating high, medium or low

performance, areas for improvement, and / orpredicted future progress.

P10.10 The audit report(s) may also include suggestionsto the organisation regarding areas for improvementin its process and social and ethical performance.

P10.11 The auditor(s) sign and date the audit report(s)following approval by the governing body of theorganisation. The audit opinion includes assessmentof events occurring up to the date that the opinionis expressed. The audit report is addressed to the

governing body of the organisation.

Audit process and quality assuranceP10.12 The external audit methods aim to provide an

overall high level of quality assurance to theorganisation and its stakeholders (see processstandard 5.8). This assurance encompasses:

a) The external auditors assurance, based onconfidence in the sufficiency and appropriateness ofinformation audited (see AA1000 process standards

10.13-10.18).

b) The assurance provided to stakeholders, based onthe external auditors assurance (as above), on thescope of the social and ethical audit, and on thelegitimacy of the auditors(s) to each stakeholdergroup (see AA1000 process standards 10.19-10.20).

P10.13 Sufficiency is the measure of the quantity ofaudit evidence and refers to the extent of the auditprocedures performed. Appropriateness is themeasure of quality or reliability of audit evidence

and refers to the nature and timing of theaudit procedures performed and the

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accounting, auditing and reporting process.

P10.14 The sufficiency and appropriateness ofinformation is dependent on the subject matter /scope of the audit, the audit method(s), and thenature of the process.

P10.15 The subject matter of the audit may includequantitative and qualitative descriptive andperformance information, information systems, andthe processes of social and ethical accounting andreporting. In particular, the external auditaddresses the AA1000 principles by assessing thefollowing scope (see points 10.15 a to d). Theauditor may derive different levels of confidencefrom each aspect of the scope:

a) Accuracy/validity of data and supporting informationsystems.

b) Compliance to the requirements of social and ethicalstandards and guidelines.

c) Inclusivity of the process and social and ethicalreport(s).

d) Completeness of the process, including the social

and ethical report(s). A completeness audit mayconsider the completeness of a report within alimited scope (e.g. one region of the organisationsoperations), or may cover a full scope (i.e. all theorganisations values, issues, stakeholders,geographies and operations).

P10.16 The external audit methods used to address thesubject matter / scope may include, but are notlimited to:

a) Traditional financial audit methods.

b) Surveys of stakeholder opinion.

e) Expert commentary / review.

d) Stakeholder panels (to advise the organisation orthe lead auditor).

The auditor may derive different levels ofconfidence from each audit method.

P10.17 For each audit method, the external auditor(s)may be supported by the work of the organisationsinternal review / audit (see AA1000 process standard

12), and by other audit processes, such as theexternal certification of social and ethical

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performance and / or management systems (e.g ISOstandards, SA8000).

P10.18 The auditor(s) level of confidence will also beaffected by the nature of the process. Factors thatmay be relevant include, but are not limited to:

a) The experience gained by the auditor during previousaudits and the auditors knowledge of theorganisations sector of operations.

b) The nature of the process adopted by theorganisation, and the extent to which it is embeddedin the management information systems, inparticular,

c) The values of the organisation and theirembeddedness in the organisations systems.

P10.19 In addition to the auditors assurance, qualityassurance to stakeholders is supported by the scopeof the audit and the legitimacy of the auditor(s) toeach stakeholder group. Quality assurance will beincreased the greater the scope (see AA1000 processstandard 10.16) of the audit process.

P10.20 The legitimacy of an auditor will vary bystakeholder group, and will depend, in part, on theaudit scope addressed by the auditor. The followingfactors will also be relevant in determining the

legitimacy of the social and ethical auditora) The qualifications of the auditor - see section 3

(audit guidelines) and section 8 (professionalqualification).

b) The ethical principles associated with the auditqualification - see section 3 (audit guidelines).

c) The nature of the auditing organisation - size,type of organisation, experience, geographic focus,etc.

P10.21 The organisation may choose to use more than oneauditor in order to build the credibility of itsprocess. The organisations choice reflects thelegitimacy and expertise that different auditorspossess with regard to different geographies,stakeholders or issues. Where the organisationsaudit method includes the use of more than onesocial and ethical auditor, the role of each auditor

is clearly documented and identified to eachauditor.

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Communicate report(s) and obtain feedbackP11 The organisation communicates information on theprocess and social and ethical performance of theorganisation to all stakeholder groups. Thisincludes making accessible to all stakeholder

groups the social and ethical report(s) togetherwith the independent audit opinion(s). Theorganisation actively seeks feedback from itsstakeholder groups in order to further develop itsprocess.P11.1 The manner in which the social and ethical report(s)

(including the social and ethical audit report) andother information on the organisations process andsocial and ethical performance is communicated isimportant to meet the principles of accessibilityand information quality.

P11.2 The report(s) also form part of the inclusiveengagement process with stakeholders. Stakeholderfeedback on the report(s) is facilitated by theorganisation. To address the principle ofcontinuous improvement, the feedback includesconsideration of methods to improve theorganisations process as well as its social andethical performance.

P11.3 The organisation makes a commitment to stakeholdersto report upon the stakeholder feedback in future

reporting periods, and to address the comments infuture cycles of the process.

P11.4 The main audience for the report(s) are theorganisations stakeholders, although other partiesmay be interested. The document is accessible to allstakeholders. Accessibility is concerned with themedia through which the report(s) are distributedand the cost of accessing the report(s).

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P11.5 The report(s) and other communications should belogically structured and written and / or presented

in a manner understandable to all stakeholdergroups, although individual communications ay betargeted to specific stakeholder groups.Understandability includes issues of language, styleand format. Technical and scientific terms areexplained within the report.

Establish and embed systems

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P12 The organisation establishes systems to support theprocess, and the on-going achievement of itsobjectives and targets in line with its values.Systems include those to implement and maintainvalues, to manage the collection and documentationof information and to perform the internal audit /review of the process.

P12.1 The process, in current and future cycles, issupported through the development of systems toembed it in the organisation. These systems addressthe implementation of values, the collection of dataand documentation, and internal review / audit.Together, the systems support the continuousimprovement of the process and the organisations

social and ethical performance.Implement and Maintain ValuesP12.2 The organisation establishes systems to implement

the organisations values, and to ensure itsactivities are aligned with these values.

P12.3 The organisations mission and values statement(s)are made available to all stakeholders (see AA1000process standard 3.3), and the role of stakeholdersin the process is clearly communicated to them (seeAA1000 process standard 1.5).

P12.4 The organisation demonstrates a commitment to

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its values:

a) The roles and responsibilities of the board forsocial and ethical issues are clearly defined.These include the responsibility to ensure theimplementation of the values throughout theorganisation.

b) Core operating processes incorporate considerationof the organisations values, objectives andtargets. These may include, but are not limited to,the organisations strategic planning, budgeting andinvestment planning processes.

c) The organisation may incorporate best practice in acode of conduct.

P12.5 The organisation supports adherence to its values.This may be achieved through the following (andother) methods:

a) Incorporating the organisations values in employeehiring, job descriptions and reviews.

b) Training programmes including continuous learning.

c) Reward and sanction procedures related to social andethical behaviour and performance.

d) Mechanisms to allow employees to address conflicts

of interest or ethical dilemmas.e) Recourse mechanisms for employees and partners such

as confidential help-lines and other whistle-blowingmechanisms.

f) Ensuring employees and other relevant stakeholdersare aware of and understand the programmes,procedures, etc, listed in points 12.5 b) to e).

P12.6 The organisation makes its employees aware ofmechanisms that address ethical dilemmas and thatoffer recourse to sanctions. It makes access to

these facilities easily and freely avai