International Journal of Accounting Information Systems 50 (2023) 100625

Contents lists available at ScienceDirect

International Journal of Accounting

Information Systems
journal homepage: www.elsevier.com/locate/accinf

Audit 4.0-based ESG assurance: An example of using satellite

images on GHG emissions
Yu Gu a, b, Jun Dai c, Miklos A. Vasarhelyi d, *
a
Rutgers Business School, Rutgers, the State University of New Jersey, Newark, NJ 07102, United States
b
School of Accounting, Southwestern University of Finance and Economics, Sichuan 611130, PR China
c
College of Business, Michigan Technological University, Houghton, MI 49931, United States
d
Rutgers Business School, Rutgers, the State University of New Jersey, Newark, NJ 07102, United States

A R T I C L E I N F O A B S T R A C T

Keywords: As Environment, Social, and Governance (ESG) information has become an essential resource for
ESG Assurance investors, regulators have attempted to assure its quality. While more companies offer ESG
Continuous Assurance disclosure, it is usually not fully substantiated with supporting information. Assurance is needed
Audit 4.0
to verify that ESG reports are free of substantive errors. However, traditional financial audit
Big Data
approaches are less effective in providing ESG assurance due to the difference in the nature of
Greenhouse Gas (GHG)
Greenwashing evidence, difficulty in measuring and verifying ESG measures, and ever-changing ESG perfor­
mance. To increase the effectiveness of ESG audit approaches, this study proposes Audit 4.0-based
ESG assurance, which uses Big Data and emerging technologies of Audit 4.0 to capture evidence
from the physical world and provide accurate assurance on ESG reports in a timely manner. We
further perform a case study as a proof of concept of the proposed approach, which explores the
integration of satellite-based methane estimation as ESG audit evidence. The use of satellite
images provides opportunities for regulators and companies to monitor and assure ESG reports in
a continuous manner.

1. Introduction

As the goals of modern business have broadened from solely maximizing profits to including societal responsibilities, the emerging
trend of disclosing Environmental, Social, and Governance (ESG) information provides a channel to report organizations’ efforts to
achieve those nonfinancial goals. Specifically, the environmental dimension examines how a company influences the environment in
terms of waste, biodiversity, water quality, air pollution, carbon emissions, and others. The social dimension reflects how a company
interacts with the related stakeholders and communities, for example, by examining the diversity of its employees, ways it preserves
human rights, and the ethicality of its supply chain. The governance dimension is defined by a company’s strategy, business ethics,
internal controls, and executive compensation policies (Amor-Esteban et al., 2018; Zhang et al., 2020). ESG information disclosure
becomes economically important by enhancing transparency, investor confidence, and the integrity of the capital market (Milgrom,
1981; Verrecchia, 1983; IMF, 2019), as well as through reducing information asymmetry, agency, and financing costs, and improving
stock prices and company value (Dhaliwal et al., 2011; Plumlee et al., 2015).
While ESG information has become an integral part of investors’ examination of investment targets regarding the disclosure of

* Corresponding author.
E-mail addresses: yg431@scarletmail.rutgers.edu (Y. Gu), judai@mtu.edu (J. Dai), miklosv@business.rutgers.edu (M.A. Vasarhelyi).

https://doi.org/10.1016/j.accinf.2023.100625
Received 29 January 2022; Received in revised form 14 November 2022; Accepted 16 May 2023
Available online 24 May 2023
1467-0895/© 2023 Elsevier Inc. All rights reserved.
Y. Gu et al. International Journal of Accounting Information Systems 50 (2023) 100625

nonfinancial performance (Amel-Zadeh and Serafeim, 2018), it is often not substantiated with supporting information or assurance (Yu
et al., 2020). Unaudited ESG reports can convey distorted or misleading information to investors (Kaplan et al., 2021). A typical
example is that companies emphasize their environmentally-friendly activities in ESG reports while obscuring how other behaviors
damage the environment, a practice commonly referred to as “greenwashing”1 (Brooks and Oikonomou, 2018). Such deceptive
behavior could be identified and reduced through effective independent assurance (Clarke, 2021). As a result, assurance of ESG reports
being free of significant errors or fraud such as greenwashing is in urgent demand. However, assurance based on obsolete or inap­
propriate techniques or using non-scientific methodologies would reduce the credibility of ESG reporting (Kaplan et al., 2021).
Financial auditors are conventionally trained to evaluate companies’ economic inputs and outputs and assess compliance of supporting
business processes with financial regulations. However, different expertise is required for auditors to review and judge the “true and
fair” representation of the non-financial information in ESG reports (Kaplan et al., 2021). For example, technical expertise and
methodologies from the natural sciences are necessary to review and examine environmental impact measures. Besides, companies’
performance on ESG may largely vary from time to time, making annual audits much less effective in detecting and preventing harmful
activities in time. As a result, it would be challenging for auditors to identify gaps in logic, disclosure, and assessment, which leaves
deliberate greenwashing or erroneous ESG reporting undetected (Kaplan et al., 2021). Therefore, it is urgent to create suitable and
accurate methodologies to help auditors to perform effective ESG audits and improve the quality and timing of ESG assurance.
The effectiveness and timeliness of ESG assurance can be significantly improved by leveraging the emerging technologies from
Audit 4.0 (Dai and Vasarhelyi, 2016) to obtain external evidence from the physical world in a timely manner. Audit 4.0 is a new audit
paradigm that prescribes real-time and accurate assurance via linking the physical world with the digital world using technologies such
as sensors and Internet of Things (IoT) and detecting abnormal events or activities once they occur. In Audit 4.0, audit-related data are
directly collected from the physical environment and transmitted to a central cloud, based on which a variety of continuous assurance
models perform anomaly detection and instantly report high-risk events to related stakeholders. For example, satellites embedded with
sensors could capture methane plumes from wells in real-time, which could be used as a new type of audit evidence to examine
greenhouse gas (GHG) emission disclosures. Such data, which are collected and analyzed by independent third parties, could largely
mitigate the risk of manipulation by management.
This paper proposes an innovative method to provide assurance for ESG reports via extending Audit 4.0 to the ESG domain. The
proposed Audit 4.0-based ESG assurance is enriched with objectives, a framework, and an audit process with assertions. This process is
demonstrated in a case study that uses satellite images to estimate methane concentrations, demonstrating how Audit 4.0 could
improve the quality of ESG assurance with audit evidence from the physical world. This case study focuses on the assurance of
greenhouse gas (GHG) emission reporting, a crucial aspect of ESG reports (IAASB, 2012). After testing three assertions for the sample
data from a commercial satellite company, we show that it is valuable to use satellite image data as a resource to assure GHG emissions
reporting in ESG reports. The proposed Audit 4.0-based ESG assurance significantly outperforms the current ESG audit approaches
from the perspectives of the size of data being audited as well as the depth and frequency of analyses.
This study sheds light on existing ESG assurance and Audit 4.0 research and contributes to practice. First, the Audit 4.0-based ESG
assurance framework and processes provide insights for standard setters to fill the gap in ESG assurance process details (CAQ, 2021).
Second, we explore the use of Audit 4.0 in the ESG domain and leverage the key concepts in Audit 4.0 to improve the quality and
timeliness of ESG assurance. Third, to our knowledge, we are the first to use satellite images to provide assurance for ESG information.
Since this new source of data provides objective and real-time evidence, it could significantly enhance the effectiveness of ESG
assurance.
The remainder of this paper is organized as follows: The background and related research are presented in Section 2. Section 3
proposes an innovative method to alleviate existing problems in ESG assurance with objectives, a framework, and a process, and il­
lustrates examples of using this method in ESG assurance. Section 4 details a case study using satellite images to provide timely and
accurate assurance for ESG reports following the proposed process. Section 5 compares the proposed Audit 4.0 ESG assurance with a
current ESG assurance report and discusses the study’s limitations and avenues for future research. Section 6 concludes the paper.

2. Background and related research

2.1. ESG assurance

While there is growing attention on ESG disclosure (SEC, 2023), one fundamental issue with current ESG reporting is trustwor­
thiness and verifiability (Kaplan et al., 2021). ESG reporting without proper assurance could lead to severe problems such as green­
washing, where companies overstate their performance (Brooks and Oikonomou, 2018; Barton, 2022; Ruiz-Blanco et al., 2022). Such a
problem might further become a barrier that prevents ESG information from being integrated into investment decisions (Yu et al.,
2020). Credible assurance reports can significantly improve the confidence of investors, regulators, and other stakeholders, making
companies accountable to the wider stakeholder community (Cheng et al., 2015; Kaplan et al., 2021) and can alleviate the green­
washing problem (Viegas, 2019).
Stakeholders are increasingly seeking assurance of ESG-related information. Companies like Apple Inc. are urging the SEC to
mandate third-party-audited emission information (Segal, 2021). As acknowledged by the International Ethics Standards Board for

1
The SEC has investigated the greenwashing problem in ESG reports. For example, it filed a complaint against Vale, a Brazilian mining company,
for fraudulent claims in its sustainability reports regarding the Brumadinho dam (Cooley, 2022).

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Y. Gu et al. International Journal of Accounting Information Systems 50 (2023) 100625

Accountants (IESBA) and International Auditing and Assurance Standards Board (IAASB), it is important to respond to the market
demand with robust standards applicable to all sustainability assurance providers. However, only 51% of ESG information in the U.S. is
assured (IFAC, 2021). Even though some companies provide assured ESG reports, the quality of those reports is still questionable. For
example, internal documents from ExxonMobil leaked to the public revealed that emissions surged despite the audited ESG report
stating otherwise (Crowley and Rathi, 2020). The New York Times also reports that energy giants are selling their most-polluting
operations to small private companies to escape reporting damaging pollution information and inviting scrutiny from the public
(Tabuchi, 2021).
About two-thirds of sustainability assurance engagements are provided by audit firms and affiliated firms (IFAC, 2021). Auditors
and other assurance providers face some challenges when providing ESG assurance. The IFAC has summarized key challenging tasks
for ESG auditors: determining the scope of an assurance engagement, exercising professional skepticism and judgment, and obtaining
necessary competency and skills. Failure to formalize these essential tasks could lower assurance quality (IFAC, 2021).2 Appropriate
standards could help to stipulate the scope of ESG assurance and guide auditors to obtain competency and skills. However, there are
only three widely adopted but not well-developed standards for ESG assurance: AA1000AS, ISAE 3000, and ISAE 3410 (IFAC, 2021).
AA1000AS was originally developed to address the credibility of CSR reports, an earlier version of ESG reports, underpinned by the
principles of completeness, materiality, and responsiveness (AccountAbility, 2008). However, it is not specifically designed for ESG
audit and does not provide complete guidance in the scope of ESG. ISAE 3000 aims to guide auditors to provide consistent and
appropriate assurance but lacks a specific description of how to perform the audit procedures (Ackers, 2009). ISAE 3410 focuses only
on the Assurance Engagements on Greenhouse Gas Statements. In sum, current standards cannot sufficiently support auditors to
overcome the challenges brought by ESG assurance. There is still an urgent need to create suitable and accurate ESG assurance
methodologies to overcome those challenges and improve the quality of ESG assurance.

2.2. Audit 4.0

Technological leaps have led to three paradigm shifts in auditing history (Dai and Vasarhelyi, 2016). Although manual audits
(Audit 1.0) had existed for centuries, the IT audit (Audit 2.0) started in the 1970 s thanks to the popularity of computers and database
systems. The recent increase in the use of big data and data analytics promoted Audit 3.0, which resulted in a significant mindset
change in the auditing profession. The concept of Audit 4.0 arises along with Industry 4.03, while its applications are mainly in the
auditing domain. Dai and Vasarhelyi (2016) create the concept of Audit 4.0:
“Audit 4.0 will piggyback on technology promoted by Industry 4.0, especially the Internet of Things (IoT), Internet of Service
(IoS), Cyber-Physical Systems (CPSs), and smart factories to collect financial and operational information, as well as other audit-
related data from an organization and its associated parties. It analyzes, models, and visualizes data to discover patterns,
identify anomalies, and extract other useful information to provide effective, efficient, and real-time assurance. It is typically an
overlay of Industry 4.0 business management processes and uses a similar infrastructure but for assurance purposes.”
Audit 4.0 (Fig. 1) collects detailed information about company property (e.g., locations, values, wear and tear) and the surrounding
environment (e.g., temperature, humidity, air quality) via sensors and IoT devices. Such data are uploaded to a cloud-based virtual
model for analysis and visualization, providing continuous, comprehensive, and accurate assurance (Vasarhelyi et al., 2010) to address
significant risks. Audit 4.0 has six design principles, including interoperability, virtualization, decentralization, real-time capability,
service orientation, and modularity (Dai and Vasarhelyi, 2016). Interoperability refers to the interoperations among different devices
and systems and between machines and human beings inside an enterprise and from related organizations in the value chain to cross-
verify accounting transactions. Virtualization creates digital twins for physical objects, which continuously receive the latest condi­
tions of these objects. The digital twin of each object in the physical world can collectively form a virtual copy (called “mirror world”)
of the real world. Using the information from the mirror world, auditors could perform most of the currently onsite examinations
remotely and quickly. Decentralization grants decision-making power to each machine or device by embedding control policies or
analytical models into those objects. As a result, objects can monitor accounting data and detect simple abnormal transactions locally
and pass complex decisions to auditors. Real-time capability emphasizes the ability to detect abnormal transactions once they occur,
instantly make decisions, and take actions. Service orientation uses the Service-Oriented Architecture (SOA) to enable convenient
outsourcing of audit-related services to experts. Finally, modularity separates complicated audit tasks into small actions so that au­
ditors can choose an appropriate set of actions for each engagement based on their competencies or the client’s risk profile.

2.3. Big data and satellite images

Big Data (BD) is increasingly explored and used to improve assurance quality in recent years. BD is data with unprecedented
volume, variety, velocity, veracity, and value (Demchenko et al., 2014). Analyzing extremely large datasets could reveal patterns,
trends, and associations that better inform decision-making (Brown-Liburd and Vasarhelyi, 2015). Various types of BD have been

2
https://youtu.be/x4dcwGoaFJg.
3
Industry 4.0 refers to a fundamental paradigmatic transformation in industrial production via digital integration and intelligent engineering
(Muhuri et al., 2019). In Industry 4.0, networked machines, production plants, and IT systems exchange and analyze data to predict failure, optimize
operations, and respond to changes in the environment in real-time (Oztemel and Gursev, 2020).

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Y. Gu et al. International Journal of Accounting Information Systems 50 (2023) 100625

Fig. 1. An Overview of Audit 4.0.

Adapted from Dai and Vasarhelyi (2016)

shown to aid auditors (Brown-Liburd and Vasarhelyi, 2015; Brown-Liburd et al., 2015; Vasarhelyi et al., 2010), such as Twitter (Bartov
et al., 2018; Rozario et al., 2023; Moon, 2016), weather data (Yoon et al., 2017), search trends (Brynjolfsson et al., 2016), taxi data
(Bradley et al., 2020), scanner data (Dichev and Qian, 2022), and cell phone “pings” (Li and Venkatachalam, 2022). In the ESG domain,
social media has been used for fraud detection and other ESG assurance tasks (Lee et al., 2013; Lyon and Montgomery, 2013; Gómez-
Carrasco et al., 2021; Hoepner et al., 2017). For example, “emotional nowcasting” of the responses to sustainability reports on social
media could discourage greenwashing (Hoepner et al., 2017).
Satellite images are an emerging type of BD that are drawing attention from the assurance domain. Auditors could perform in­
vestigations using satellite images without going to client locations, enabling continuous assurance of client behavior. For instance,
Kang et al. (2021) used the number of cars in retailers’ parking lots, which are extracted from satellite images, to predict sales. In the
ESG assurance domain, satellite images could serve as independent and objective evidence to test ESG items such as methane
emissions.

3. Audit 4.0-based ESG assurance

3.1. Objectives of Audit 4.0-based ESG assurance

The concepts and principles of the Audit 4.0 paradigm (Dai and Vasarhelyi, 2016) could be extended to the ESG domain. Audit 4.0
could improve the efficiency, effectiveness, and accuracy of ESG assurance, grant investors access to transparent information, facilitate
real-time monitoring for regulators, and improve employee safety management.4
Audit 4.0-based ESG assurance has two specific objectives (shown in Fig. 2). The first objective is to verify the numeric data and
textual claims in ESG reports. Numeric data are primarily in structured performance tables in an ESG report or a separate ESG data
sheet. For example, BP’s ESG reports (2021) show its net-zero aims, e.g., Aim 1 – Scope 1 (direct) and Scope 2 (indirect) greenhouse gas
emissions (e.g., methane intensity). Textual claims are the ESG performances described in paragraphs rather than tables. For example,
BP claimed they are “targeting a 2025 reduction of 5% and aim to reduce it by 15% by 2030, against our 2019 baseline. This aim relates to the
rate of GHG emissions estimated on a life cycle basis from the use, production and distribution of marketed energy products per unit of energy
(MJ) delivered” (BP, 2021). In this example, the goals of reducing emissions by 5% by 2025 and 15% by 2030 are textual claims.
Auditors could examine whether BP will be able to meet its targets by comparing its GHG emissions with its intended emissions
reduction percentages.
The second objective is to design an ESG Continuous Assurance (CA) model, which provides up-to-date, assured information about
companies’ ESG performance. A dynamic dashboard could be used to present real-time CA results. The data feed into the CA dashboard
could include both companies’ self-collected data and exogenous information. Auditors could collect evidence from the data in real-
time and monitor companies’ activities.

4
Safety management is the management of corporate operations and the application of ideas, frameworks, and processes to prevent accidents,
injuries, and other risks. Details can be found at: https://skybrary.aero/articles/safety-management.

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Y. Gu et al. International Journal of Accounting Information Systems 50 (2023) 100625

Fig. 2. Objectives for ESG Assurance.

3.2. Framework

Based on the two objectives, a framework for ESG assurance in the Audit 4.0 environment was designed. Fig. 3 illustrates the main
components of the Audit 4.0-based ESG assurance framework.
Audit 4.0 comprises two major components: the physical world and the mirror world. An important function of Audit 4.0 is to
connect ESG related objects via the Internet, collecting their conditions and surrounding environment and transmitting them to a large
cloud. Those data together form the mirror world, a virtual model of the physical world, in which meaningful physical objects have
virtual representations that record the latest status and historical transactions (Dai and Vasarhelyi, 2016). As a result, every object is
traceable and can communicate with other machines and humans. If an object is equipped with microchips and storage, it may be able
to reliably store its conditions, status, and history locally, which can serve as independent evidence to verify accounting records.
The mirror world contains four layers: technology, data, function, and reporting. The technology layer includes technologies such
as the Internet of Things (IoT), satellites and drones5, geographic information system (GIS), social media, and enterprise resource
planning (ERP) to facilitate the linkage between the physical world and the mirror world, to capture ESG-relevant information from a
variety of sources, and to store such information and perform comprehensive analyses. Details of the use of advanced technologies in
ESG assurance are discussed in Section 3.4.
The data layer stores ESG-relevant data obtained from sensors, modern ERPs, social media, and open sources to discover indications
of fraud or anomalies (Dai et al., 2019; Moffitt and Vasarhelyi, 2013; Moon, 2016; Yoon et al., 2015). Moreover, recent open data
initiatives provide auditors with benchmarks (e.g., average income, working hours, healthy life expectancy, air quality) to compare in
investigations (Dai and Li, 2016; O’Leary, 2015; Schneider et al., 2015).
In the function layer, prediction functions use data mining algorithms to learn and predict future emission volumes, allow auditors
to understand the hidden patterns in companies’ efforts to protect employees’ rights, identify abnormal trends in the cyber security
environment, etc. The monitoring function continuously monitors business processes and reduces the onsite workload of auditors and
management. For example, suppose companies’ emissions exceed the thresholds for abnormal volumes, regions, or timing. In this case,
an alert could be sent to management, and auditors could identify errors or potential fraud with comment letters. Auditors could
examine coal consumption, equipment wear and tear, and productivity using the data from the physical world. Auditors could also
collect audit evidence from third parties, such as satellite image providers, government agencies, and social media. That evidence,
especially from exogenous data, could be “translated” to verify the numeric metrics or textual claims in ESG reports (Cho et al., 2019).
In the reporting layer, an assurance dashboard could be created to visualize results from the function layer and highlight risky ESG
items and processes. Furthermore, smart alerts could be sent to management and internal auditors to improve inefficient ESG processes
and to investigate risky ESG items. Moreover, stakeholders could use the dashboard to examine the monetary expenditures and
outcomes of companies’ ESG investments.

3.3. Process

The main process of Audit 4.0-based ESG assurance is shown in Fig. 4. The process starts with identifying key ESG items and
determining assertions. Table 1 shows seven potential types of assertions that could be considered in Audit 4.0-based ESG assurance,
including those derived from financial audit (occurrence, completeness, accuracy, cut-off, classification, and presentation) and those
established specifically for ESG (no anomalies, no deviation from peers, and no suspicious patterns). It also articulates the roles that the
four layers in the Audit 4.0-based ESG assurance framework play for each assertion. Based on the items and assertions, auditors choose
technologies to obtain relevant data from inside and outside the companies. For instance, to test the occurrence of methane emissions,
emission volumes could be obtained from a company’s sensors and compared with satellite images that capture the plumes from the
company’s wells. Then, auditors would perform appropriate analytical functions on the data to test the assertions. For example, text
mining could be used to test the classification assertion by matching the keywords of a company’s ESG reporting with ESG taxonomies
to check whether they are recorded in the proper accounts. Another example is to use data mining algorithms to test ESG special
assertions by examining anomalies and detecting special patterns. Finally, customized assurance reports could be generated in the form

5
Christ et al. (2021) found using drones to count inventory can improve audit quality.

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Y. Gu et al. International Journal of Accounting Information Systems 50 (2023) 100625

Fig. 3. Audit 4.0-based ESG Assurance Framework.

Fig. 4. Process of Audit 4.0-based ESG.

of dynamic dashboards that are tailored to the needs of users, such as external auditors for ESG report assurance, internal auditors for
efficiency monitoring, and managers for decision-making.

3.4. Examples of Audit 4.0-based ESG assurance

To illustrate Audit 4.0-based ESG assurance, Table 2 provides examples of how auditors could use advanced technologies to
continuously audit and monitor ESG disclosure in the Audit 4.0 context.
Geographic Information Systems (GIS) (Bolstad, 2016) are now gradually being applied to environmental cost management,
natural resource asset statistics, national resource auditing, and corporate environmental information disclosure (Rentenaar and
Williams-Bridgers, 2006; Tiwari et al., 2018; Zaki and Daud, 2001; Manyama et al., 2021). Satellites and drones are important GIS
tools for collecting such geographic data for dynamic and comprehensive monitoring of cumbersome but vital resources, such as
forests, water, and oil. For instance, satellites could compare pictures taken at different times to detect deforestation (Fountain, 2020).
In another arena, satellite images of fishing vessel routes could be used to uncover the counterfeiting tactics of a large marine fishery
company (Zhang, 2020) or calculate the pollutant emission of fishing vessels. Drones could fly to dangerous places and monitor GHG
emissions like methane.6 GIS could also be connected to the current accounting information system as an important continuous
reporting function (Yu et al., 2022).
The Internet of Things (IoT) (Gubbi et al., 2013) refers to the integration of various information sensors, global positioning systems,
radiofrequency technology, and infrared sensors into physical objects, connecting them to a cloud via the Internet. From the envi­
ronmental perspective, IoT devices interact with each other and share their information about the surrounding environment (e.g.,
noise, emissions, waste, pH values, etc.) in real-time. Therefore, IoT can monitor and report nearby air quality, water quality, toxicity
level, soil quality, etc., improving the reliability and timeliness of ESG reporting. From the social perspective, IoT devices measuring
the stress hormones of employees from a drop of blood (Mahmoodi et al., 2021) can help monitor their health status and stress level,
especially when they are required to work overtime or suffer from occupational diseases. Besides, IoT devices show great potential with
noninvasive measures like blood pressure, heart rate, oxygenation, and some chemical signals for stress. Such information could also
help companies and regulators protect workers by terminating a business activity if most workers suffer from fatigue or stress. From the

6
We use methane data in the case study in Section 4.

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Table 1
Assertions for Audit 4.0 on ESG.
Assertion Explanation Technology Data Function Reporting

Occurrence All ESG performance data
recorded or disclosed have
actually occurred, and such
activities pertain to the entity.
Completeness All ESG performance data have
been recorded, and all related
disclosure that should have been
included in the ESG reports have
been included.
Accuracy Amounts and other data relating
to recorded activities have been
recorded appropriately.
Cut-off All ESG performance data have
been recorded in the correct
accounting period.
Classification All ESG performance data have
been recorded in the proper
accounts.
Presentation All ESG performance data have
been appropriately aggregated
or disaggregated and clearly
described.
No anomalies All ESG performance data have
no anomalies.
No deviation All ESG performance data do not
from peers deviate significantly from peer
companies.
No suspicious Whether ESG performance data
patterns have special patterns.
Sensors, IoT, ESG data, financial Continuously monitor and Integrated reports with
satellites, drones, data, and open data assess risks for all financial information
social media, GIS, sources environmental, social, and to check the occurrence
and ERP governance impacts; assertion
Automatically aggregate
amounts of each item and
compare them with the
corresponding items in ESG
reports
Sensors, IoT, ESG data, financial Continuously monitor and Integrated reports with
satellites, drones, data, and open data assess risks for all financial information
social media, GIS, sources environmental, social, and to check the
and ERP governance impacts; completeness assertion
Automatically aggregate
amounts of each item and
compare them with the
corresponding items in ESG
reports
Sensors, IoT, All ESG data Identify erroneous values and Send alerts to auditors
satellites, drones, (including perform further investigation for any erroneous
social media, GIS, historical ESG numbers
and ERP data) with open
data sources
Sensors, IoT, All ESG data and Continuously monitor the Send alerts to auditors
satellites, drones, real-time data real-time ESG data and for any incorrect cut-
social media, GIS, record them into the correct offs
and ERP accounting period
Text mining ESG taxonomies Use ESG taxonomies to check Send alerts to auditors
whether the ESG for any incorrect
performance data have been classifications
recorded in the proper
accounts
Visualization All ESG data with Predict future trends and Customize assurance
open data sources compare them with financial results based on
reports auditors’ needs
Sensors, IoT, All ESG data with Identify the anomalies and Send alerts to auditors
satellites, drones, open data sources extreme values, and perform for any anomalies
social media, GIS, further investigation
ERP, and data mining
Sensors, IoT, All ESG data with Identify significant deviation Send alerts to auditors
satellites, drones, open data sources from peer companies for any significant
social media, GIS, deviations
ERP, and data mining
Sensors, IoT, All ESG data with Detect special patterns Report any special
satellites, drones, open data sources patterns to
social media, GIS, stakeholders
ERP, and data mining

governance perspective, IoT could detect damage to infrastructures, major plants, or property and track the use of office suppliers to
monitor the effectiveness of fixed asset management in real time. However, data collected from IoT devices may include noise due to
technical limitations or even fraudulent activities (Dai et al., 2019). For example, an air quality sensor may send a false alarm if
someone smokes nearby. To alleviate those problems, multiple IoT devices should be used to collect data in order to prevent bias from
single data points. Data from those IoT devices act as the source documents for the company’s ESG reports, as well as independent audit
evidence.
Social media provide exogenous and independent information regarding companies’ impacts on the environment, society, and
governance. People share comments, pictures, or videos of their nearby environment with location (latitude and longitude) infor­
mation and timestamps (Duan, 2020). Therefore, the environmental information near a specific factory could be obtained, extracted,
and analyzed from social media, which could serve as audit evidence for ESG reports. The real-time tweets could also serve as warnings
for an accident (e.g., a fire in a factory). Social media gather employees’ comments on a company, which indicate their relationship
with the company, corporate culture, or the tone of the top. Auditors may use those social media comments as exogenous data to
examine and monitor the benefits a company gives to its employees and the employees’ attitudes about the company for the “social”

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Table 2
Examples of Audit 4.0-based ESG Assurance.
Verifying or Sections Technologies Examples
cross-verifying

Verifying Environment Satellite images Satellite imagery of damage to natural resources such as water pollution,
deforestation, or desertification near factories.

Environment Drones Drones can fly to dangerous places and monitor GHG emissions like methane.

Environment Sensors and IoT Sensors directly monitor and report nearby air quality, water quality, toxic level, soil
quality, etc.

Environment Social media Use text mining to identify and analyze comments regarding companies’ impact on
the environment.

Social Social media Use text mining to analyze social media comments to verify companies’ support of
underrepresented groups.

Social Social media Use text mining to analyze social media disclosure by the company to identify the tone
of top and corporate culture.

Social Satellite images Use satellite imagery of cars in parking lots to identify workers staying for excessive
overtime

Social Sensors and IoT IoT devices monitor employees’ health status and stress levels, especially when
required to work overtime or suffering from occupational diseases.

Governance Sensors and IoT Sensors and IoT devices detect infrastructure, major plants, and equipment damage.

Cross-verifying Environment and Satellite images Compare satellite imagery of pollution to population changes in local communities.
Social
Social and Governance Social media Analyse complaints on social media to detect deficiencies in companies’ strategies for
employees’ health and safety.

Environmental and Social media and Detect the gap between companies’ strategies for environmental protection and
Governance satellite images environmental changes shown on satellite images.

Environmental and Satellite images Satellite images of fishing vessel routes can be used to uncover the counterfeiting
Financial tactics of a large marine fishery company (Zhang, 2020) or calculate the pollutant
emission of fishing vessels.

section of ESG reports. Employment-oriented social media such as Glassdoor.com7 gathers employee reviews (Lee et al., 2021; Khavis
and Krishnan, 2021). Keywords in those comments, such as “work overtime,” “discrimination,” or “diversity,” can be extracted and
compared with the company’s corresponding statements to identify potential inconsistencies. Complaints about overtime workload or
low pay could lead to substantive audit tests on the company’s work conditions. In sum, the rich data collected and technologies
promoted in the Audit 4.0 environment could enlarge the scope of analyses, enhance the quality and variety of evidence, enable real-
time auditing, and ultimately improve the effectiveness and timeliness of ESG assurance.

4. Case study

A case study was conducted that uses satellites and aircraft to gather Greenhouse gas (GHG) emissions data from oil and gas
companies as a proof of concept for the ideas in Audit 4.0-based ESG assurance. GHG emissions are an important part of ESG reports
(IAASB, 2012). Following the proposed framework and process of the Audit 4.0-based ESG assurance, the case illustrates how to assure
the methane emission item in ESG reports.

4.1. Decide on ESG items and assertions

The Paris Agreement aims to limit global warming and achieve carbon neutrality with a specific goal of reducing GHG emissions.
This goal applies to every company, especially those in the oil and gas industry, which are responsible for most GHG emissions
(primarily CO2 and methane). This case study focuses on methane emissions, which can affect the environment significantly more than
CO2 (Funk et al., 1994).
Accounting and monitoring methods are two commonly used reporting approaches to track methane emissions. The accounting
method calculates emissions based on fuel consumption and emission factors. The monitoring method employs sensors and software

7
https://www.glassdoor.com/.

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installed in vent systems to monitor emissions. These two methods are both subject to management manipulation or greenwashing. For
example, in 2015, Volkswagen was accused of using illegal software to cover excessive car emissions. Exogenous data, such as satellite
images from a third-party, usually have a lower potential for management manipulation, so they could be used to mitigate the risk of
greenwashing and to validate ESG reports.
Two assurance processes are now commonly used by ESG auditors. Process-focused verification assures compliance with estab­
lished reporting rules and standards, endorsed by the ESG reporting rules, such as the Global Reporting Initiative (GRI), while content-
focused verification emphasizes the completeness, accuracy, and quality of the information contained in the report and is widely used
by third-party verifiers (Darnall et al., 2022). Content-focused verification is more effective at encouraging firms’ information
disclosure and more robust because it emphasizes the quality and substance of firms’ disclosed information rather than rule confor­
mance (Darnall et al., 2022).
Therefore, we choose to use satellite images as the main data source to assure the methane emission item and use content-focused
verification to examine three ESG special assertions (no anomalies, no deviation from peers, and no suspicious patterns) on methane
emissions for oil and gas companies8:

1. Companies do not have abnormal methane emissions.

2. Companies’ methane emissions do not significantly deviate from their peer companies.
3. Whether companies have special patterns of methane emissions.

4.2. Select technology − Satellite imaging technology

GHGSat Inc.9 provides a methane emission estimation method via satellites and aircraft. Each GHGSat satellite orbits the Earth in a
polar orbit (north–south), while the Earth turns (west-east), enabling measurement of any source on the surface of the Earth within
days. Satellites detect methane emissions in high resolution from 500 km up in space. GHGSat aircraft sensors are dispatched to high-
value areas on demand. Each gas absorbs light at different wavelengths, creating a “spectral fingerprint.”10 GHGSat’s instrument is
tuned to measure the amount of light absorbed at specific wavelengths, quantifying methane concentrations. High-resolution satellite
instruments take hundreds of measurements around a source with a resolution of tens of meters. Very-high resolution aircraft sensors
measure in single meters. By merging multiple sources of light, the satellites are able to create an interference pattern, enabling them to
measure and pinpoint emissions from individual sites across the world by the patented imaging interferometer. An example of real-
time estimation of a landfill in Delhi, India is shown in Fig. 511. The red color represents higher emissions than the green or blue
color.12
Value-added analyses of the raw measurements of methane concentrations around a source use proprietary algorithms to estimate
emission rates, detect leaks, monitor emissions patterns, and produce other valuable insights. When making the emission-rate esti­
mates, errors arise mainly from wind speed data, methane retrievals, and the emission model method. Varon et al. (2018) describe the
overall method. Other studies also use satellite images to estimate carbon dioxide (CO2) (e.g., Hanna et al., 2021) and nitrogen dioxide
(NO2) (e.g., Scheibenreif et al., 2021) from space.

4.3. Obtain relevant data

Satellite-based emissions data are collected and estimated by GHGSat Inc. using satellite imaging technology from sensors on
satellites and aircraft. Data were collected in November 2020 in the Permian and Delaware Basins across Texas and New Mexico,
including 13,146 records in total. The satellites and aircraft estimate the methane emissions on a second-to-second basis. Each record
includes altitude and longitude, showing the location of a well of an oil and gas company that emitted methane. The emission rate
represents the emission amount per hour (kg/hr). The sample composition is shown in Table 3.

4.4. Perform functions and analyses

Tableau 13was used to analyze and visualize the data to test the assertions.

8
A 2021 Environmental Protection Agency proposal requires oil and gas operators to detect and repair methane leaks aggressively by taking steps
to “….… eliminate venting of associated gas from oil wells and require owners and operators to route the gas to a sales line where available....” (EPA, 2021,
page 4). This proposal completely bans venting methane emissions from the oil and gas industry’s wells and will most likely take effect in 2023
(Volcovici and Groom, 2021). The three ESG assertions are determined based on this regulation.
9
https://www.ghgsat.com.
10
The underlying science for the way satellites detect methane emissions has been proven by national space agencies. Spectroscopy is the study of
the absorption and emission of light, from visible light across the bands of the electromagnetic spectrum. GHGSat’s instrument, an interferometer,
uses sensors based on this science to identify the unique wavelengths of the different greenhouse gases.
11
https://www.ghgsat.com/en/technology. It was accessed on June 20th, 2022.
12
All the figures in color can be found at https://1drv.ms/w/s!Aq-mwPLrZOt5gWJeqV0qKhKq2xbo.
13
Tableau is a visualization software with a mapping functionality that is able to plot latitude and longitude coordinates and connect to spatial
files. Zhang et al. (2022) used Tableau to perform Visual Audit.

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Fig. 5. An Example of a Satellite Image.

Table 3
Sample Composition.
Total number of the sample 13,156

State
• Texas 10,339
• New Mexico 2817
Emission records
• Null emission records 13,121
• Non-null emission records 35
o Highest emission rate 1761.23 (kg/hr)
o Average emission rate 180.87 (kg/hr)
Number of companies 468
Period November 2020
Date 2, 3, 7, 10, 16,17, 20, 21, 24, 25, 26, 29, 30
Frequency By second

Fig. 6 shows locations of methane plumes on the satellite map to test the first assertion on abnormal methane emissions. The
triangle represents a methane plume that is detected, and the dots represent that there is no emission. The triangle should be identified
as an anomaly, and a further investigation could be made by auditors or managers. If a company’s ESG report claims that it never emits
methane during the year, but satellites detect methane plumes from its wells, then the reports would be misstated. The visualization
also helps auditors or managers identify the specific locations of wells that emit methane.
Fig. 7 depicts a sorted comparison of methane emissions from peer companies to test the second assertion. Auditors could choose
peer companies using a clustering method (Ding et al., 2019). Fig. 7 shows that Company 249, Company 463, and Company 213 are the
top three firms that emit the most methane in the area. Auditors would receive alerts on those companies to investigate the significant
deviations.
Fig. 8 tests the third assertion on whether there are special patterns in methane emissions. Data from Company 213 is used as an
example to analyze the trend. Among the days when satellites took images from the wells of Company 213, there were no methane
emissions on November 7, November 10, and November 17. However, the company started to emit methane at a high rate on
November 30. Based on the results, auditors can conclude that Company 213 releases a majority of its emissions at the end of each
month. Therefore, auditors should allocate extra resources to investigate emissions at the ends of the months.

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Y. Gu et al. International Journal of Accounting Information Systems 50 (2023) 100625

Fig. 6. Emissions on the Satellite Map.

Fig. 7. Sum Estimated Source Rate - Company Sample.

4.5. Report − Dashboard

The results of ESG assurance could be demonstrated in a dashboard that can be customized for users with different needs and
preferences. Fig. 9 shows a dashboard designed for external auditors to identify unallowable emissions. In the “company sample”
section, external auditors could compare the methane emissions from a client company with its peer companies for a certain period of
time (a day, month, or year). In the “day-to-day variation” section, external auditors could discover any abnormal volume (high or low)
of methane emission by the client company. In the “emission on satellite map” section, external auditors could identify the triangles
where methane emissions are detected and examine them using the full information shown at the bottom. Auditors could then use this
data as audit evidence and ask the management for explanations and adjustments on ESG reports. Furthermore, data could be made
available to the public by uploading it to the cloud, increasing information transparency, and potentially enabling armchair auditing
(Dai and Li, 2016).14
Internal auditors could continuously monitor the company’s emissions and receive alerts on abnormal emissions. Fig. 10 shows a
dashboard that can help internal auditors to monitor the emissions and processes. The triangles in the left panel alert internal auditors
about heavy methane emissions, who then report to managers and make suggestions using emission reduction equipment. The right

14
Armchair auditing is a crowdsourcing of informal, voluntary analyses on open data to assure reporting (O’Leary, 2015). It was originally
discussed in the government reporting domain, but the concept can be extended to corporate business reporting.

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Y. Gu et al. International Journal of Accounting Information Systems 50 (2023) 100625

Fig. 8. Day-to-day Variation of Company 213.

panel shows the decrease in methane emissions when new emission reduction equipment is used. Since accuracy is essential in
monitoring, the emission rate error should be considered in combination with the rate of methane emissions to avoid too many false
positives15. By contrast, external auditors may be more conservative, such that when an emission level is detected, they take it into
account and further investigate.

5. Discussion

5.1. Audit 4.0-based ESG assurance vs. Current ESG Audit procedures

Current ESG reports often contain only annual methane emissions, such as BP’s ESG datasheet (BP, 2021, page 93). The current ESG
assurance approaches and procedures are not significantly different from financial audit procedures (Li et al., 2022). Financial audits
use well-documented evidence such as invoices, shipping slips, cash register tape, and so on to investigate and confirm transaction
information. Besides, many documents are issued by other entities, making them harder to falsify. However, this approach is less

15
The emission rate error cannot reduce false negatives because only none-zero estimated emission rates are with an estimated error rate.

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Fig. 9. Dashboard for External Auditors.

effective for ESG assurance because much of the evidence originates from the physical world (e.g., emissions, pollution, deforestation,
and so on) and is not well documented or acknowledged by other entities. Furthermore, unlike inventory items, which are usually easy
to count, weigh, or measure, many ESG metrics are difficult to verify using the traditional audit approach. For example, the amount of
water pollution from vessels is difficult for auditors to observe or verify. In addition, the amount of emission or pollution may change
from time to time, making traditional annual audits much less effective. For example, companies may choose to stop emitting or
polluting when auditors visit their sites, making it hard for auditors to examine the real emission or pollution conditions. Due to the
nature of ESG reporting content and the ineffectiveness of current audit approaches, auditors now can provide only limited assurance

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Fig. 10. Dashboard for Internal Auditors.

for annual ESG reports by performing “procedures over the completeness of the data and the accuracy of collection, consolidation, and
reporting of the subject matter data at group level” (BP, 2021, page 93).16 Under the current accounting and monitoring method for
reporting emissions items, the ESG assurance does not contain the detailed testing of source data or effectiveness of processes and
internal control, instead, only a sample dataset is examined (BP, 2021).
Testing the three assertions in the case study is difficult using a traditional audit procedure. For the first assertion, the annual audit
can detect abnormal methane emissions only at the company level. It is infeasible for traditional audits to identify the specific locations
of wells that emit abnormal amounts of methane in real-time. For the second assertion, methane emissions from peer companies can be
obtained only from their annual ESG reports; therefore, it is infeasible for auditors to compare the emissions from the client with that
from its peer companies to discover anomalies. For the third assertion, since traditional ESG audit is conducted only once a year,
special patterns such as the trend of emissions over time cannot be detected on a continuous basis.
Audit 4.0-based ESG assurance will improve the level of assurance from limited assurance to identifying errors and fraud with in-
depth analyses and investigation. The full data population in real-time replaces sample data in the current audit method. Moreover, our
method obtains more objective data from third parties and reduces dependence on the company’s data. In addition, Audit 4.0-based
ESG assurance detects high-risk data points and events and guides auditors to allocate more resources for further investigations. In­
ternal auditors can also benefit from continuous monitoring to improve the efficacy of procedures and internal controls. With regard to
reporting, more detailed and real-time information and visualization are provided in the Audit 4.0-based ESG assurance.

5.2. Limitations

The proposed assurance processes have two limitations. First, due to technology limitations and other factors, emission information
captured by satellite is not always accurate. For example, the emission rate error would be higher in bad weather conditions (e.g.,
storms, fog, and winter months) that significantly reduce visibility of satellites. In addition, if two factories are located closely to each

16
BP, a major producer in the oil and gas industry that aims to increase its green credentials and invests extensively in clean energy, praised the
EPA proposals (Volcovici and Groom, 2021). We use BP as an example here.

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other, it is difficult to tell which factory a plume is from on a windy day by using only satellite images. Supplementary data such as
wind speed and direction could be utilized to improve emissions assessments. Second, the data collection and monitoring processes are
not always real-time because satellites and aircraft can take pictures only during the daytime. Companies may manipulate results by
emitting less methane during daytime but more at night. This problem could be mitigated by using local sensors and other advanced
technologies like infrared night vision and synthetic-aperture radar to watch the Earth’s surface in real time.17
In terms of the limitations of this paper, since companies in this case study are anonymous, we cannot compare the results of the
Audit 4.0-based ESG assurance with real ESG audit reports. Therefore, the feasibility and effectiveness of the proposed Audit 4.0-based
ESG assurance approaches need further testing using empirical evidence. More detailed cost-benefit analyses on the practical
implementation of Audit 4.0-based ESG assurance are needed.

6. Conclusion

ESG reporting is becoming an essential disclosure channel that provides investors with substantial information regarding an or­
ganization’s environmental, social, and governance performances. However, methodologies that provide effective, efficient, and real-
time assurance on ESG reports are still under exploration. Auditors face several challenges when auditing ESG reports, especially for
greenwashing issues, due to limited professional knowledge and skills or difficulty obtaining supporting documents.
This study explored the use of the Audit 4.0 framework and technologies plus exogenous data to improve the quality of ESG
assurance. The technologies of Audit 4.0, such as satellite imaging technology, sensors and IoT, and social media, could enrich audit
evidence and enhance the effectiveness of ESG audit. We provided a roadmap towards Audit 4.0-based ESG assurance from the
perspectives of objectives, framework, and process. As a proof-of-concept case, we used satellite images of methane emissions to
illustrate the proposed method. We also demonstrated the advantages of Audit 4.0-based ESG assurance by comparing it with the
current ESG assurance processes.
This study contributes to ESG assurance, Audit 4.0, and the practice literature. It enriches the Audit 4.0 paradigm by extending the
framework and applications to ESG assurance and filling the gap of limited ESG assurance research. It also envisions the use of satellite
images in the examination of methane emissions and related disclosure. Since the use of satellites for detecting carbon dioxide or other
GHG emissions is also possible, this study also shows a potential solution to assure carbon dioxide disclosure. Moreover, since ESG
assurance standards have been the subject of urgent discussion, this research provides ESG assurance regulators with valuable insights
into the use of satellite images as a new source of evidence.

Declaration of Competing Interest

The authors declare that they have no known competing financial interests or personal relationships that could have appeared to
influence the work reported in this paper.

Data availability

The data that has been used is confidential.

Acknowledgment

We specially thank GHGSat Inc. for their support in providing the data for this study, and thank Dr. Qingliang Tang from Western
Sydney University, Dr. Amir Michael from Durham University, Dr. Marc Eulerich from University Duisburg-Essen, Dr. Damian Borth
and Marco Schreyer from University of St.Gallen, Dr. Ann Medinets, Dr. Abigail (Chanyuan) Zhang, and Steven Katz from Rutgers
University, participants of the 2021 SET workshop, participants of the 2021 51st World Continuous Auditing & Reporting Symposium,
participants of the 2022 AAA Joint Midyear Meeting of the AIS and SET Sections and participants of the Continuous Auditing &
Reporting Lab seminar.

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