The social and environmental audit practice is regarded as an effective mechanism for adding accuracy and credibility to the corporate social responsibility reports. In civilised societies, auditing is viewed as an evaluative tool for enhancing corporate accountability and transparency (Power, 1999; Owen and Humphrey, 2000; Sikka et. al, 1998; Smith et. al, 2011; Perego and Kolk, 2012). Throughout the past few decades, previous investigatory studies have provided a critical assessment of the evolution of social audit practices (for example, Gray, 2000; 2007; O’Dwyer and Owen, 2005; 2007; Bebbington and Thomson, 2007; Manetti and Toccafondi, 2012; Bepari and Mollik, 2016; Canning et. al, 2019). However, these studies offered little evidence on issues related to the impact of social audit services on the professional independence and ethic of auditors, and the role of religious and cultural values in shaping the nature of the social audit engagements. Furthermore, there is also a paucity in the prior literature in investigating critical issues, such as the lack of consistency in social and environmental audit practices. Moreover, the influence of socio-environmental factors on the views of stakeholders on social auditing remains largely unaddressed in the mainstream literature.
Most studies in the relevant literature examined the social and environmental audit phenomenon from a Western perspective, leaving several open-ended questions and unresearched issues about the social audit practices in non-Western contexts. The present research aims to fill the gap in the literature by highlighting sustainability audits in the emerging economies from an Islamic angle, taking Saudi Arabia as a model. In doing so, the study sought to scrutinise the social audit phenomenon and elicit viewpoints from audit providers and relevant stakeholders, embracing the interpretivist methodology to help in gaining insights from this exploratory examination. Particularly, the study selected a triangulation of mixed methods to collect data through content analysis of audit reports, and semi-structured interviews with statutory auditors and individual stakeholders. Finally, the empirical findings were analysed and interpreted with the consideration of the three theoretical constructs (audit, legitimacy, and stakeholder theories).
The interviewed auditors claimed that social and environmental audit services would benefit the audit firms, the companies, and the Saudi Arabian society. However, some interviewees expressed concerns about various risks associated with the ways social and environmental audits are currently exercised. Although the audit of corporate social responsibility reports helps to identify risks in corporate governance systems, it may jeopardise the impartiality and ethics of audit providers. Consequently, the social and environmental audit engagements may pose a reputational risk to the audit firm.
Similarly, statutory auditors expressed opposing views about engaging stakeholders in the social and environmental audit processes. While some interviewees admitted that the audit of stakeholder engagements in client companies' social responsibility processes is a daunting, costly and valueless task for Saudi Arabian audit firms, others supported that audit procedure as an accountability and transparency enabler. Nevertheless, there are several problematic issues associated with stakeholder engagement reporting audits. Obstacles to the auditing of stakeholder engagement include, among others, dealing with unreliable evidence, engaging the irrelevant stakeholders, and the inability to assess the stakeholder materiality and relevance. Also, the statutory auditors offered a collective opinion that regarded the accurate representation of stakeholders' views on companies' social performance as a quite challenging and unattainable goal within the Saudi cultural boundaries.
On the other hand, the interviewees from stakeholder groups gave a general satisfactory impression of the growing, albeit slowly, social audit performance. The participated stakeholders recognised and appreciated the importance of the voluntary contribution of statutory auditors to the Saudi Arabian business environment through their independent verification of corporate social and environmental responsibility activities and statements.
Whereas findings from the content analysis of sixty audit reports revealed a high tendency of statutory auditors to integrate the outcome of social and environmental audit processes with that of the traditional financial auditing within single audit statements. The observation showed also an overwhelming reliance on accountancy-based approaches of generally accepted financial auditing standards in Saudi Arabia, ISA, or the ISAE 3000 in the audits of corporate social and environmental reports. Stakeholder engagements in the social audits were noticed in only one audit report, which illustrated a limited range of assurance on a company-stakeholder dialogue.
Although the audit of corporate social and sustainability reports is not mandated in Saudi Arabia, the statutory auditors' voluntary role in ensuring the validity of corporate social responsibility statements is seen as an acceptable act whereby auditors can boost their social legitimacy. From an Islamic perspective, the notion of corporate social and environmental responsibility is strongly encouraged for Islamically permitted or Halal purposes (Dusuki, 2008; Elasrag, 2015). Hence, the provision of sustainability audit services to improve the quality of corporate social reporting and discharge organisational accountability can be viewed as an Islamic permitted act.
Overall, social audit exercises in Saudi Arabia are still at an early stage and necessitate substantial improvements
