The Boundaries in Financial and Non-Financial Reporting

A Comparative Analysis of their Constitutive Role

Laura Girella

• Publisher: Routledge
• Year: 2018
• ISBN:
  9780429996610
• Edition: 1
• Topic: Business
• Subtopic: Business generale
• Index: Business

Although the need to expand the boundaries of financial reporting has been discussed since the mid-1990s, little consideration has been given to the evolution and discourses of integrated reporting of non-financial aspects. Yet by investigating how and why an organisation defines and its reporting boundaries, it is possible to understand what is truly "valued" (or not) in its business model.

This innovative book reviews the guidelines and frameworks from the major relevant international organisations including: the International Accounting Standards Board, Global Reporting Initiative, Sustainability Accounting Standards Board, International Integrated Reporting Council, Carbon Disclosure Standards Board, and the World Intellectual Capital Initiative, and analyses their development and impact on the boundaries of financial and non-financial reporting.

Illustrated with case studies and interviews with representatives of these organisations, this concise volume makes a significant contribution to the future of reporting theory and practice. It will be of great interest to advanced students, researchers, practitioners and policy makers.

1
Introduction

1.1 Why a book on reporting boundaries?

Boundaries represent nowadays probably one of the most debated topics internationally. The ways they are set determine in fact identities, who we are and who we are not, at the personal, emotional, cultural, economic, environmental and geographical levels. For example, one of the latest concepts that has been advanced (2009) is that of ‘planetary boundaries’. It corresponds to nine Earth system processes that have boundaries and that thus, limit the spaces within which humanity can operate without creating irreparable risks in the environment. They mark the safe zones for humanity and for the planet. Drawing upon this notion, it appears clear that the processes that are put in place in order to cast (and to dissolve) boundaries bring along implications that are fundamental for the constitution, maintenance or destruction of identities.

The significance of boundaries in accounting is not different. In his seminal paper titled ‘The margins of accounting’, Miller stated that “by looking at the margins of accounting, we can understand how this influential body of expertise is formed and transformed” (Miller, 1998:618). Indeed, according to him, it is at the margins of the discipline where it interfaces with others, where innovations useful for addressing the challenges in existing practices can be found. Only a few years before, Abbott (1995) pointed out that a change in the mapping of professional jurisdictions “was the proper focus of studies of professions and happened most often at the edges of professional jurisdictions […] they (the boundaries) were the zones of action because they were the zones of conflict” (Abbott, 1995:857). Lightfoot and Martinez (1995) called for research that reconceptualises “frontiers as zones of cross-cutting social networks […] and recognizes both the important role that core-periphery interactions play in frontier studies, as well as the socially charged arena of intercultural or interethnic interactions in frontiers context” (Lightfoot and Martinez, 1995:474;487).

Applying these analogies of ‘boundaries’ and ‘conflicts’, a parallel observation can be made that an examination of the boundaries of reporting, of what is happening at those ‘margins’ and ‘zones of conflict’, can help elucidate and identify solutions to current reporting issues. The notion of ‘map making’ is a familiar metaphor in reporting where the accountant as the ‘map maker’ (Solomons, 1978) draws the lines of the territory of the reporting entity¹ and the ‘other’ that remains outside of those contours. Just as political boundaries are drawn and re-drawn on maps, the boundaries of reporting (and the reporting entity) continue to shift in the light of changing relationships between the organisation and other economic, environmental and social entities that lie outside it. Examining that zone where those boundaries dissolve and re-form provides a rich understanding of the dynamics of organisational objectives, the evolution of its business model, and how its performance and viability is constructed and communicated through the financial statements. That is, by investigating the rationales that lead organisations to define and to delineate the margins of reporting in a particular way, it is possible to understand what really ‘counts’ (and what does not) for the organisation in terms of its business model and ‘value creation’ narrative. By so doing, the organisation constructs its own ‘theory of the firm’ regardless of the logic, assumptions and rational of the neoclassical theory of the firm in economics (Coase, 1937).

Advancing from this position, the interpretative schemes set out by Zambon (1996) provide a means of analysing the relationship between economic reality, conceptualisation of the accounting object and financial accounting model, making it possible to understand the role and function of reporting boundaries. In addition, Zambon and Zan (2000) explore the linkages between theories of the firm, accounting theories and income measurement. Those approaches are synthesised later in this chapter and are combined with the concept of ‘boundary transplantation’. Accordingly, this book offers an overview on how the boundaries of reporting have (or have not) changed in response to the broadening scope of reporting needs to address both financial and ‘non-financial’ information (sustainability, governance and intangibles) and the attempts to promote greater integration of information. Indeed, despite several claims advanced since the mid-1990s on the need to expand the boundaries of financial reporting (Lev and Zarowin, 1999), and some reflections on the impacts that these changes could have on the profession (Edwards et al., 1999), only marginal consideration has been given to the means by which such ‘expansion’ has been implemented vis-à-vis the evolution of non-financial discourses and practices. Only a number of peripheral works have addressed this issue by noting that the definition of boundaries in non-financial reporting mimics the approach in financial reporting. However, no interpretative frameworks have been put forward in order to understand the reasons for, and the ways through which, this mimesis occurs.

This book aims to begin the process of filling this void. It will provide an in-depth and comparative analysis of the conceptual frameworks, standards and guidelines that have been recently published by organisations and standard setters operating in the areas of financial and non-financial reporting in order to examine how the issue of ‘reporting boundaries’ has been problematised and addressed. These will be then confronted with the approaches that organisations adopt for boundaries’ setting in annual, sustainability and integrated reports. Therefore, the book utilises boundaries or corporate reporting widely conceived as an analytical tool to explore and problematise the conceptual foundations of the current reporting model per se. In this respect, the present study aims to be original in that it differentiates itself from capital market research and critical accounting research as traditionally conceived, because it poses at the centre of the investigation not the economic or non-economic impact of financial numbers, but the conceptual consistency and soundness of one of the main features (i.e. the boundaries) of the financial and non-financial reporting apparatus. Accordingly, this work is evidence-based, where the source of such evidence is provided by the authoritative pronouncements, frameworks, standards and their practical implementation and not by large samples of statistical or social nature.

1.2 Method of research

Adopting an interpretivist approach, the book adopts a ‘simple’ textual analysis of significant documents. The relevant frameworks, standards and guidelines for financial and non-financial reporting issued by the main standard setters and framework developers as well as the cases of five organisations that have moved from annual to sustainability and integrated reports are reviewed and compared – with a specific focus on their requirements and guidance on the ‘reporting boundary’ or ‘reporting scope’.

Although quite simple in nature, this approach is very much in line with that used by Annisette (2017) in order to understand how categories are constructed. In addition, this methodological choice is guided by an inductive approach where there are no ‘pre-conditions’ or ‘pre-constituted view’ (as it may be in the case of content analysis or similar methods particularly in a deductive approach), or to force an a priori relationship between financial and non-financial reporting (as can be the case where linguistic concepts are employed such as ‘linguistic borrowing’ (Haugen, 1950, or ‘boundary rhetoric’ (Journet, 1993 and others). To put it another way, similarly to most cases in comparative law, no controlled comparison has been undertaken. A so-called ‘concept formation through multiple descriptions’ methodological approach has been adopted, able to cast light on how analogous challenges are manifested and solutions are provided (Choudhry, 2007). This way, a focus is placed on potential similarities and differences among cases.

This is an important methodological point given that, as far as the author knows, this is the first time a comparative analysis on reporting boundaries has been conducted at a conceptual level, going beyond a mere analysis of language change or translation (Evans, 2004, 2010). Accordingly, it should proceed free from any ex ante interpretive bias. Furthermore, as a more general point, it is well established in the critical literature that it is discourse that ‘fabriques’ the object as it is dependent upon the actors’ willingness to maintain or change a particular way of seeing it portrayed (Foucault, 1972). Or, to put it another way, it is in the ‘immaterial voice that pronounces’ or ‘in the page that transcribes it’ that dissimilar objects can coexist (Foucault, 1970).

For these reasons, the analysis carried out in this book is based on an in-depth reading of those sections of the documents that deal with the topic of ‘reporting boundary’ or ‘reporting scope’. As part of that approach, the terms ‘boundary’ and ‘scope’ have been detected throughout the documents by means of word search engines. The underlying rationale for searching for both terms derives from the observation that they are sometimes used interchangeably. Once they have been located, the related sections have been analysed to understand how the definitions have been contextualised and constructed. The next step was to consider which are the constitutive elements, the conceptual significance and implications of the definitions, first in isolation and then in comparison. Finally, the observations derived from this investigation have been situated within the wider conceptual and interpretive scheme provided by this text. The same process has been followed for the examination of the reports as they shift from annual to sustainability and to integrated forms. Although it is recognised that this approach may limit the consideration of the sets of discourses embedded in the texts examined, it needs to be noted that the terms ‘boundary’ or ‘scope’ are defined in ad hoc manner and are typically not anchored to a broader conceptual framework.

The analysis of these documents was followed up with interviews. Seven semi-structured interviews involving a set of open questions were conducted over the period July 2017–January 2018 in writing, in person and via Skype. The questions were prepared and pre-sent to interviewees. The interviewees included key representatives of the framework and guideline developer organisations, as well as organisational representatives primarily responsible for the preparation of annual, sustainability and integrated reports. The choice of the interviewees focused on those members representing the reference points, both at the institutional and organisational levels, for the definition and identification of reporting boundaries. Details about interviewees are provided in Table 1. The topics covered during the conversations with these representatives concerned the rationales that motivated them to address this topic in a particular way, the influence that these documents may have had on practice and their opinion of the main challenges that their organisations face in identifying and defining reporting boundaries according to the extant guidelines, standards and frameworks. As for the themes addressed in the interviews with organisational representatives, they refer to the processes that characterised the setting of boundaries, the eventual changes that have been made in the shift from annual to sustainability and integrated reports and the difficulties encountered in identifying and defining boundaries consistently according to the extant guidelines, standards and frameworks. The interviews lasted between 30 and 60 minutes each and were all recorded and transcribed (if conducted in person or via Skype). The transcriptions formed the basis of the analysis.

Table 1

No.	Name ^*	Position	Interview date
1	Sean Gilbert	Leader of the Working Group of the GRI Boundary Protocol	January 2018
2	A	CEO and Lead Researcher, Centre for ESG Research, Denmark and one of the three authors of the CDSB Discussion Paper	January 2018
3	Kay Alwert	Kay Alwert, Owner and general manager, Alwert GmbH & Co. KG and ‘core member’ of the Arbeitkreis Wissensbilanz	January 2018
4	Prof. Stef...