Top ten South African companies’ disclosure of materiality determination process and material issues in integrated reports
| DOI | https://doi.org/10.1108/JIC-01-2017-0002 |
| Published date | 12 March 2018 |
| Date | 12 March 2018 |
| Pages | 230-247 |
| Author | Natasja Steenkamp |
| Subject Matter | Information & knowledge management,Knowledge management,HR & organizational behaviour,Organizational structure/dynamics,Accounting & Finance,Accounting/accountancy,Behavioural accounting |
Top ten South African companies’
disclosure of materiality
determination process and material
issues in integrated reports
Natasja Steenkamp
School of Business and Law, Central Queensland University, Mackay, Australia
Abstract
Purpose –The purpose of this paper is to develop guidelines of what award winning companies, leading
practice in integrated reporting (IR) disclose in their integrated reports about material issues and
their materiality determination processes. Also, to provide insight into what they disclose about their
perception of materiality.
Design/methodology/approach –A content analysis was conducted to investigate what the top
10 South African companies of the 2015 Ernst and Young Excellence in Integrated Reporting Awards
disclosed in their 2014 and 2015 integrated reports about their materiality determination processes, material
issues and what materiality means to them. Thematic analyses were conducted in developing guidelines.
Findings –All except one company applied the International Integrated Reporting Framework.
The materiality determination processes, material issues and companies’descriptions of materiality are
diverse. Material issues most companies identified relate to employees, social and environmental issues,
customers and sustainable performance.
Practical implications –The proposed guidelines will provide useful strategies for organisations
embarking on the IR journey about what issues could be considered as material and therefore included in
integrated reports. It also proposes activities companies can undertake to identify, evaluate and prioritise
material issues and execute their materiality determination process.
Originality/value –This paper is the first to develop guidelines of material matters and materiality
determination processes. It also adds to existing literature on IR practice and the application of materiality.
Keywords Integrated reports, Material matters, Materiality determination processes
Paper type Research paper
Introduction
The purpose of the study is to develop guidelines of what award winning companies, who
are leading practice in integrated reporting (IR), disclose in their integrated reports about
material issues and their materiality determination processes. The paper will also provide
insight into what these companies disclose about what materiality means to them. Providing
guidelines of best practice of these companies’disclosure will provide useful guidelines to
organisations embarking on the IR journey.
IR is a pivotal change in the corporate reporting landscape (The International Integrated
Reporting Council (IIRC), 2013), “shaped by a diverse coalition of business leaders and
investors to drive a global evolution in corporate reporting”(International Federation of
Accountants (IFAC), 2015). This movement is the result of the current financial reporting
model being widely criticised as having a narrow focus of wealth creation for financial
stakeholders,excluding some capitals and valuedrivers of corporate performance,and hence
it is thought to beinsufficient to meet the informationneeds of a variety of other stakeholders
(Adams et al., 2011; Cohen et al., 2012; Dumay et al., 2016; Financial Reporting Council, 2011;
Journal of Intellectual Capital
Vol. 19 No. 2, 2018
pp. 230-247
© Emerald PublishingLimited
1469-1930
DOI 10.1108/JIC-01-2017-0002
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1469-1930.htm
The author would like to thank attendees of the 2016 APIRA conference and the anonymous reviewer,
participants at the University of New England’s Business School’s research seminar as well as
participants at the research seminar of the School of Accounting at CQUniversity and the reviewer for
their helpful comments and suggestions. The manuscript has been revised accordingly.
230
JIC
19,2
Flower, 2015; Grey, 2006; Venner and Saavedra, 2015; Yongvanich and Guthrie, 2006). IR is
described as the earlystage of a different way of thinking about corporate success and a new
way of reporting (Adams, 2015). It communicates an integrated story, explaining how all
resources of a business create value (IFAC, 2015). Robertson (2015) argues IR is a process.
The International Integrated Reporting Council (IIRC) was formally incorporated in
August 2010 and released the IR Framework in December 2013 to be used as a guide for
companies to voluntarily produce an integrated report (Busco et al., 2014; Flower, 2015).
The IR Framework requires organisations to disclose their material issues and materiality
determination processes. “The IIRC’s long-term vision is a world in which integrated
thinking is embedded within mainstream business practice of public and private sectors,
facilitated by Integrated Reporting oIRWas the corporate reporting norm”(IIRC, 2013).
However, little is known about the materiality determination processes and material issues
of companies who have adopted IR.
Ernst and Young (EY) encourages organisations to prepare ground-breaking integrated
reports and awards the quality of integrated reports through their annual EY Excellence in
IR Awards for the top 100 JSE-listed companies (by market capitalisation). The focus on
best practice of companies receiving EY awards is an important aspect of this study,
particularly as the IIRC aims to enhance accountability and stewardship through IR
(IIRC, 2013). Dueto stakeholder demands, companies are being forcedto critically re-evaluate
how they can communicate transparently to all their stakeholders (Rensburg and Botha,
2014), who havea right to information abouthow an organisation affectsthem (Deegan, 2009).
The notion of accountability may be derived from the ethical and normative perspective of
stakeholder theory. As this aligns with the IIRC’s aim to enhance accountability, the ethical
branch of stakeholder theory informs the current study. From this perspective, this study
contributesto the literature on three levels.First, there is a scarcity of empiricalresearch in the
area and this paper provides timely evidence aboutemerging practice among award winning
companies with leading practice in IR. Second, obtaining insights into the disclosure of
material issues and materiality determination process, and what materiality means to these
companies, adds to existing professional and academic literature on IR practice. Third, the
study develops guidelines to best practice of the materiality determination process and
material issues of IR. The proposed guidelines will provide parameters to organisations
planning to engage in IR about what issues to include in integrated reports. It also proposes
activities companies can undertake to execute their materiality determination process.
The remainder of the paper is divided into four sections followed by a conclusion. In the
next section, a literature review is presented, leading to the development of the research
questions. The second section discusses the research methodology and the third presents
the findings. Fourth, the summary contains the paper’s argument and gives pointers to
future research. The final section concludes the study.
Literature review
Background to the need for IR
The current financial reporting model, which reports financial information in annual
reports, focusses on providing detailed historical financial information. This reporting
model has received numerous criticisms, including that it is insufficient to meet the
information needs of a variety of stakeholders, in that it provides information that is
disconnected, does not accurately reflect a company’s performance, does not effectively
capture all capitals and the value drivers of corporate performance, and is perceived as a
reporting landscape of fragmentation (Adams, 2015; Adams et al., 2011; Cohen et al., 2012;
Dumay et al., 2016; Financial Reporting Council, 2011; Flower, 2015; Venner and
Saavedra, 2015; Yongvanich and Guthrie, 2006). Furthermore, some sections of society are
questioning the narrow focus of the traditional financial business reporting model –wealth
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Top ten
South African
companies
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