Accountancy

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Challenges of, and techniques for, materiality determination of nonfinancial information used by integrated report preparers
(Meditari Accountancy Research, 2022) Lakshan, A.; Low, M.; de Villiers, C.
Purpose – The international integrated reporting framework encourages organisations to disclose material information that affects their ability to create value. This paper aims to investigate the challenges and techniques preparers of integrated reports use to determine the materiality of non-financial information. Design/methodology/approach – This paper uses an exploratory interpretive thematic analysis and an archival research approach. Qualitative semi-structured interviews were conducted with 55 integrated reporting (IR) preparers in 12 publicly listed companies, supported by the perusal of the companies’ integrated annual reports over a three-year period. Findings – IR preparers findmateriality determination for non-financial information challenging. This study found that preparers convert challenges into opportunities by using materiality disclosures as image-enhancing marketing tools, which causes concerns regarding weak accountability and a deviation from the International Integrated Reporting Council’s objective of improving information quality. This study found that IR preparers use various techniques in conjunction to determine materiality levels, as well as whether to disclose non-financial information in their integrated reports. The institutional isomorphismlens used in the study highlighted the issues IR preparers faced in their determined efforts of IRmateriality levels undermimetic and normative isomorphismpressures. Research limitations/implications – The challenges and techniques identified can contribute to the development of a framework for materiality level determination for non-financial information. Practical implications – Regulators who are concerned with ensuring sufficient information to improve investor decision-making will be interested in the techniques IR preparers use to determine materiality levels for non-financial information, to improve their regulations and frameworks. Originality/value – This study contributes to the literature regarding challenges with materiality level determination in integrated reports and techniques used by IR preparers. The application of an institutional isomorphism lens led to greater insight and understanding of IR preparers’ challenges and techniques in materiality determination. This paper makes a number of significant contributions to the IR literature. First, it identifies the usefulness of material information for decision-making and the influence stakeholders have on the materiality determination of non-financial information, which have not been mentioned in the prior literature. Second, the literature is silent on how organisations relate materiality to value creation for the purposes of determining the materiality content of an integrated report; this research provides empirical evidence of the use of value creation criteria in materiality determination. Third, the study highlights that materiality is a combination of efforts that involves everyone in an organisation. Further, the strategy should be linked to IR and preparers have indicated that integrated thinking is required for materiality determination.
Management of risks associated with the disclosure of future-oriented information in integrated reports
(Sustainability Accounting, Management and Policy Journal, 2021) Lakshan, A.M.I.; Low, M.; de Villiers, C.
Purpose – Integrated reporting (IR) promotes the disclosure of future-oriented information to enable financial stakeholders to make better-informed decisions. However, the downside to this type of disclosure is the risk to management of disclosing such future-oriented information. This paper aims to explore how IR preparers manage the risk of disclosing future-oriented information in companies’ integrated reports. Design/methodology/approach – This study represents an exploratory interpretative thematic analysis of 33 semi-structured interviews with managers involved in IR in eight Sri Lankan companies representing various industries. The thematic analysis is informed by the research literature and prior studies on IR. Findings – This paper provides evidence of various strategies to manage the risk associated with the disclosure of future-oriented information in integrated reports. These strategies include making non-specific predictions; increasing the accuracy of the predictions; linking performance management to disclosed targets, thus ensuring individual responsibility for target achievement; disclosing ex-post explanations for not achieving previously disclosed targets; and linking disclosed targets to the company’s risk management procedures. However, these strategies can cause managers to provide conservative future-oriented information, rather than “best estimate” future-oriented information. Practical implications – The study describes the strategies that managers use to mitigate the risks involved in disclosing future-oriented information. These strategies can provide support or raise concerns, for managers in deciding how to deal with such risks. Regulators tasked with investor protection, as well as stock exchanges interested in the transparency and accountability of listed companies’ activities should be aware of these strategies. Furthermore, the International Integrated Reporting Council (IIRC) should be interested in the implications of this study because some of the identified strategies could undermine the usefulness of integrated reports to stakeholders. This is a significant concern given that the IIRC envisages integrated reporting and thinking as vehicles that could align capital allocation and corporate behaviour with wider sustainable development goals. Social implications – The trend of future-oriented information moving from being used only in organisations’ internal management systems to being externally reported in integrated reports have implications for stakeholder groups interested in the reported targets. This study reveals management strategies that could affect future-oriented information reliability and reduce their usefulness for users of integrated reports.