Non-financial Disclosure and Integrated Reporting

The chapter aims to deepen the emerging issue of cyber-risk that, among non-financial (NF) risks, represents a major threat for organizations due to the growing sophistication and variety of data breaches and cyberattacks. The research provides a general background for NF risks disclosure illustrating the path that led from external voluntary to mandatory frameworks for the disclosure of NF risks following the EU Directive. Then, we move on to describe the role of internal auditors for the management and disclosure of the digital risk. In order to better understand the effectiveness of corporate governance mechanisms for digital risk disclosure, we conduct a review of literature and a visualization to provide the most frequent topics and their chronological evolution. The chapter contributes to the risk disclosure and corporate governance literature, by providing some theoretical and practical implications.

Many theoretical frameworks can inform the study of sustainability reporting in non-financial disclosure. This research intends to contribute to the accounting literature through a systematic literature review of 205 research articles published from 1989 to 2019. These articles involve the application of different theories to the study of social, environmental, and sustainability reporting. This study is the first systematic literature review focusing on the various theoretical approaches—and their interconnections—that showed a successful capacity to explain firms’ commitment toward SES reporting. Besides the main theories—specifically legitimacy, stakeholder, and institutional—this study will discuss the emerging application of other ideas to the field of sustainability reporting, with particular reference to agency, signaling, discourse, attribution, social movement, structuration theories, and multi-theory frameworks. This study can help scholars in need of a systematization of the last 30 years of literature concerning theoretical frameworks able to support the study of non-financial disclosure. Moreover, this contribution can help policymakers and practitioners to better understand the rationales behind firms’ commitment to voluntary non-financial disclosure and the arguments advocating mandatory disclosure frameworks concerning sustainability issues.

Over the past few decades, companies have changed their attitude toward the need to take action to combat climate change, to document the actions taken to this end, and to report on the results obtained. In this context, there is an increase in stakeholders’ expectations about CO₂ and other greenhouse gas (GHG) emissions disclosure.

The purpose of this chapter is to present a systematic literature review of empirical studies about sustainability and GHG emissions disclosure. Given the relative novelty of the research stream about climate change disclosure and the scarcity of empirical research on this topic, this chapter develops a systematic literature review on the GHG emissions disclosure-based literature during the period 1999–2018.

The review aims at mapping the conceptual structure and the evolution of the GHG disclosure-related literature in order to understand its current status, identify gaps to be filled, and challenge scholars to increase their work on relevant areas for their future sustainability disclosure research. This review can be useful for a varied group of readers since it:

Society is currently facing several economic, environmental and social problems. Against this backdrop, increasing demands from stakeholders for greater accountability have impacted private and public institutions worldwide, including higher education institutions, and their reporting systems. Nonetheless, while most companies have begun publishing sustainability reports, this practice is still in its infancy within the higher education sector. Given the importance of the topic, more research is needed on universities’ reporting practices. In light of this, the present study investigates the case of the University of Florence; to do this, it combines documentary analysis and semi-structured interviews with key contributors to the University’s sustainability reports. Our results show that the University introduced sustainability as a policy objective and started its social reporting journey. Its social report, which adopted the GRI standards and successfully embedded the SDGs, now stands as one of the best examples of its kind in the Italian higher education system. Current challenges involve a better engagement of external stakeholders and the embedding of social reporting in the institution’s accounting system. In this way, the social report will be able to become a component of the University’s planning and control systems and independent of the influence of specific individuals.

Intellectual capital (IC) has been debated for decades from theoretical and practical perspectives. By analyzing the evolution of the IC discourse, it is possible to notice that both scholars and practitioners have proposed a plethora of IC concepts and reporting frameworks none of which can be considered as generally accepted.

Some argue that IC disclosure can lead to more efficient capital markets and company valuation. The argument springs from the fact that the capital market has valued the firms’ equity (much) higher than the book value and that transparency of organizational value drivers leads to a better valuation of companies by the capital market. Despite the various benefits attributed ex ante, the implementation of IC reporting frameworks is not widespread in practice and some early adopters, such as Skandia, have abandoned this practice.

Recently, the issues related to intangibles have moved from the IC domain to other domains related to non-financial disclosure, such as the sustainability reporting one and the Integrated Reporting (IR) one.

The aim of this chapter is to analyze the theoretical aspects of intangibles and intellectual capital disclosure through the main frameworks of integrated reporting and non-financial information.

The chapter, after an examination of the main IC disclosure frameworks, suggests that the GRI framework and the Integrated Reporting framework can be considered as new ways to frame and disclose IC, no more on a stand-alone basis but on a systemic manner. This approach would allow innovating IC disclosure as it would permit to consider also the linkages between IC performance and the other non-financial performances of a firm (e.g., social and environmental).

As a result of the EU regulatory body’s recent choices to mandate companies’ non-financial information (NFI) with the 2014/95/EU Directive, this study investigates the extent to which NFI about Intangibles, Intellectual Capital, and CSR affect market performance. Specifically, we address the question of whether different NFI configurations/combinations lead to successful performance. We considered various NFI factors/characteristics that may affect the performance level (the number of pages of non-financial statements, presentation of the statement separately from or aggregated with the annual report, the same or different auditor for the statement and annual report, and the number of times keywords are found in reports). The analysis was tested on a sample of 81 non-financial reports of Italian listed companies for 2017, which is the first year of adoption of Directive 95/2014/EU in Italy under the Decree 254/2016. The study uses Fuzzy-set Qualitative Comparative Analysis (FsQCA) to obtain a holistic view of the examined interrelationships, as opposed to traditional net effect approaches that assume symmetrical and linear relationships among variables. Our findings provide new insights into the possible association between NFI and companies’ performance. Thus, we provide evidence that a higher level of financial performance originates from several possible combinations/configurations of NFI and this appears to be in line with the emergent scholar debate on intellectual capital and CSR reporting and disclosure.

Intellectual capital (IC) is an important tool for strengthening a firm’s competitive advantage and helping it achieve its medium- and long-term financial objectives. Currently accepted accounting principles do not outline strict rules and regulations for IC disclosure. However, the advent of integrated reporting offer firms an innovative tool to provide this information. Although previous research has analysed the IC information within integrated reports, no studies have analysed the role of the ownership structure in IC disclosure policies. This study aims to fill this gap by analysing the influence of four characteristics of the ownership structure: ownership concentration, managerial ownership, institutional ownership and government ownership. To this end, this study uses an agency theory perspective, develops a new scoreboard to measure the IC disclosure and conducts a regression analysis. The results demonstrated a negative effect of ownership concentration, managerial ownership and state ownership. Furthermore, they have showed a non-significant influence of institutional ownership on the quality of IC information. To our knowledge, this is the first study that analyses the role of ownership structure in the IC disclosure policies after the advent of integrated reporting.

This study investigates IC disclosure before and after the introduction of the EU Directive 2014/95 in Italy to evaluate the effects of the new regulation on companies’ disclosure practices. The EU Directive has been transposed into Italian legislation by the Legislative Decree 254/2016 with no significant differences. Italy provides an interesting setting for this analysis, as IC disclosure was mainly voluntary before the Legislative Decree application. The analysis focuses on the FTSE MIB40 Index, which includes the largest Italian companies. A specific coding framework was developed to analyse IC disclosure before (2016) and after (2017) the application of the Legislative Decree. Our results show that the overall amount of IC information has increased in 2017 as compared to 2016. However, some information seems to have been moved from the management reports to the non-financial statements, suggesting an overlap of the new regulation with the previous one. Further, it is noted that companies continue to privilege the communication of qualitative, non-sensitive information, while quantitative measures are communicated only for those issues for which standardized measures exist. This may give rise to some concern about the effective materiality of disclosed IC information. Main implications for regulators and standard setters are discussed.

This chapter intends to shed light on the role of intellectual capital (IC) in the nonprofit sector, which emerges as an under-investigated research area within the IC studies. According to the literature (Kong, The strategic importance of intellectual capital in the non-profit sector. Journal of Intellectual Capital, 8 (4), 721–731, 2007; The development of strategic management in the non-profit context: Intellectual capital in social service non-profit organisations. International Journal of Management Reviews, 10 (3), 281–299, 2008), we identify the three components of IC (human capital, structural capital, relational capital) in order to determine the sub-components to be measured via key performance indicators (KPIs) (Bontis et al., Intellectual capital and financial performance in social cooperative enterprises. Journal of Intellectual Capital, 19 (4), 712–731. https://​doi.​org/​10.​1108/​JIC-03-2017-0049, 2018). A principal component analysis has been applied and then a regression model has tested the significance of a relationship between the IC sub-components and the financial performance of non-profit organizations (NPOs). Results show that two human capital sub-components (training, value added) and one structural capital sub-component (services) affect the return on assets (ROA). Further studies should be conducted with larger samples and geographic areas covered in order to generalize these findings.

Recently, the Integrated Reporting (IR) is one of the most interesting views in the field of business reporting. After nearly ten years of research on IR, we have conducted a review of the scientific literature to identify the theories most frequently adopted in the field of IR research and to highlight the circumstances in which these theories have been applied.

We drew a framework, the RA/RP Matrix, considering the research approach and the research perspective, to classify theories and understand how they can be conveniently adopted to frame the analyses of integrated reporting processes and disclosures.

Findings show that researchers adopted more than one theory to provide a comprehensive and integrated interpretation of the IR phenomenon. Furthermore, many new theories are emerging, even if Legitimacy Theory and Agency Theory are considered very frequently as the theoretical foundation of the IR research.

A key element of IR is integrated thinking, which is closely related to the principle of connectivity of information. The effectiveness of IR lies in an organization’s ability to represent itself and illustrate to stakeholders how the value-creation process works. Therefore, the informative and communicative role of IR seems to be crucial for the external reader to truly perceive the whole corporate system in a deeper way. Based on this consideration, this chapter aims to conduct a literature review to identify how many studies have addressed the topic and what are the relevant aspects that animate the academic debate. The analysis highlights the essence of a limited number of studies that have addressed the topic and provides some reflections on the gaps that need to be filled, making some suggestions to guide future research.

Integrated reporting has been first introduced in the private sector as a voluntary reporting tool and, more recently, it has been adopted in the public sector where new reporting instruments have been developed to address multiple stakeholders’ needs. In particular, integrated reporting has been introduced as a potential means to integrate financial and non-financial information in the same document and hence overcome the limitations of financial reporting. However, despite the relevance of the topic, it is still under-developed and the empirical evidence on experiences with integrated reporting in public sector organizations is limited, especially if compared to the private sector. To enhance the debate and development of the topic, the current chapter provides a review of the current state of knowledge on integrated reporting in the public sector. The study is particularly interested in understanding on which theoretical roots the research on integrated reporting is built. Accordingly, the review systematizes how the debate has developed up to now and what theoretical approaches have been adopted. On the basis of these results, it finally draws some implications and avenues for future research.

The Chapter highlights the role of technology for the development of integrated reporting practices and delineates its contribution towards the achievement of this advanced form of corporate accountability. To do so, the analysis relies on the public consultation launched in 2020 by the International Integrated Reporting Council (IIRC) aimed at the revision of the International <IR> Framework. Despite technology not directly being included in the revision process, questions about its possible linkages towards the enhancement of integrated reporting have been posed and have informed the future strategic directions of the IIRC. It has been observed that although the vast majority of stakeholders claim for a more central role of technology, concerns still remain on how it can fit with the ‘entity-specific’ approach that this reporting practice derives from. To put it differently, the IIRC faces a paradox, the more and more pressing need to move towards a larger role of technology in the various phases of preparation, dissemination and usage of integrated reporting may produce a series of unintended consequences on its characteristics, and, namely, its corporate specificity and “tailor-made” features. Hence, the evolution of this topic results to be of particular interest, also considering the fast developments that are occurring at a European level.

After a brief overview of the eXtensible Business Reporting Language (XBRL), this short chapter offers some considerations about its potential contribution to non-financial disclosure (NFD) and integrated reporting (IR), with particular reference to its Inline XBRL (iXBRL) specification. We believe that this electronic language can favor the preparation of reports and, importantly, their use, especially in terms of usability, processability, and comparability. Finally, we offer a few notes on the European Single Electronic Format (ESEF) mandate; thanks to the adoption of this format, and also considering the possible evolution of the European Union legislation, we believe it is likely that the marking up of NFD and IR at the European level will take place in XBRL according to iXBRL specification.

The Non-financial Reporting Directive (2014/95/EU) has the main purpose of enhancing the consistency and comparability of NFR. However, the high flexibility the NFR Directive allows to companies in providing NFI seems to go against the main aim of comparability, because companies can rely on a wide range of reporting frameworks and guidelines. Thus, the purpose of this chapter is to examine in what manner voluntary reporting frameworks are used to comply with the NFR Directive.

Using content analysis, a comparison between voluntary reporting frameworks and NFR Directive requirements is developed for providing insights into the relation between voluntary and mandatory disclosure of NFI. As a result, this chapter enriches the emerging debate on the NFR Directive shedding light on the harmonisation challenge posed by the NFR Directive and highlighting the most suitable frameworks with the NFR Directive requirements.

The research results of this study can be used to improve future public policies and practices on the NFR Directive implementation, specifically with regard to the adoption of reporting frameworks. Because of the interpretative nature of this study, other researchers may not draw the same conclusions from the evidence provided. Finally, it leaves some open questions for a wide research agenda about NFR standardisation.

In recent years, the level of interest in non-financial disclosure has increased considerably, stimulating the development of new frameworks, such as the one proposed by the International Integrated Reporting Council (IIRC) on integrated reporting (IR), and an extension of the existing standards, such as the Global Reporting Initiative (GRI). In particular, IR aims to combine the different dimensions of financial and non-financial performance and consider all types of capital related to value-creation processes. In this context, intangible resources represent a relevant issue in the new economic era of knowledge and information. In fact, intangibles, often called intellectual capital, are considered key drivers that bring future benefits, and they are a determining factor in achieving a competitive advantage. From this perspective, the chapter analyzes the role of disclosure on intangible assets in reducing information asymmetry, increasing the level of transparency and accountability toward stakeholders, and positively influencing corporate performance. Furthermore, this work provides an overview of how the IIRC and the GRI deal with the topic of intangibles disclosure within non-financial reporting.

In the rapidly changing landscape of non-financial information (NFI) provided by firms in the EU, neither a universal standard for reporting has yet emerged, nor the market has expressed a clear preference towards a limited or more comprehensive (technically referred as reasonable) assurance of the NFI. This study focusses on the latter of these two interconnected issues, not yet fully investigated in the literature, given the novelty and the fast pace of change. Hence, we discuss which kind of assurance best serves the interests of the users of NFI and what can we expect as emerging trends in this area for the coming years.

The study is outlined as follows. In par. 1, we present the regulatory requirements in EU Member States about the auditors’ involvement in NFI after the implementation of the EU Directive 2014/95/EU. In par. 2, we illustrate the differences between limited and reasonable assurance, in terms of scope of work, and relative costs and benefits. We conclude in par. 3, commenting on some insights coming from the EC survey (2020) on the review of the NFR and tentatively advancing the third way of mixed assurance as a pragmatic compromise for the next years.

This chapter aims to review the academic research in the field of assurance of nonfinancial information, highlighting ground covered, gaps to be filled, and potential avenues for future research. These objectives were achieved by means of a comprehensive literature review of 72 academic journal articles identified as relevant to the assurance research area. The review documented three main research lines on assurance of nonfinancial information focused, respectively, on the meaning and features of assurance, on factors driving the demand for assurance, and on the assurance process and content of assurance statements issued by different assurance providers. These three macro research areas were further divided into sub-areas in which research with the same objective has been grouped. Finally, the study identified five avenues for future research on the assurance of nonfinancial information field. The findings of this chapter offer a comprehensive foundation for future empirical and conceptual research to assess how assurance can be performed and provide a summary of issues and topics requiring particular consideration during an assurance process.

This chapter analyzes national differences among “non-financial disclosure” reports in a cross-country comparison after the introduction of Directive 2014/95/EU. The aim of the analysis is to understand what the main differences are and on what they depend. The analysis focuses on the main definitions of “large organization” and of “public interest,” on the company scope and on the report framework and features, i.e., the information that the report must necessarily contain and how it should be presented. The methodology adopted involves the analysis of the document “Member State Implementation of Directive 2014/95/EU,” published by the CSR Europe and GRI in 2017 and a literature review of the period 2018–2020 analyzing the actual application of the Directive in the national context and/or making comparisons between different European nations. This study is relevant as it highlights the importance of knowing CSR activities especially for large or listed companies, but it underlines some critical issues, including the inability to create a correlation between the non-financial information communicated and its impact, risks, and plans.

The demand for better non-financial information is increasing and is driven in part by investors who need to better understand the financial risks stemming from the sustainability crises we face. This study examines the international literature on the behavior, aspirations, and contributions of stakeholders with regard to non-financial disclosure, analyzing the first studies launched after issuance of Directive 2014/95/EU, Non-financial Reporting Directive.

In particular, it analyzes the study commissioned by the Department of Business, Energy and Industrial Strategy (BEIS) in the United Kingdom on the behavior of companies and stakeholders after the implementation of the new regulations and the comments of stakeholders who participated at the public consultation on the revision of EU Directive.

These first studies confirm that the non-financial information currently disclosed by companies does not adequately meet the needs of stakeholders.

There has been a growing need for information in the non-financial statement to be verified by an independent assurance services provider for the issuing of a formal assurance statement. Currently in Europe, public-interest entities are required to issue a non-financial information statement, and in certain countries, such as Italy, such companies are also required to provide an independent mandatory assurance report on non-financial information. The aim of the chapter is to gain empirical understanding of how this audit is developed, the process through which non-financial information assurance operates, considering an Italian practitioners’ firm approach to assurance and the content of these audit reports. The study’s contribution is to fill the gap in the assurance report preparation process in order to get insights into the reliability and the level of analysis of such reports. Interviews suggest that reporting process is a path that leads to quality non-financial information. The growing importance of non-financial information will affect the assurance in the near future.

The chapter provides a comprehensive discussion of materiality and assurance in an Integrated Report (IR) context. It briefly presents the main characters of IR, the criticalities and strengths of IR assurance in increasing stakeholders’ trust, and the significance of a materiality determination process. We discuss the importance of materiality judgments for non-financial information (NFI) in the IR context and how these judgments could affect the reliability of the reported NFI disclosures, thus affecting credibility on reported information and the trust of stakeholders towards disclosing companies. The chapter concludes focusing on the link between assurance and materiality in the IR context. Assurance enhances the credibility of financial and NFI disclosed in IR, but this effect is much stronger when the quality of assurance improves, that is, when an accounting firm provides the assurance and when the assurance level is reasonable rather than limited. Actually, there are very few cases of IR subjected to reasonable assurance, and there are no recognized standards for IR assurance, but we believe that the possibility of adopting IR as non-financial declaration to assure could represent an opportunity both for the accounting association to define a set of rules and for assurers to create a competitive market.

The recent European Directive 2014/95/EU, also called the non-financial reporting directive, defines the rules on disclosure of non-financial and diversity information by large companies. Considering that nowadays CFOs are increasingly pressured and involved in corporate reporting, this research aims at exploring the role of CFO within non-financial disclosure (NFD) by the means of three cases using pilot interviews. The broad research question addressed is “What is the role played by the CFO (or controller) in the non-financial information process?”. Our findings provide some preliminary evidence on the relationships between the internal and external perspective, i.e., management accounting and NFD, but further research is still needed in this sense. Overall our evidence highlight that NFD is part of an evolution process in which many factors intervene and determine its final success: from the skills of the CFO (or controller) to the characteristics of the sector, from the degree of involvement of the CEO to the pressure of external stakeholders, and from the presence of a pre-existing corporate culture to the organization itself.

The attention to corporate sustainability has brought non-financial disclosure (NFD) into widespread use. With the rise of NFD, companies face the challenge of determining what information is material. To date, there is a shortage of qualitative studies that investigate how nonfinancial materiality gets defined and implemented in practice. To fill the gap, through a case analysis of two Italian listed companies, this chapter explores the following research questions: Who participates and which is the role of the CFO/controller in the materiality determination process? Whose information needs are primarily addressed when determining what is material or not? The findings show that the key organizational actors involved in the materiality determination process and their roles (including the CFO and the Chief Audit Executive) are different between the two companies and the related materiality assessment is mainly driven by the information needs of capital providers. Instead, the relevant implications for the materiality process to remark are the complexity of the stakeholder audience, the CFO’s skills, and the extension of managerial proxies to the CFO.