The Going-Concern-Principle in Non-Financial Disclosure: Concepts and Future Challenges (SIDREA Series in Accounting and Business Administration) 3030811263, 9783030811266

Table of contents :
Preface
Contents
Abbreviations and Acronyms
Chapter 1: The Going-Concern in Accounting Research
1.1 Introduction
1.2 Research Aims
1.3 The Going-Concern Definition
1.4 The Website and Media Perspectives
1.5 Scholars and Databases Perspectives
1.6 The Going-Concern Principle in the Accounting Literature
1.7 An Insight Into the Going-Concern in the Accounting Literature
1.8 The Going-Concern in the Accounting Principles and Mandatory Financial Reporting and Disclosure
1.9 International Accounting Standards: International Financial Reporting Standards (IAS-IFRS)
1.10 US Generally Accepted Accounting Principles (US GAAP)
1.11 Italian Generally Accepted Accounting Principles (Italian GAAP)
1.12 The Italian Scenario and Some Additional Issues by the Going-Concern Principle
References
Chapter 2: The Corporate Sustainability Reporting and Disclosure
2.1 Introduction
2.2 Corporate Systems, Intangibles Assets and Non-financial Information: The Main Literature
2.3 The Mandatory Disclosure on Intangible Assets and Non-financial Information
2.4 Literature on the Sustainability Reporting and Disclosure: A Primary Content and Bibliometric Analysis
2.5 The European Directive 2014/95/UE on Non-financial Information
2.6 The Italian Legislative Decree No. 254/2016 on Non-financial Information
2.7 New Zealand Government´s Proposal on Climate-Related Financial Disclosures
2.8 International Initiatives for the Sustainability Reporting and Disclosure
2.9 The Global Reporting Initiative
2.10 The SDG Initiatives and the UN Global Compact
2.11 The International Integrated Reporting Council (IIRC)
2.12 The Sustainability Accounting Standards Board (SASB)
2.13 The Climate Disclosure Standards Board
2.14 The Climate Disclosure Project
2.14.1 The Corporate Water Disclosure
2.14.2 AccountAbility 1000
2.14.3 International Organization for Standardization (ISO) 26000
2.14.4 The GBS Standards
References
Chapter 3: The Going-Concern in Non-financial Information
3.1 Introduction
3.2 The Going-Concern and the (Mandatory) Non-financial Disclosure by the EU Directive: The Case of the Italian Industrial Pro...
3.3 The Going-Concern and Sustainability Disclosure: The Case of the Software and IT Services Industry
3.4 The Going-Concern and the IR Awarded Companies
3.5 The Going-Concern and the Environmental and Climate Change Disclosure: Cases in the Food and Beverage Sector
References
Chapter 4: Primary Conclusions Towards Concepts and Challenges to Come
4.1 Evidence by the Analysis of the Going-Concern and Non-financial Information and Primary Implications
4.2 Proposals, Conclusions and Future Research

Citation preview

SIDREA Series in Accounting and Business Administration

Rosa Lombardi

The GoingConcern-Principle in Non-Financial Disclosure Concepts and Future Challenges

SIDREA Series in Accounting and Business Administration Series Editors Stefano Marasca, Università Politecnica delle Marche, Ancona, Italy Anna Maria Fellegara, Catholic University of the Sacred Heart, Piacenza, Italy Riccardo Mussari, Facultad de Economia, Università di Siena, Siena, Italy

This is the official book series of SIDREA – the Italian Society of Business Economics and Accounting. The books highlight contributions by SIDREA’s thematic research groups, operating at the national and international levels. In particular, the series aims to disseminate specialized findings on several topics – classical and cutting-edge alike – that are currently being discussed by the accounting and business administration communities. The series authors are respected researchers and educators in the fields of business valuation; governance and internal control; financial accounting; public accounting; management control; gender; turnaround predictive models; non-financial disclosure; intellectual capital, smart technologies, and digitalization; and university governance and performance measurement.

More information about this series at http://www.springer.com/series/16571

Rosa Lombardi

The Going-Concern-Principle in Non-Financial Disclosure Concepts and Future Challenges

Rosa Lombardi Department of Law and Economics of Productive Activities Sapienza University of Rome Rome, Italy

ISSN 2662-9879 ISSN 2662-9887 (electronic) SIDREA Series in Accounting and Business Administration ISBN 978-3-030-81126-6 ISBN 978-3-030-81127-3 (eBook) https://doi.org/10.1007/978-3-030-81127-3 © The Editor(s) (if applicable) and The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Switzerland AG. The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

To my father

Preface

Preliminary issues and aims of the book towards the going concern principle in non-financial disclosure In recent years, the principle of going concern has received great attention by academic and practical communities, especially for its impact on the corporate systems assuming business, management and accounting perspective. The increasing interest in the principle of going concern has been associated with business continuity as its strategic extension and its lifecycle (e.g. the start-up phase, the development and management, the crisis and disequilibrium phases) and the accounting principles (i.e. one of the accounting postulate) applied to corporate reporting and disclosure aimed to safeguard stakeholders (e.g. investors, lenders, clients, providers, employees, institutions, governments and other stakeholders). The awareness of going concern is increased in the economic and business contexts; its meaning, characteristics, configurations and impacts seem to have become the hottest topic especially in recent years characterized by turbulence, complexity, crisis and pandemic disasters in the international scenario (e.g. SARSCOV-2, financial crisis, climate change’s risks). The accounting literature proposes several definitions of going concern especially with reference to business continuity as its strategical extension and to its effects in assessing the continuity of companies, providing conditions and criteria to be respected. In this scenario, going concern is assured in the annual financial reports disclosed by companies to stakeholders following the main accounting country-based rules and principles. It is the proto principle and its absence in the preparation of the balance sheet that compromises the assessment of corporate continuity shortly. Thus, voluntary or sustainability reporting and disclosure are here under investigation about the going concern assumption, also in the light of the absent obligation to apply it in these kinds of corporate reports and disclosure. This book has been motivated by the need to fill the existing gap in the literature on the going concern principle in non-financial disclosure by companies in the international scenario proposing concepts and challenges to come. Following the main accounting literature, requirements and regulations, this book proposes the vii

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Preface

current state of the art in non-financial disclosure, collecting the main mandatory and voluntary frameworks and standards (e.g. European Directive 2014/95/UE on non-financial information, Global Reporting Initiative, International Integrated Reporting Council, Sustainable Developments Goals and UN Global Compact, Sustainability Accounting Standards Board, Climate Disclosure Standard Board, Carbon Disclosure Project, AccounAbility 1000 Assurance Standard v3, Corporate Water Disclosure, International Organization for Standardization 26000, Gruppo di Studio per il bilancio sociale and so on). This is a useful proposition for the investigation of the presence versus absence of going concern in the sustainability and non-financial reports and disclosure by companies all over the world. Several issues and characteristics of information provided to stakeholders are drafted. Through a qualitative methodology (e.g. document analysis, content analysis, bibliometric analysis and interviews), this book is intended to show the incidence of going concern in non-financial disclosure and what content and meaning it is referred to. Even if some theories can be applied in this investigation (e.g. stakeholder theory, disclosure theory), several samples of analysis have been collected and investigated using different key indicators by the content analysis approach (e.g. presence versus absence, frequency, sustainability score value). The collection of the corporate sustainability reports published in the last few years by companies follows the criteria of multiple samples in the light of the main frameworks and standards. However, the methodological analysis is included in the last part of this book, also presenting data and indicators (e.g. words weights, keywords clusters, co-occurrences) from the Nvivo and VOSviewer software to obtain a wide generalization of results. In the light of the going concern analysis and primary evidence in this book, the path towards the going concern assumption in non-financial disclosure is still open and infantile. The evolution of sustainability frameworks, standards and jurisdictions in non-financial disclosure could be directed towards the adoption of the going concern principle ensuring transparency and accountability to all stakeholders, among which a relevant role is played by investors. Additionally, the need to harmonize sustainability and non-financial disclosure could assume business continuity as one of the fundamental requirements in developing non-financial reports. This is the way towards the adoption of renewed and transparent business models directed to achieve high financial and non-financial performance creating value in the long term. This book is published in SIDREA Book Series Accounting and Business Administration edited by Springer as a result of the double-blind review process. Rome, Italy 27 May 2021

Rosa Lombardi

Contents

1

2

The Going-Concern in Accounting Research . . . . . . . . . . . . . . . . . . . 1.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2 Research Aims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3 The Going-Concern Definition . . . . . . . . . . . . . . . . . . . . . . . . . . 1.4 The Website and Media Perspectives . . . . . . . . . . . . . . . . . . . . . 1.5 Scholars and Databases Perspectives . . . . . . . . . . . . . . . . . . . . . 1.6 The Going-Concern Principle in the Accounting Literature . . . . . 1.7 An Insight Into the Going-Concern in the Accounting Literature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.8 The Going-Concern in the Accounting Principles and Mandatory Financial Reporting and Disclosure . . . . . . . . . . . . . . . . . . . . . . 1.9 International Accounting Standards: International Financial Reporting Standards (IAS-IFRS) . . . . . . . . . . . . . . . . . . . . . . . . 1.10 US Generally Accepted Accounting Principles (US GAAP) . . . . . 1.11 Italian Generally Accepted Accounting Principles (Italian GAAP) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.12 The Italian Scenario and Some Additional Issues by the Going-Concern Principle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. 1 . 1 . 3 . 4 . 5 . 5 . 11

The Corporate Sustainability Reporting and Disclosure . . . . . . . . . . 2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 Corporate Systems, Intangibles Assets and Non-financial Information: The Main Literature . . . . . . . . . . . . . . . . . . . . . . . . 2.3 The Mandatory Disclosure on Intangible Assets and Non-financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4 Literature on the Sustainability Reporting and Disclosure: A Primary Content and Bibliometric Analysis . . . . . . . . . . . . . . . 2.5 The European Directive 2014/95/UE on Non-financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. 31 . 31

. 14 . 15 . 16 . 17 . 19 . 22 . 24

. 34 . 37 . 38 . 42 ix

x

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2.6

The Italian Legislative Decree No. 254/2016 on Non-financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.7 New Zealand Government’s Proposal on Climate-Related Financial Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.8 International Initiatives for the Sustainability Reporting and Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.9 The Global Reporting Initiative . . . . . . . . . . . . . . . . . . . . . . . . . 2.10 The SDG Initiatives and the UN Global Compact . . . . . . . . . . . . 2.11 The International Integrated Reporting Council (IIRC) . . . . . . . . 2.12 The Sustainability Accounting Standards Board (SASB) . . . . . . . 2.13 The Climate Disclosure Standards Board . . . . . . . . . . . . . . . . . . 2.14 The Climate Disclosure Project . . . . . . . . . . . . . . . . . . . . . . . . . 2.14.1 The Corporate Water Disclosure . . . . . . . . . . . . . . . . . . 2.14.2 AccountAbility 1000 . . . . . . . . . . . . . . . . . . . . . . . . . . 2.14.3 International Organization for Standardization (ISO) 26000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.14.4 The GBS Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

4

The Going-Concern in Non-financial Information . . . . . . . . . . . . . . . 3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 The Going-Concern and the (Mandatory) Non-financial Disclosure by the EU Directive: The Case of the Italian Industrial Products and Services Listed Companies . . . . . . . . . . . 3.3 The Going-Concern and Sustainability Disclosure: The Case of the Software & IT Services Industry . . . . . . . . . . . . . . . . . . . . 3.4 The Going-Concern and the IR Awarded Companies . . . . . . . . . 3.5 The Going-Concern and the Environmental and Climate Change Disclosure: Cases in the Food and Beverage Sector . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. 47 . 48 . . . . . . . . .

48 49 51 54 54 57 58 59 61

. 61 . 63 . 67 . 79 . 79

. 82 . 87 . 90 . 92 . 94

Primary Conclusions Towards Concepts and Challenges to Come . . . 97 4.1 Evidence by the Analysis of the Going-Concern and Non-financial Information and Primary Implications . . . . . . . . 97 4.2 Proposals, Conclusions and Future Research . . . . . . . . . . . . . . . . . 99

Abbreviations and Acronyms

AA1000 ABS ABDC AJG ANVUR CDP CDSB CONSOB CSR CSRD CWD DSDG EBA ECB EFRAG ESG ESMA EU Directive FASB FMC GAV GBS GBS GRI HR IAS IAS–IFRS IASB IC

AccounAbility 1000 Association of Business Schools Australian Business Dean Council Academic Journal Guide Agenzia Nazionale per la valutazione della ricerca Carbon Disclosure Project Climate Disclosure Standard Board Commissione Nazionale per la società e la borsa Corporate Social Responsibility Corporate Sustainability Reporting Directive Corporate Water Disclosure Division for Sustainable Development Goals European Banking Authority European Central Bank European Financial Reporting Advisory Group Environmental, social and governance European Securities and Markets Authority European Directive 2014/95/UE on non-financial information Financial Accounting Standards Board Financial Markets Conduct Global added value Gruppo di Studio per il bilancio sociale Gruppo di Studio per il Bilancio sociale Global Reporting Initiative Human Resource International Accounting Standard International Accounting Standards–International Financial Reporting Standards International Accounting Standards Board Intellectual Capital xi

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IFRS IIRC IOSCO IPR ISA ISO 2600 ISVAP Italian GAAP KTC OECD OIC PIEs SASB SDGs SEC SSB TCFD UNDESA US GAAP WBCDS WEF WRI

Abbreviations and Acronyms

International Financial Reporting Standards International Integrated Reporting Council International Organization of Securities Commissions Intellectual property rights International Standards on Auditing International Organization for Standardization 26000 Istituto per la Vigilanza delle Assicurazioni Italian Generally Accepted Accounting Principles Knowledge Transfer Curve Organisation for Economic Co-operation and Development Organismo Italiano di Contabilità or Italian Accounting Foundation Public interest companies Sustainability Accounting Standards Board Sustainable Developments Goals Securities and Exchange Commission Sustainability Standards Board Task Force on Climate-related Financial Disclosures United Nations Department of Economic and Social Affairs US Generally Accepted Accounting Principles World Business Council for Sustainable Development World Economic Forum World Resources Institute

Chapter 1

The Going-Concern in Accounting Research

Abstract This chapter aims at investigating the going-concern’s concept in accounting research. Thus, the main purpose of this chapter is to draft the definitions about the going-concern, adopting several sources and perspectives of analysis. Many definitions of the going-concern in the accounting research are provided using qualitative analysis and adopting some bibliometric investigations. As a double face of one coin, the going-concern can be regarded as a “key factor” or “tipping factor” in the analysis of the company’s ongoing and lifecycle, without missing to also introduce the business continuity meaning.

1.1

Introduction

During the last decades, the going-concern’s concept has been widely applied to many contexts and to the company systems both in private and public scenarios (Gibb & Buchanan, 2006; Graham & Kaye, 2015; Herbane et al., 2004; Sterling, 1968; Venuti, 2004). Adopting several corporate perspectives, the going-concern is regarded as an assumption connected to the accounting principles, annual financial reports development and business continuity, good corporate governance and strategic decision-making processes by top management and other professionals (e.g. auditors and accountants) directed towards maintaining positive financial and non-financial performances. Corporate results are disclosed to all stakeholders after their systematization in mandatory and voluntary reports (D’Amico & Biscotti, 2013; Tiscini, 2004). The going-concern assumption is also the principle to avoid corporate economic and financial disequilibrium (De Luca, 2017; Martin, 2000; Nugroho, 2021). Thus, the company system is composed of several coordinated and complementary elements (Ackoff, 1961; Bertini, 1990a; Capaldo, 1998; Coase, 1937; Onida, 1971; Potito, 2020; Zanda, 1974; Zappa, 1957) and during its life is going to face internal and external complexities and environmental turbulence (e.g. pandemic disasters such as SARS-COV-2, financial crisis, climate change) (Agostini, 2018; Bertini, 1990b; Salvatore, 2006). In the current knowledge economy (Dunning, 2002; Foray, © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 R. Lombardi, The Going-Concern-Principle in Non-Financial Disclosure, SIDREA Series in Accounting and Business Administration, https://doi.org/10.1007/978-3-030-81127-3_1

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1 The Going-Concern in Accounting Research

2006; Jacob, 2014; Neef, 1997; Powell & Snellman, 2004; Quagli, 1995; Rullani, 2004; Seidman, 2014; Zanda, 2012), the company system is composed of goods, people, operations and knowledge (Bertini, 1990a; Capaldo, 1998; Zanda, 2015), and it can assume a small, medium or large organizational dimension. Declaring the vision, mission and values, the company system is oriented towards achieving fixed purposes following the corporate management and its specific cost requirements and financial need structure. Additionally, the company systems changed their business models during the last decades following the industrial revolution and adoption of innovations, mixed and specialist knowledge, strategies, collaborations and networks (Bagnoli et al., 2019; De Luca et al., 2016; McAfee, 2006; Grant & Baden-Fuller, 1995; Hamel et al., 1989; Kreiner & Schultz, 1993; Mancini, 1999). In this scenario, the advent of the resource-based view theory or RBV theory (Barney and Clark, 2007; Grant, 1991; Penrose, 1959; Trequattrini, 2008) reveals the intangible resources (after being recognized as intellectual capital) in the company system: they are regarded as strategic factors that operate jointly with tangible assets creating value and increasing performance in the long term (Edvinsson & Malone, 1997; Lardo et al., 2017; Stewart, 1997; Teece, 2009; Trequattrini, 2008; Trequattrini et al., 2017). The corporate strategy formulation is directed towards achieving the competitive advantage in the market (De Luca et al., 2013; Fiorentino, 2016; Galeotti & Garzella, 2013) facing environmental complexity. However, each company is a complex system also in the light of the following elements: 1. 2. 3. 4.

Its governance model and decision-making processes Dynamic and changing environment Relationships with all categories of stakeholders Technological and digitization processes in recent years

Thus, the going-concern principle is influenced by the business continuity and internal and external factors and widely connected to corporate governance to anticipate environmental challenges (Cerullo & Cerullo, 2004; Colley Jr et al., 2005; Gibb & Buchanan, 2006; Graham & Kaye, 2015). Also, the strategic decision-making processes are directed towards establishing long-running planning to achieve high performance and guarantee the going-concern and business continuity (Sargiacomo, 2000; Ruisi & Di Fede, 2014). The involvement of stakeholders is additionally a core issue (Freeman, 1984): they are recipients of corporate (mandatory and voluntary) disclosure summarizing financial and non-financial performances included in the annual, integrated and sustainable reports (Doni et al., 2019; Gray et al., 1995; Guthrie et al., 2017; Marasca et al., 2020; Stolowy & Paugam, 2018; Venturelli et al., 2019). As a double face of one coin, going-concern can be regarded as a “key factor” or “tipping factor” in the analysis of the company’s ongoing and lifecycle (e.g. the born and start-up; the development growth and management and the crisis and decline). Understanding the valence of the “going-concern” words, several scientific databases allow for the recognition of international studies and related topics. For instance, in the high-quality scientific database Scopus (www.scopus.com), the research result in the going-concern searching is based on 918 documents (updated on 1 April 2021).

1.2 Research Aims

3

Fig. 1.1 Going-concern and subject areas. Source: Own elaboration on Scopus dataset (www. scopus.com)

In this analysis, the most prominent subject area is business, management and accounting with 615 documents, followed by the economics, econometrics and finance with 449 documents and social sciences with 196 documents. Figure 1.1 presents the list of all retrieved subject areas following an ascendant numerical order. In the same direction, the search of the “going-concern” in the Google Scholar database (www.scholar.google.com), without any horizontal time limitation, allows for the numbering of 101,000 documents (updated on 1 April 2021). In the last three years, the total number of studies retrieved in the same database is 14,000 (around 14% compared to the total results of studies collected in this analysis). Assuming the corporate systems perspective, retrieved studies achieved 2,800,000 in all subject areas.

1.2

Research Aims

Although several discussions arose on the going-concern principle in the accounting scenario (Lacchini & Trequattrini, 2007; Sentesso and Sostero, 2016), the aim of this chapter is to provide its thrilling overview assuming the accounting perspective lens through the following issues: 1. Its meaning and definitions captured by the business dictionary, main databases, professional organizations 2. The accounting literature 3. The accounting principles and the mandatory reporting and disclosure (De Luca, 2020)

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1 The Going-Concern in Accounting Research

Using a qualitative methodology (Blumberg et al., 2014; Cooper & Morgan, 2008; Hair jr et al., 2003; Hoque, 2018; Parker & Narthcott, 2016), this chapter has been developed mainly collecting secondary sources (e.g. articles, scientific databases, reports, websites, newspapers); some short interviews have also been conducted via email to some experts. The choice to use a qualitative method is particularly useful in defining a concept and/or phenomenon; in fact: a qualitative research approach is the most appropriate and indeed the only way to achieve some research objectives. Situations in which qualitative research is likely to be the preferred method include 1) which little known about a research problem or opportunity, 2) where previous research only partially incompletely explains the research question, 3) when current knowledge involves subconscious, psychological, or cultural material that is not accessible using survey and experiments, and 4) if the primary purpose of the research is to propose new ideas and hypotheses that can eventually be tested with quantitative research. (Hair Jr et al., 2003; p. 276)

In this perspective, the present chapter analysed research sources, developed a primary content and conducted bibliometric analysis to draft the landscape of the going-concern principle. Thus, “Qualitative research is discovery-oriented, with analysis using the data collected to generate ideas and theories, and is therefore based on inductive reasoning” (Hair jr et al., 2003, p. 276). Interestingly, the results of this primary analysis offer the state of the art in this hottest topic that recently is more and more investigated about events (e.g. SARS-COV-2 and climate change) influencing the corporate lifecycle. Thus, results appear as renewed for academic and practical communities in advancing the understanding of the going-concern principle in the corporate systems assuming the accounting landscape. This chapter is organized as follows. After the first sections dedicated to the introduction and research aims, the second section presents definitions of the goingconcern. The following sections are dedicated to the investigation of the main literature. The last section analyses the going-concern principle in the accounting principles and the mandatory reporting and disclosure.

1.3

The Going-Concern Definition

The definition of the going-concern assumes several identifications of the sources (e.g. newspapers, website and media, scholars and databases, standard setters, professional organizations) and scopes (e.g. academic advances, practical issues) of research. The first step of the analysis is directed towards systematizing businesses, management and especially accounting definitions for the academic and practical communities about the i) going-concern concept and ii) going-concern principles. Main definitions of the going-concern are summarized in the next sections by the i) website and media and ii) scholars and databases. The standard setters and professional organizations’ perspectives are included in the next sections.

1.5 Scholars and Databases Perspectives

1.4

5

The Website and Media Perspectives

Among the countless sources, such as website and media, the Cambridge Dictionary defines the going-concern concept as “if a company is sold as a going concern, it is sold when it is operating normally” (www.dictionary.cambridge.org/dictionary/ english/going-concern). The Market Business News introduces the going-concern concept as: a company that is currently operating and is also making a profit (. . .) it is a viable company that is not under threat of liquidation for the foreseeable future. In this context, ‘foreseeable’ means for at least the next twelve months. Therefore, the term refers to a business that intends to keep operating successfully at least for the next year. (www.marketbusinessnews. com/financial-glossary/going-concern/).

Assuming the meaning of the principle, the going-concern is regarded as a business assumption in the successful continuity for more than one year (www. marketbusinessnews.com). The Business Rescue Expert assumes that the going-concern “is an accountancy term that describes a company which can continue operating without the significant threat of liquidation, and therefore remain in business for the foreseeable future”. (www.businessrescueexpert.co.uk/understanding-the-going-concern-assumption/). Carlson by Small Business (2019) reports: A going concern, also known as a going concern assumption or going concern principle, is an accounting assumption stating that a business will stay in operation for the foreseeable future. In essence, that means that there is no threat of liquidation for the foreseeable future, which is usually perceived as a period of time lasting for 12 months. (www.thebalancesmb. com/going-concern-393294)

The Corporate Finance Institute reports: The going concern principle assumes that any organization will continue to operate its business for the foreseeable future. The principle purports that every decision in a company is taken with the objective in mind of running the business rather than that of liquidating it. (www.corporatefinanceinstitute.com/resources/knowledge/finance/going-concern/)

1.5

Scholars and Databases Perspectives

All previous definitions are based on the corporate system and the foreseeable activities and its ongoing and lifecycle. Interestingly, the perspectives of scholars and databases are widely developed. Among some prominent accounting scholars having editorial positions in high-quality international scientific journals not belonging to the same country as this book’s Author (to guarantee a wide perspective of analysis), some definitions for this book are collected through the interviews conducted via email on the following question: RQ What is the going-concern principle in your opinion?

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Professor Charl de Villiers (Full Professor in Accounting at Auckland University, New Zealand) answers: I guess in writing up the reports, we assume the company/organisation will be around in future, so we value assets on the basis of spreading them over the useful life of the asset, instead of always at market value. Although in financial accounting, we now value many asset classes at market value. But anyway it applies to assets, not to liabilities, because in the case of liabilities, we always value them at market value. A liability stemming from the need to restore something to its original state, e.g. after mining operation stop is an interesting one. The assumption that the company will be a going concern and be there to perform the restoration is important. Thinking about non-financial capital, many of the things companies/ organisations use do not belong to them, so they are not valued in the reports, e.g. air and waterways.

Professor John Dumay (Full Professor in Accounting & Finance at Macquarie University, Australia) assumes the going-concern as: The hypothetical value of a company’s assets and liabilities in an arm’s length transaction.

Professor Manuel Pedro Rodriguez Bolìvar (Full Professor in Accounting at Granada University, Spain) answers: There is much to talk about this principle. It is not an easy task. Based on the business sector, the going concern principle is the assumption that a business will continue to exist in the near future and will not be forced out of business. It must assess whether management intends to liquidate the entity or to cease trading, or has no realistic alternative but to do so (IAS 1). According to IAS 1, an entity needs to look at a period of at least 12 months from the end of the reporting period when assessing whether to prepare general purpose financial statements on a going concern basis, but it is a minimum period rather than a cap. National legislations can establish other different horizon times. In any case, it is an underlying presumption in the preparation of the general purpose financial statements and it provides support to the introduction of different measurement bases (including cost principle) and the accrual accounting basis

Professor James Guthrie (Distinguished Professor in Accounting at Macquarie University, Australia) assumes the going-concern principle as connected not only to financial statements by companies but also to risk assessment and related issues, such as climate change, rehabilitation of mines, reforestation of damaged land, decommissioning of oil and gas equipment and other environmental and social conditions. The Accountancy Europe (2021) in the report “Going concern: recommendations to strengthen the financial reporting ecosystem” published in 2021 asserts that the going concern is: an economic and accounting term used to describe a company which is assumed to be financially stable enough to continue to operate for the foreseeable future. ‘Foreseeable future’ is usually regarded as being at least 12 months from the company’s year-end date or the date the financial statements are approved. (www.accountancyeurope.eu)

Thus, the pivot points in this preliminary analysis seem to be identified in the following direct and indirect pillars:

1.5 Scholars and Databases Perspectives

1. 2. 3. 4.

7

The corporate performance and horizontal time (direct) The phase(s) of the corporate lifecycle (direct) The corporate risk prevention (indirect) The disclosure to stakeholders (indirect)

Searching for the term “going-concern” in the scholars’ studies and scientific databases, the Academic Journal Guide (AJG) 2018 (www.charteredabs.org) by the Chartered Association of Business School journals (only top sources 3, 4 and 4*) into the accounting field (Table 1.1), 1009 results are retrieved. The first publications in the going-concern issues started in 1983 using the previous journal (sources) list. Interestingly, a clearly increasing trend of publication is shown (Fig. 1.2). Even if the selected criteria of research assume some hypothesis in the landscape of investigations, the primary information retrieved seems significant in drafting the interest in this topic, especially in recent years (e.g. year 2020, +77 documents; year 2019, +64 documents). In this way, evidence is directed towards focusing on the business, management and accounting issues and preparing the annual reports (e.g. financial statements, integrated reports) in which several actors are involved (e.g. owners, top management, accountants, auditors). Among such results, Yeh et al. (2014; p. 98) assert: The going-concern principle is one of the most important accounting assumptions in the preparation of financial statements. According to this principle, an entity or organization will continue its operations into the foreseeable future, at least, or in perpetuity.

Yeh et al. (2014; p. 98) also continued introducing the going-concern opinion when “the entity is not at risk of liquidation or even of reducing the scale of its operations substantially, whether voluntarily or involuntarily”. Following the accounting stream interest and refining the search in the AJG 2018 list, the mining of the going-concern is more focused below. Particularly, the selection of all keywords, including the “going-concern” word, is based on the sample of 78 high-quality scientific documents (articles, review and conference papers). The analysis of emerging keywords has been conducted using the VOSviewer software (Van Eck & Waltman, 2014, 2017). Figure 1.3 shows seven clusters of keywords. The manual screening of all keywords used in the dataset (78 documents) allows for the elaboration of a primary list containing the most used keywords as reported in Fig. 1.4. Interestingly, after the most important keyword “going-concern” (weight 29,6%) (e.g. Guo et al., 2021; Hardies et al., 2018; Hossain et al., 2020; van Peursem et al., 2006), the highlights seem to be on three emerging and almost interrelated topics as follows (the utilization of * assumed the singular and plural words): 1. The going-concern opinion (e.g. grouping going-concern opinion*, goingconcern audit opinion and audit opinion). For example, this is the case of the formal opinion released by auditors on the business continuity examining the annual reports (e.g. Abernathy et al., 2019; Albrecht et al., 2020; Gutierrez et al., 2020).

8

1 The Going-Concern in Accounting Research

Table 1.1 Sources list by AJG 2018 ISSN 00014826 03613682 01654101 00218456 08239150 13806653 00013072 00014788 01559982 08887993 09513574 02780380 10504753 08908389 00071870 10452354 09638180 02674424 15540642 10944060 02784254 07374607 0148558X

Field ACCOUNT

Journal Title Accounting Review

AJG 2018 4*

ACCOUNT

Accounting, Organizations and Society

4*

ACCOUNT

Journal of Accounting and Economics

4*

ACCOUNT

Journal of Accounting Research

4*

ACCOUNT

Contemporary Accounting Research

4

ACCOUNT

Review of Accounting Studies

4

ACCOUNT

Abacus

3

ACCOUNT

Accounting and Business Research

3

ACCOUNT

Accounting Forum

3

ACCOUNT

Accounting Horizons

3

ACCOUNT

Accounting, Auditing and Accountability Journal

3

ACCOUNT

Auditing: A Journal of Practice and Theory

3

ACCOUNT

Behavioral Research in Accounting

3

ACCOUNT

British Accounting Review

3

ACCOUNT

British Tax Review

3

ACCOUNT

Critical Perspectives on Accounting

3

ACCOUNT

European Accounting Review

3

ACCOUNT

Financial Accountability and Management

3

ACCOUNT

Foundations and Trends in Accounting

3

ACCOUNT

International Journal of Accounting

3

ACCOUNT

Journal of Accounting and Public Policy

3

ACCOUNT

Journal of Accounting Literature

3

ACCOUNT

Journal of Accounting, Auditing and Finance

3 (continued)

1.5 Scholars and Databases Perspectives

9

Table 1.1 (continued) ISSN 0306686X 10619518 01989073 10445005

AJG 2018 3

Field ACCOUNT

Journal Title Journal of Business Finance and Accounting

ACCOUNT

3

ACCOUNT

Journal of International Accounting, Auditing and Taxation Journal of the American Taxation Association

ACCOUNT

Management Accounting Research

3

3

Source: Own elaboration

Number of documents

80

60

40

20

0 1990

2000

2010

2020

Years

Fig. 1.2 Publication of the going-concern (1983–2021; AJG 2018; accounting sources). Source: Own elaboration on AJG 2018

2. The going-concern reporting (e.g. grouping going-concern report*, audit report* and audit quality). For example, the reporting activities on the going-concern principle (e.g. Blay et al., 2016; Reynolds & Francis, 2000). 3. The corporate disequilibrium (e.g. bankruptcy). The corporate crisis or decline assumes the absence of the going-concern (e.g. Casterella et al., 2020; Lennox & Kausar, 2017). Figure 1.5 shows the bibliographic coupling elaborated through the selection of countries (with 3 as the minimum number of documents of a country). The data elaboration using the VOSviewer emphasizes how the United States is central in the network of countries in terms of bibliographic coupling by the dataset (78 documents). However, other countries are involved.

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1 The Going-Concern in Accounting Research

Fig. 1.3 Going-concern keywords. Source: Own elaboration

Fig. 1.4 Weight of the most relevant topics/keywords. Source: Own elaboration

Even if the bibliographic coupling is developed through several starting criteria (e.g. documents, sources, countries, etc.) and many limitations can be drafted (e.g. reduced small-sized sample), this is a primary analysis based on countries to identify the main geographical areas involved in the sample using the concept of going-concern in the accounting research.

1.6 The Going-Concern Principle in the Accounting Literature

11

Fig. 1.5 Bibliographic coupling per country. Source: Own elaboration

1.6

The Going-Concern Principle in the Accounting Literature

This section intends to provide an overview of the going-concern principle in the most relevant accounting literature, examining its definitions, meaning and applications (American Accounting Association, 1966; Deegan, 2009; Pavan & Fadda, 2017; Trequattrini, 2000), also in the light of the business continuity as a strategic interpretation of the going-concern (Herbane et al., 2004). Thus, the going-concern is investigated in this chapter in the context of the financial reporting and disclosure by companies towards stakeholders (Dell’Atti, 2003; Maffei, 2017; Marchi & Trucco, 2017; Melis, 2008; Paoloni et al., 2005; Pizzo, 2010). First of all, the joint analysis of the going-concern and business continuity seems to draft the connection between the two (Fig. 1.6). The business continuity is not strictly connected to the accounting perspective: it is recognized in the operativity and strategy of the corporate systems, especially in providing goods and services to the markets. It reflects strategic decision-making having effects on the future of companies. The Business Continuity Institute assumes:

Fig. 1.6 Going-concern and business continuity. Source: Own elaboration

12

1 The Going-Concern in Accounting Research Business continuity is about having a plan to deal with difficult situations, so your organization can continue to function with as little disruption as possible. Whether it's a business, public sector organization, or charity, you need to know how you can keep going under any circumstances. (www.thebci.org).

On the other side, the going-concern widely depends on the accounting (principle) definitions: The “going concern” is the accountant’s "firm model". It seems to be universally accepted, is believed to be a necessary axiom, and thought to have a direct connection to historical cost valuation. Thus, the going concern is one of the most important concepts in accounting. (Sterling, 1968, p. 481)

Re-called condition of the going-concern causes the reader to believe that it is well defined and widely shared both in literature and practice (Sterling, 1967). Although many scholars have dealt with this topic, providing widely shared statements both in academic papers and in accredited manuals (Chen & Church, 1996; Fellegara & Marinoni, 2020; Geiger & Raghunandan, 2002; Geiger & Rama, 2006; Jones, 1996; Menon & Williams, 2010), many statements are postulates, concepts and other types of elaborated principles. Substantially, the concept of the goingconcern is widely accepted. Understanding the need for the going-concern principle (or postulate) in assessing the ongoing of a company, the accounting research poses it as a relevant issue to be investigated (Fargher & Jiang, 2008). Since time immemorial, accounting scholars have argued that the reasons why the going-concern postulate (or principle) is correct are not effectively explained (Fremgen, 1968). Indeed, in many situations, the accountants are engaged in companies in liquidation conditions. Some books and manuals deal with accounting for companies in liquidation or conditions of insolvency or financial distress (John, 1993). However, there are different valuation methodologies (Grandis & Palazzi, 2015) to carry out the accounting that refers to different moments in the life of the companies. Referring to the going-concern, the actual revenues of the company cannot be calculated with absolute certainty as long as the business is not closed. It is therefore a widespread opinion that actual corporate earnings can only be measured at the end of its activities (Romano & Onesti, 2016). However, the life of a company is broken down into different financial periods to measure its performance in each financial period analysed. In this perspective, the principle of going-concern allows for the budget assessments that assume the continuation of the business over the financial period investigated (Trequattrini, 2000). For this reason, the principle of going-concern is a necessary postulate, not only for accounting and for the preparation of the financial statements but also for the managerial implications (Ji & Lee, 2015). In the context of managerial discipline, the going-concern is a foundation of the management operations. For example, this kind of approach is not completely agreed in finance, which studies companies as consumers and producers of liquidity; consequently, continuity and its implication for budget assessments assume a secondary role for financial scholars.

1.6 The Going-Concern Principle in the Accounting Literature

13

In the context of Italian doctrine, for example, the company is investigated as an institution—by definition—destined to last over time (Biondi, 2005); this means that continuity represents a fundamental postulate for the study of companies, with both management, accounting and auditing implications (Maffei, 2017; Zanda, 2007). Thus, where continuity is considered to exist from a managerial perspective (Cerullo & Cerullo, 2004; Gibb & Buchanan, 2006; Graham & Kaye, 2015), the same is not assured in an accounting perspective. For this reason, the accounting perspective must always be independent of the managerial perspective, thus requiring the accountants to carry out their assessments. The going-concern is a fundamental postulate for the preparation of the financial statements or the annual financial reports (Azzali et al., 2006; Capaldo, 1981; Chambers, 1963; Corbella, 2008; Fellegara & Marinoni, 2020; Giunta & Pisani, 2005; Lacchini, 1988; Lionzo, 2005; Paolone, 2004; Pisoni et al., 2007; Onesti et al., 2016; Quagli, 2017; Ricciardi, 2019; Teodori, 2017). Such a documentary compendium does not exhaust its usefulness in providing information on the company’s past; the data reported in financial statements must also consider the events that occurred after the closing date of the financial statements, as well as consider reasonably foreseeable future events. Despite some limitations set out so far, it is necessary to define the going-concern. The old standards of preparation of the financial statements in the United States assumed that, in the absence of evidence to the contrary, the entity (i.e. the company) to which the accounting refers must be considered in permanent activity. This is essential to distinguish a traditional company from a company that is set up to carry out a single commercial operation. In the case of a single commercial transaction, there is no need to contextualize the going-concern: once the commercial transaction has been completed, the objective of the company will also have been achieved. Thus, the going-concern is deeply connected to circumstances of continuation of the corporate activity. The going-concern must be considered as a conclusive judgment based on evidence and not as an assumption. Therefore, a potential issue to investigate is if the going-concern is confirmed when the company is probably going to continue its activity indefinitely. Thus, the way to follow can change. Determining whether an entity is a going-concern has long been argued in the auditing literature (Maffei, 2017). Within the recent issuance of Financial Accounting Standard Board’s (FASB) Auditing Standard Update (ASU) 2014–2015, Presentation of Financial Statements—Going Concern: Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (www.fasb.org), such considerations now exist within the accounting literature as well. Whatever standard managers have to follow in preparing the financial statements, they first have to decide whether to do it on a going-concern basis. This is a particularly critical decision in the current stressed economic environment arising from turbulence, economic crisis and SARS-COV-2 pandemic, where many firms have registered a significant decrease in revenue, profits and cash flows (Cesaroni et al., 2015; Culasso et al., 2012); these are all circumstances that may raise

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1 The Going-Concern in Accounting Research

questions about their ability to continue the business in the going-concern perspective. Such situations involve a greater degree of judgement than usual. Stakeholders are familiar with the specific discussion of the going-concern and related requirements in the International Accounting Standard (IAS) 1 to disclose uncertainties relating to an entity’s ability to continue as going-concern (Teodori, 2017). However, critiques raised about the going-concern over the last months have highlighted the relevance of other disclosure requirements in IAS 1, interacting with the specific going-concern requirements. In this vein, managers may consider this wide range of factors before concluding whether preparing financial statements on a going-concern basis is appropriate, guaranteeing information and their integrity provided in the annual financial reports (Caldarelli, 1997; Cinquini et al., 2016; Consorti, 2001; Onida, 1974; Paolini, 2007; Rea, 2001). For instance, among the factors that the corporate management may need to consider are the effects of temporary shut-down of the activities or possible longterm structural changes in the market. For instance, when assessing whether to prepare financial statements on a going-concern basis, IAS 1 requires management to look out at least twelve months from the end of the reporting period, also emphasizing that the outlook should not be limited to twelve months. Therefore, twelve months is the minimum period and not a cap.

1.7

An Insight Into the Going-Concern in the Accounting Literature

The previous section opens a perspective on the relationship between the goingconcern and corporate crisis. It is not easy to refer to a generally shared definition of the corporate crisis. Doctrine and practice have always been concerned with analysing the causes and consequences of the state of corporate crisis, rather than giving it a definition. In the business administration discipline (D’Amico et al., 2017), the state of crisis has usually been analysed from a genetic point of view, in the belief that crisis is the result of a process that departs from its causes and is revealed in economic and/or financial manifestations (Guatri, 1986). The stages of corporate crisis are identified after the economic and financial imbalance of the company (Veneziani, 2015), allowing the following distinctions: • Financial crises: the crisis has a financial nature when it is due to the fact that the company does not have, nor is it able to obtain, adequate financial means—in terms of quantity and quality—for normal operations of the company that, otherwise, would be economically balanced. • Economic crises: the crisis has an economic nature when it is due to more complex facts than a pure and simple qualitative and quantitative lack of financial means.

1.8 The Going-Concern in the Accounting Principles and Mandatory Financial. . .

15

• Economic and financial crisis: in this case the business crisis sometimes takes on characteristics that do not allow it to be fully traced back to either a financial or economic crisis. This is the rather frequent case, in which the economic imbalance of the year is essentially attributable to the imbalance of the financial structure (financial charges), often biased towards non-economically productive investments. According to the same doctrine, there are two approaches for analysing the causes of the business crisis: • The subjective approach, which identifies the causes related to human beings (managers or shareholders) • The objective approach, which focuses on phenomena related to the economic context The boundary between the responsibility of management and ownership and purely exogenous factors is not always distinguishable: the business crisis is a complex phenomenon that tends to arise from the joint action of various factors. Many of the items that compose financial statements—first of all, intangible assets (e.g. goodwill) (Laghi et al., 2013)—are based on the existence of conditions of equilibrium for the survival of the company (Biancone, 2006; Guatri & Bini, 2009; Maglio, 2014; Pucci, 2013; Trequattrini, 2008), and some tools for the prediction of the crisis exist (Madonna & Cestari, 2015). The business continuity cannot be merely presumed; the business continuity must be ascertained by the Board of Directors (or by an equivalent body in charge of preparing the financial statements) and by the Board of Statutory Auditors. In the event of an assessment of the absence of business continuity, the underlying assumptions of the financial statement items have to switch to a liquidation perspective and, therefore, to a liquidation concern: market value for assets and payable value for liabilities. However, the going-concern is ascertained in each company through two conditions: i) profitability and ii) liquidity (Zanda, 2015). Thus, the assessment to start or continue the business during several years requires the following: 1. To achieve an amount of incomes able to cover the costs and return on equity (profitability) in the financial time investigated (Laghi & Di Marcantonio, 2016) 2. The owner’s capacity to fully, continuously and conveniently cover the corporate financial needs generated by the operations’ incomes and costs (liquidity)

1.8

The Going-Concern in the Accounting Principles and Mandatory Financial Reporting and Disclosure

As analysed in the previous sections, the preparation of financial statements in the annual report also depends on corporate assessments (Andrei, 2004). The corporate management has to assess the entity’s ability to continue in operation for the foreseeable future (Andrei et al., 2017; Cerullo & Cerullo, 2004; Fabbrini & Musaio,

16

1 The Going-Concern in Accounting Research

2004; Lacchini, 1988) among the other accounting principles and postulate to be applied (Antonelli & Liberatore, 2012; Campedelli, 1994). Therefore, financial statements should be prepared on a going-concern basis, unless management or shareholders intend to liquidate the entity (company) or to cease the activity. If the result of such an assessment points out doubts on the entity’s ability to continue as a going-concern, the management is required to disclose this aspect as well as to declare on which basis the financial statement and reason why the entity are no longer regarded as the going-concern. Assuming normal operational conditions of the company, the financial statements are prepared on a going-concern basis without any specific disclosure. Most of the accounting methods are based on the going-concern assumption. Indeed, the case of the cost principle would not be useful if we assume the potential liquidation of the entity. In the liquidation approach, fixed assets are valued at net realizable value (sale price with less cost to sell) without considering the amortized cost. Concepts like depreciation, amortization and depletion are justifiable and appropriate only assuming that the entity will have a long (enough) life (Alibahi et al., 2017). An example of a condition for making the going-concern assessment considerations could be the deterioration of an entity’s financial position after the closing date of the reporting period. Such an event could cast substantial doubts about an entity’s ability to continue as going-concern. This section aims to provide recognition of the going-concern principle towards the lens of the accounting country-based regulation along with the following main bodies of principles: • International Accounting Standards—International Financial Reporting Standards (IAS-IFRS) • US Generally Accepted Accounting Principles (US GAAPs) • Italian Generally Accepted Accounting Principles (Italian GAAP)

1.9

International Accounting Standards: International Financial Reporting Standards (IAS-IFRS)

According to the IAS 1 “Presentation of financial statement” (www.ifrs.org), the preparation of financial statements requires an assessment of the going-concern condition, defined as the ability of the company to continue to operate as an entity in operation over the financial period investigated (Azzali et al., 2006; Lacchini & Trequattrini, 2007; Pisoni et al., 2007). Therefore, the business continuity is incompatible with the intention, or the need, to liquidate the entity or stop its activity. The business continuity requires the management to assess its operational aptitude in the foreseeable future. In this regard, directors must consider all the information available in the future, relating to at least—but not limited to—twelve months from the closing date of the financial statement. The deepening degree of the information depends on the specific situation of the company. In some cases, it

1.10

US Generally Accepted Accounting Principles (US GAAP)

17

may be necessary to consider a wide range of factors regarding current and expected profitability, debt repayment plans (instalments) and potential alternative funding sources before assuming that a going-concern assumption exists (Alibahi et al., 2017). In other cases, for which the entity has a previously profitable business and has easy access to financial resources, it may not be necessary to carry out a detailed analysis to verify the existence of the assumption. However, this approach may not be adequate in the contexts of the economic and financial crisis, as per the Covid-19 scenario. It may happen that problems on liquidity and credit risks may create new uncertainties, or exacerbate existing ones, that may need careful analysis. In any case, the evaluation of the directors on the assumption of business continuity involves the expression of a judgment, at a given time, on the future outcome of uncertain events. The IAS 10 “Events after the Reporting Period” (www.ifrs.org) requires that an entity should not prepare its financial statements on the going-concern basis if management determines, after the end of the reporting period, that it intends to liquidate the entity or cease trading, or that it has no realistic alternative. IAS 10 notes that disclosures prescribed by IAS 1 under such circumstances should also be complied with.

1.10

US Generally Accepted Accounting Principles (US GAAP)

Under the generally accepted accounting principles (GAAP) issued by the USA standard setter, the FASB assumes the going-concern as: the continuation of a reporting entity as a going concern is presumed as the basis for preparing financial statements unless and until the entity’s liquidation becomes imminent. Preparation of financial statements under this presumption is commonly referred to as the going concern basis of accounting. If and when an entity’s liquidation becomes imminent, financial statements should be prepared under the liquidation basis of accounting in accordance with Subtopic 205-30, Presentation of Financial Statements—Liquidation Basis of Accounting. (FASB, 2014, p. 1)

Even in the case that an entity’s liquidation is not imminent, there could be conditions or events that raise concrete doubts about the entity’s ability to continue as a going-concern. However, also in US GAAP (Sannino, 1999), there is no guidance about the management’s responsibility to evaluate whether there are substantial doubts about an entity’s ability to continue as a going-concern or to provide specific protocols about disclosure practices. The US auditing standards and federal securities law require that the auditor should evaluate whether there are substantial doubts about an entity’s ability to continue as a going-concern; such evaluation should be focused on a reasonable time not to exceed one year beyond the date of the financial statements being audited. The US auditing standards also require an auditor to consider the possible financial

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1 The Going-Concern in Accounting Research

statement effects, including footnote disclosures on uncertainties about an entity’s ability to continue as a going-concern for a reasonable time. The US Securities and Exchange Commission (SEC) also has guidance on disclosures that it expects from an entity when an auditor’s report includes an explanatory paragraph that reflects substantial doubt about an entity’s ability to continue as a going-concern for a reasonable time (The Codification of Financial Reporting Policies, Section 607.02). In the management perspective, a key point is related to the identification of conditions or events that raise substantial doubt about an entity’s ability to continue as a going-concern. Thus, management should also consider whether its plans could mitigate those relevant conditions or events, alleviating their substantial doubts. Moreover, the mitigating effect of management’s plans should be considered only to following extents: “it is probable that the plans will be effectively implemented and, if so, (2) it is probable that the plans will mitigate the conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern” (FASB, 2014, p. 3). When conditions or events raise substantial doubt about an entity’s ability to continue as a going-concern, but that the substantial doubt is alleviated by consideration of management’s plans, the entity should disclose appropriate information that enables users of the financial statements to obtain—at least—all of the following information (FASB, 2014, p.3): 1. Principal conditions or events that raised substantial doubt about the entity’s ability to continue as a going concern (before consideration of management’s plans) 2. Management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations 3. Management’s plans that alleviated substantial doubt about the entity’s ability to continue as a going concern. In other conditions, where substantial doubts are not alleviated after consideration of management’s plans, an entity should include a statement in the footnotes indicating that there are substantial doubts about the entity’s ability to continue as a goingconcern. In such conditions, the entity should disclose appropriate information, enabling users of the financial statements to obtain—at least—all of the following (FASB, 2014, p.3): 1. Principal conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern 2. Management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations 3. Management’s plans that are intended to mitigate the conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern.

1.11

1.11

Italian Generally Accepted Accounting Principles (Italian GAAP)

19

Italian Generally Accepted Accounting Principles (Italian GAAP)

In the Italian context, the Italian GAAPs are issued by the OIC—Organismo Italiano di Contabilità (Italian Accounting Foundation), which is a non-governmental foundation (www.fondazioneoic.eu). The principles issued by OIC do not express legal force and, therefore, have to comply with the regulations contained in the Italian Civil Code. The regulatory and interpretative references related to the going-concern in Italy can be summarized as follows (Fig. 1.7): • • • • •

Article 2423-bis of the Civil Code OIC 11—paragraphs 21–24 IAS 1 (relevant for companies that apply IAS) International Standards on Auditing (ISA) Italy No. 570 Bank of Italy, Commissione Nazionale per la società e la borsa (Consob) and Istituto per la Vigilanza delle Assicurazioni (Isvap) document no. 2 of February 6, 2009

The accounting principle by the OIC 11 (“Finalità e postulati del bilancio d’esercizio”) in paragraph 22 specifies that the company management, when preparing the financial statements, must take an assessment of the company’s ability to: set up a functioning economic complex intended for the production of income for a foreseeable future period of time, relating to a period of at least twelve months from the date of reference of the financial statements (www.fondazioneoic.eu).

Fig. 1.7 The going-concern and regulatory and interpretative references. Source: Own elaboration

Civil Code

Bank of Italy, Consob and Isvap

OIC Goingconcern

ISA

IAS

20

1 The Going-Concern in Accounting Research

Financial Indicators

Management Indicators

Other Indicators

Fig. 1.8 Indicators by ISA 570. Source: Own elaboration

In the absence of alternatives to the termination of the activity and the absence of ascertainment of the causes of dissolution provided for by Article 2484 of the Civil Code, the valuation of the items must (in any case) be carried out with a view to the business continuity but applying the accounting principles in consideration of the limited residual time horizon. In the event of an assessment, under Article 2485 of the Italian Civil Code, of one of the causes of dissolution provided for by Article 2484 of the Civil Code, the financial statements are drawn up without the application of the going-concern principle. From the operational perspective, the International Standards on Auditing (ISA) Italy No. 570 or ISA 570 “Going-Concern” provides some indications to “events or circumstances that may give rise to significant doubts on the ability of the company to continue to operate as an entity in operation” (www.ifac.com). In particular, ISA 570 provides the following indicators (Fig. 1.8): 1. Financial indicators: – Negative balance sheet or net working capital situation – Fixed-term and close-to-maturity loans with no true-similar prospects of renewal or repayment or excessive dependence on short-term loans to finance long-term assets – Indications of termination of financial support from creditors – Historical or prospective financial statements that show negative cash flows – Main negative economic-financial indicators – Substantial operating losses or significant losses in the value of the assets used to generate the cash flows – Difficulty in paying back dividends or discontinuity in the distribution of dividends – Inability to pay debts on maturity

1.11

Italian Generally Accepted Accounting Principles (Italian GAAP)

21

– Inability to comply with the contractual clauses of the loans – Change in the forms of payment granted by suppliers, from the “credit” condition to the “payment on delivery” condition – Inability to obtain financing for the development of new products or other necessary investments 2. Management indicators: – Management’s intention to liquidate the company or to cease operations – Loss of members of management with strategic responsibilities without their replacement – Loss of key markets, key customers, distribution agreements, concessions or major suppliers – Difficulties with staff – Lack of provision – Appearance of highly successful competitors 3. Other indicators: – Capital reduced below the legal limits or non-compliance of the capital with other legal regulations, such as solvency or liquidity requirements for financial institutions – Ongoing legal or regulatory proceedings which, in the event of losing, may lead to claims for compensation that the company is probably unable to cope with – Changes in laws or regulations or government policies that are presumed to adversely affect the company – Catastrophic events against which an insurance policy has not been stipulated or against which an insurance policy with insufficient limits has been stipulated

The Covid-19 emergency had a significant impact on many of the above-listed indicators with a reporting impact on financial statements to be prepared. Indeed, within the preparation of statements related to the financial year 2019, events occurring after the closing date of the reporting period must be considered able to compromise the business continuity and, therefore, its ability to continue as a goingconcern. In this context, the Italian Legislator provides a specific exception to the verification of the assumption of the business continuity to approve the financial statements on 31 December 2019 and ensure the flow of information to the stakeholders. In particular, Article 7 of the Legislative Decree of 8 April 2020 No. 23 (so-called Liquidity Decree) establishes that to prepare the financial statements of the financial year 2019, the valuation of the items of the financial statement in the perspective of business continuity can (in any case) be carried out if it exists in the financial statements closed on a date before 23 February 2020.

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1 The Going-Concern in Accounting Research

Such a rule allows accounting assessments to be made as if there is continuity, even when it was in doubt due to the Covid-19 pandemic. The Legislator, therefore, offered a sort of sterilization of the effects of the economic crisis, applicable in the event of the existence of business continuity before 23 February 2020. Fostering the correct interpretation of the rule containing the derogation, the OIC intervened with the interpretative document No. 6, “Temporary provisions on the principles of drafting the financial statements”. This document clarifies that the company can avail itself of the exemption if, at the closing date of the financial year (2019), based on the information available, it was not in any of the conditions described in paragraphs 23 and 24 of the OIC 11 (www.fondazioneoic.eu). The purpose of the regulation is therefore to prevent the application of normal valuation criteria—the going-concern—that could emphasize the negative effects of the pandemic. This will of the government has also been revealed by Articles 5 and 6 of the “Liquidity Decree”, respectively on the difference between the entry into force of the Crisis Code (www.gazzettaufficiale.it) and reduction of capital due to losses. Other institutions such as European Securities and Markets Authority (ESMA), European Banking Authority (EBA), European Central Bank (ECB) and International Accounting Standards Board (IASB) have also moved in the same derogatory direction concerning the application of IFRS 9 “Financial Instruments” (www.ifrs.org) issued again in 2021.

1.12

The Italian Scenario and Some Additional Issues by the Going-Concern Principle

In the Italian scenario, two models regulated by distinct legislative provision coexist. They are reported below: • Italian GAAP. The financial statement is developed according to the Italian GAAP, in compliance with the provisions of the civil code (up from Article 2423 of the civil code) and the accounting standards issued by the OIC— Organismo Italiano di Contabilità (Italian Accounting Foundation) (www. fondazioneoic.eu). • IAS/IFRS. The financial statement is developed according to the IAS/IFRS by the Legislative Decree No. 38/2005. Literature assumes alternative systems in the preparation of the financial statements with some changes, for example, in the general principles, principles for the preparation of the financial statements, balance sheet and comprehensive income statement, evaluation criteria and supplementary note (Dezzani, 2019). The principles supporting the development of the financial statements according to civil law are based on the continental European model (e.g. Germany) while using the IAS/IFRS based on common law principles of Anglo-Saxon origin.

1.12

The Italian Scenario and Some Additional Issues by the Going-Concern Principle

23

Thus, these two models are different. The civil law model derives from the strong concentration of capital in a small number of shareholders (who generally maintain absolute control over the company) and financial structure characterized by high indebtedness. The Anglo-Saxon model is characterized by many shareholders, delegating the corporate management to directors. Thus, the two financial reporting models respond to different stakeholders’ protection objectives as follows: • Civil law. As there is a substantial contribution of debt capital, there is the need to protect creditors. • The IAS/IFRS model. It is necessary to protect current and potential investors. The creditors’ protection is pursued through the preparation of a balance sheet based on mechanism suitable to avoid “window dressing” behaviours; this model is based on the historical cost of assets and rights, on the application of the principle of prudence (caution) in financial statement assessments, to show the income actually produced in the reference year. The investors’ protection, on the other hand, is pursued through the exposure in the financial statements of a working capital showing the corporate economic value, so that the shareholder can compare the net assets value of the firm with its stock exchange value (Price to Book Value approach). Thus, the body of rules for the preparation of the financial statements is based on the application of fair value, on the principle of market valuation (mark to market), showing potential income. The main pillars that inspire the IAS/IFRS principle system lead to configurations of profits and capital that are different from those that characterize traditional accounting systems “at historical values”. The concept of potential (or “realizable”) profits is based on criteria to compose the system of values determined also by considering the (direct and/or indirect) realization expectations of the assets that form the equity value. Such realization expectations can be attributable to the operating activity of the company or to the loss of purchasing power of the currency. The concept of “realized” income (substantially coinciding with that of “produced income”) is fundamentally inspired by the principle according to which incomes are determined only in exchange and for exchange. In the absence of exchanges with third economies, it is not possible to assume “produced” income since the sure production of new values in the company does not yet exist (when only an object is intended for sale). Just as in social production, there is the terminal act with the sale of finished goods, so it is an essential truth in the business economy. The income configuration that refers to the “potential” or “achievable” income can be based on two distinct formulations defined through the assumption of two different working hypotheses. According to the first hypothesis, the expected revenues related to the completion of the production cycles in progress at the end of the financial year participate in the formation of income. In this case, only the final inventories connected to finished productions (and not yet sold) can be valued at “benefit” values, while the inventories connected to productions in progress (products in progress) must be recognized at “sacrifice” values since the process of “economic transformation” has not yet been

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completed. In the second hypothesis, the presumed revenues relating to the progress of the production cycles underway (at the end of the financial year) participate in the formation of income. Even the final inventories relating to products in progress and semi-finished products can be assigned to the year on the basis of “benefit” values calculated according to the progress of production in progress. The issue related to income and potential income is relevant for the application of the going-concern principle; indeed, the aptitude of the company in operating as a going-concern is connected to the subsistence of corporate profitability conditions. Therefore, the concept of profits to which the specific company has to refer to assess the going-concern conditions changes according the accounting model selected by companies. In Italy, the profitability for the evaluation of the going-concern conditions changes according the adoption of the Italian GAAP or the IAS/IFRS principles. According to the Italian GAAP, the profitability has to be valuated assuming the realized income; according to the IAS/IFRS principles, the profitability has to be valuated assuming the potential income.

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Chapter 2

The Corporate Sustainability Reporting and Disclosure

Abstract This chapter aims to draft the corporate sustainability reporting and disclosure in the international scenario. Using qualitative analysis, this chapter introduces the main jurisdictions, guidelines, frameworks and standards (e.g. Global Reporting Initiative, Sustainability Accounting Standards Board, Sustainable Development Goals and UN Global Compact, International Integrated Reporting Council, Climate Disclosure Standards Board, Carbon Disclosure Project, AccountAbility 1000 Assurance Standard v3, Corporate Water Disclosure, International Organization for Standardization 26000, Gruppo di Studio per il bilancio sociale) adopted by companies to disclose sustainable and non-financial information to all stakeholders (e.g. investors, lenders, governments; all stakeholders). Thus, the sustainability accounting scenario is investigated from the perspective of corporate reporting and disclosure.

2.1

Introduction

This chapter aims at discovering the main characteristics and the state of the art of corporate sustainability reporting and disclosure, adopting the qualitative approach in investigating secondary sources of analysis (Blumberg et al., 2014; Parker & Narthcott, 2016) and the theoretical anchoring to several theoretical lens such as the corporate voluntary and sustainable disclosure theory (Heitzman et al., 2010; Hummel & Schlick, 2016) and stakeholder and legitimacy’s theories (Freeman et al., 2007; Guthrie & Parker, 1989). The increasing interest in this topic has been documented by the prolific sustainability accounting literature, legislations, standards and frameworks and reports published in the last decades and especially in recent years in the international scenario (Adams & Abhayawansa, 2021; Aras & Crowther, 2008; Chersan et al., 2019; Lokuwaduge & Heenetigala, 2017). However, the investigation of the corporate sustainability reporting and disclosure needs to start from several issues in the field of sustainability and environamental accounting (Bebbington et al., 2021; de Villiers et al., 2020), among which the analysis of corporate intangibles or non-financial information as strategic levers in © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 R. Lombardi, The Going-Concern-Principle in Non-Financial Disclosure, SIDREA Series in Accounting and Business Administration, https://doi.org/10.1007/978-3-030-81127-3_2

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communicating results by organizations assumes a relevant role (Masum et al., 2020; Sani et al., 2020; Usenko & Zenkina, 2016). Particularly, the increasing relevance of intangibles assets as strategic levers of competitive advantages by company systems (Cohen, 2011; Daum, 2003; Kaplan & Norton, 2004; Leitner, 2005; Lev, 2000; Teece, 1998; Trequattrini, 2008; Trequattrini et al., 2017) needs to be adequately represented in the corporate reporting and disclosure (Lacchini & Trequattrini, 2007). In the corporate mandatory financial reporting (e.g. financial statements) are included intangible assets following the accounting rules for their identification (e.g. IAS/IFRS Framework, US GAAP, Italian accounting rules and Organismo Italiano di Contabilità—OIC). Thus, the integration of the corporate reporting and disclosure is intervened through integrative reports and information as well as accomplishing principles by the Corporate Social Responsibility1 (CSR) (Bowen, 1953; De Luca, 2020). CSR has been widely investigated assuming several perspectives of analysis (Baxi & Ray, 2012; Boesso & Michelon, 2010; Crane & Matten, 2007; Dobers, 2009; Fiori et al., 2015; Lombardi et al., 2019; Maglio et al., 2020; Welford, 2007). The Green Paper “Promoting a European framework for Corporate Social Responsibility” by the Commission of the European Communities (https://www.europarl. europa.eu/meetdocs/committees/deve/20020122/com(2001)366_en.pdf) defines CSR as: . . .a concept whereby companies decide voluntarily to contribute to a better society and a cleaner environment. . . .an increasing number of European companies recognize their social responsibility more and more clearly and consider it as part of their identity. This responsibility is expressed towards employees and more generally towards all the stakeholders affected by business and which in turn can influence its success.

CSR assumes the adoption of ethical business practices (Coronella et al., 2018; Garzella, 2020; Lacchini & Trequattrini, 2004; Mio, 2010; Tutino & Merlo, 2019), including the protection of the governance, environment, human rights, occupational health and safety (Jamali et al., 2008; Leonard & McAdam, 2003). CSR is also connected to the corporate disclosure influencing the stakeholders’ sentiment and perceptions of its results and performance (Gray et al., 1995; Jizi et al., 2014; Salama et al., 2011) as well as to sustainable value creation (Salvioni & Gennari, 2017). Also, the relationship between corporate governance and CSR disclosure is widely integrated (Kolk & Pinkse, 2010). In this scenario, literature recognizes the distinction of the social report, environment report and intellectual capital report (Adams, 2004; Cormier & Gordon, 2001; Dumay & Guthrie, 2017; Gray et al., 1995; Guthrie et al., 2017; Lacchini & Trequattrini, 2004). The social report describes economic and social results by companies also adopting the added value indicator (Guthrie & Parker, 1989;

1 There are several opinions on the birth of Corporate Social Responsibility (CSR) recognizing CSR in the production of goods and services to achieve high profits by shareholders (Friedman, 1962); CSR in relation to corporate economic interests and other interests (Backman, 1975; Davis, 1960); CSR in the free and aware decision-making (Hay et al., 1976); and CSR as a management criterion.

2.1 Introduction

33

Marasca et al., 2018; Mussari & Monfardini, 2010; Vagnoni, 2001). The environment report describes the corporate impact on the environment (Wilmshurst & Frost, 2000). The intellectual capital report shows the human capital, relational capital and structural capital (Guthrie et al., 2017; Paoloni & Demartini, 2017; Sangiorgi & Siboni, 2017). Each report is based on a set of key performance indicators. Thus, mandatory and voluntary corporate reporting is the core of a lively discussion to enrich sustainable information provided by companies to stakeholders (De Luca, 2020; Doni et al., 2019; Prencipe, 2004; Stolowy & Paugam, 2018; Venturelli et al., 2019), establishing with them long-staying relationships and creating value. In recent years, the sustainable report has become the core of corporate communication from the company’s management towards key stakeholders among which a relevant role is played by investors (Farooq & de Villiers, 2019; Stacchezzini et al., 2016). Thus, corporate sustainability reporting and disclosure need to be widely investigated, discovering new trends (Bebbington et al., 2009; Eccles & Krzus, 2010; La Torre et al., 2018; Masum et al., 2020) also in the light of the environmental, social and governance (ESG) disclosure and the materiality issues (Lai et al., 2017). Interestingly, many standards and frameworks were published by several organizations in the last decades and especially in recent years (e.g. Global Reporting Initiative (GRI), International Integrated Reporting Council (IIRC), UN Global Compact and Sustainable Development Goals, Sustainability Accounting Standards Board (SASB), Climate Disclosure Standards Boards (CDSB), Carbon Disclosure Project (CDP), International Organization for Standardization (ISO 26000), AA1000 Assurance Standard v3) as well as some legislations (e.g. Directive , 2014/95/EU) to prepare sustainable reporting and disclosure (Doni et al., 2019; Liu et al., 2021; Pizzi et al., 2020; Romano et al., 2020; Venturelli et al., 2019). The proliferation of many standards and frameworks to report and disclose intangibles and non-financial information (thus, sustainable information) to stakeholders have emphasized the need to harmonize them, choosing a unique integrated path for companies to report and disclose such information (Cantino & Cortese, 2017; La Torre et al., 2018; Marasca et al., 2018; Muserra et al., 2020). In this direction, some initiatives to adopt joint standards and frameworks started in the very recent time among the years 2020–2021 (e.g. the Value Reporting Foundation by IIRC and SASB) (Table 2.1). In this perspective, this chapter presents corporate sustainability reporting and disclosure in the context of sustainability accounting, analysing main experiences in the mandatory and voluntary perspectives.2 Starting from the identification of intangible assets and non-financial information in the corporate system, this chapter shows main international jurisdictions, frameworks and standards to report and disclose non-financial information.

2

There is a proliferation of the initiatives, standards and frameworks in the corporate sustainability reporting and disclosure. This chapter is directed towards showing major examples in this field even the awareness to leave at the future research the analysis of other experiences.

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Table 2.1 Main frameworks and standards summarized in the book Sustainability reporting and disclosure

2.2

Directive 2014/05/EU and Its Guidelines (2017; 2019) Country-Based Legislation (e.g. Italian Legislative Decree 254/2016) Global Reporting Initiative (GRI) International Integrated Reporting Council (IIRC) UN Global Compact and Sustainable Development Goals Sustainability Accounting Standards Board (SASB) Climate Disclosure Standards Boards (CDSB) Carbon Disclosure Project (CDP) Corporate Water Disclosure International Organization for Standardization (ISO 26000) AccountAbility1000 Assurance Standard v3 Gruppo di studio per il bilancio sociale (GBS) Value Reporting Foundation Corporate Sustainability Reporting by EU

Corporate Systems, Intangibles Assets and Non-financial Information: The Main Literature

Intangible assets and smart technologies are corporate strategic factors in achieving high performance and value creation in the long term (Basso et al., 2013; Bontis et al., 1999; Chen et al., 2005; Dumay, 2012; Dumay & Garanina, 2013; Edvinsson & Martin, 2007; Firer & Williams, 2003; Garanina, 2009; Youndt et al., 2004; Lardo et al., 2017; Petty & Guthrie, 2000; Rezende et al., 2017; Riahi-Belkaoui, 2003; Sullivan, 2000). Additionally, the corporate system is changed during the time, including traditional elements (e.g. goods, people and operations) and knowledge elements, to achieve competitive advantages. Since the emergence of Resource-Based Theory (RBV) (Barney & Clark, 2007; Grant, 1991; Penrose, 1959), the corporate strategy formulation and the decisionmaking process follow the relevance of internal assets (Ansoff, 1965; Depperu & Gnan, 2006; Laghi, 1993) of tangible and intangible nature. In this scenario, a wide taxonomy of corporate intangible assets exists (Lev & Daum, 2004; Sveiby, 1997) also in the light of their value in the corporate perspective (Servalli, 2008). For instance, intellectual capital research is one of the most prominent definitions (Bontis et al., 2018; Cuozzo et al., 2017; Edvinsson, 1997; Hanim et al., 2018; Hunter, 2006; OECD, 1999; Petty & Guthrie, 2000). Brugger (1989) proposes the distinction between i) strong and ii) weak intangible resources: i) the first one is recognized as assets to be evaluated separately from the corporate system; ii) the second one is invisible resources without particular characteristics. Assuming the identification of intangible resources, two perspectives of analysis are posed, namely, identifiable intangible resources and not identifiable intangible resources, to be included in the goodwill value (Ferri et al., 2017). Additionally, the identification of intangible resources could be investigated in the

2.2 Corporate Systems, Intangibles Assets and Non-financial Information: The. . .

I stage (IC awareness)

II Stage (IC Definitions)

IV Stage (IC & Ecosystems)

35

III Stage (IC Measurement)

V Stage (IC & Social/Environmental value)

Fig. 2.1 Stages of IC research. Source: Own elaboration

ownership or licensing rights perspectives as well as assuming the corporate structural or not structural perspective (Laghi, 2001). A separation between intangible assets (e.g. goodwill) and intellectual capital exists (Lev & Zambon, 2003). Intellectual capital (IC) originated from several assets inside the goodwill, and it has been recognized during the time following the stages of IC research as follows (Fig. 2.1). The first phase was the “awareness” of IC during the first stage of research (Edvinsson & Malone, 1997; Edvinsson & Stenfelt, 1999; Roos et al., 1997; Stewart, 1997; Sveiby, 1997), and the second phase was the theories recognition to define the IC. Scholars identify IC in the competitive advantage determination as the sum of the following capitals: 1. Human resources (competencies) 2. Structural capital (corporate internal procedures and systems) 3. Relational capital (clients and stakeholders’ relationships) Additionally, the advent of new intangible assets is based on specific knowledge in the digital technologies (e.g. artefacts, platform and infrastructure such as digital storytelling, social media, additive manufacturing) and smart technologies (e.g. artificial intelligence, blockchain, Internet of things) (Fitzgerald et al., 2014; Giones & Brem, 2017; Nambisan et al., 2017; Rippa & Secundo, 2018; von Briel et al., 2018). Analysing the three dimensions by IC, human capital has been investigated as a corporate strategic asset to compete in the market. Human capital is represented by competence, ability, skills and experiences possessed by human resources inside the company system (Becker, 1964; Bontis, 1998; Jacob, 2014; Lev & Schwartz, 1971; Likert, 1967; Sousa & Rocha, 2019). Human capital incorporates the potential to achieve problem-solving and to create new knowledge in the corporate system (Pennings et al., 1998). The investigation of human capital is connected to several perspectives of analysis among which knowledge transfer played a relevant role (De Luca & Cano

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Rubio, 2019). However, competitive advantage creation is influenced by human resources talent: general skills and specific skills. Korn Ferri (2019) identifies the talent as competence by the knowledge-intensive organization (KIO) retrieved in i) highly skilled workers, ii) mid-skilled workers and iii) low-skilled workers. The distinction derives from the education level and qualification in the job world. Relational capital is investigated by many scholars. It is based on the relationships with clients, suppliers, employees, banks, research centres, employees and so on (Hormiga et al., 2011; Ordonez de Pablos, 2004; Welbourne & Pardo-del-Val, 2009). However, relational capital represents the trust in relationships with stakeholders, image and reputation (De Castro et al., 2004; Trequattrini, 2008) and fosters entrepreneurship also in women-led firms (Paoloni et al., 2017; Paoloni & Dumay, 2015). The attitude of the corporate system to interact with the external environment influences the management of the needs of stakeholders (Bianchi Martini et al., 2016; Paoloni, 2021). Thus, a very relevant element in the relational capital is the knowledge sharing and transferring among the company and each stakeholder. Interestingly, three elements need to be emphasized: i) the knowledge transfer (Lombardi, 2019), ii) the role of stakeholders and iii) the trust in relationship and reputation. The first element (1) is very significant for all IC dimensions. For instance, De Luca and Cano Rubio (2019) proposed the Knowledge Transfer Curve (KTC) to evaluate the efficiency of the knowledge transfer processes. Knowledge sharing is based on individual competence originated by motivations, ability and culture. The transition towards organizational knowledge focuses on the same steps (Nonaka & Nishihara, 2018; Nonaka & Takeuchi, 1995), and it is applied to individual competence for value creation. The second element refers to the relevance of stakeholders (ii). In this scenario, the stakeholder theory focuses on the corporate aims and the needs by stakeholders (Donaldson & Preston, 1995; Freeman, 1984; Mitchell et al., 1997). Thus, stakeholders are individuals able to influence the corporate aims and are influenced by the company system (Freeman, 1984). A company able to manage stakeholders should follow these steps (Freeman, 1984): 1. 2. 3. 4. 5.

Establish with them a communication path Discuss with them critical corporate aspects Use of suitable marketing systems Adopt prompt actions to satisfy them Use resources aligning stakeholders’ needs

The third element is based on trust in relationships and corporate reputation (iii). The concept of trust has several definitions from different disciplines (Covey & Merrill, 2006; Fukuyama, 1995; Luhmann, 1979). Trust is an intangible strategic asset operating in the relationship among the company and stakeholders. Even if trust can be defined following several perspectives of analysis, four types of trust are recognized in the relationships (Andaleeb, 1992; Putnam, 2001): 1. Strong. Motivation and high knowledge play a relevant role 2. Hopeful. The non-selfish motivations and little knowledge are relevant conditions

2.3 The Mandatory Disclosure on Intangible Assets and Non-financial Information

37

3. Weak. Selfish motivations and high knowledge play a significant role 4. Distrust. The opportunistic motivations and poor knowledge guide the relationship Structural capital is another relevant dimension of intellectual capital (Aramburu & Sáenz, 2011; De Pablos, 2004). Structural capital is based on know-how, formal and informal procedures, intellectual property, intranet, best practices, corporate values and client’s databases (Trequattrini, 2008). Structural capital is based on codified or uncodified knowledge owned by the corporate system. Structural capital is protected through technical and juridical forms (Löthgren, 2000). The last one is applied, for example, to patents and copyright. Patents are the protection of new products or processes derived by innovation and real applications (Arundel & Kabla, 1998; Gambardella, 2013; Mansfield, 1986; Sanders, 1962). Copyrights are the protection of new literature or artistic goods (Patterson, 1968; Stokes, 2021; Watt, 2000). However, the protection of structural capital is a lever for innovation diffusion, and at the same time, it can be a limitation to the creation of new knowledge (Heller and Eisenberg, 1998). In this direction, strategic management models for structural capital protection (or intellectual property rights—IPR) are required (Chang & Sellak, 2021). Following the stage of IC research, scholars recognize the following stages after the first and the second directed towards raising awareness and formulating definitions of intellectual capital. The third stage of IC research is directed towards discovering the utilization of IC in corporate systems, establishing its measurement and applying it in managerial processes (Chiucchi, 2013; Dumay & Garanina, 2013; Guthrie et al., 2012; Spanò et al., 2016). The fourth stage of IC research investigates its boundaries into wider ecosystems, such as countries, cities and communities (Dumay & Garanina, 2013; Secundo et al., 2018). The fifth stage of IC is widely connected to its social and environmental value.

2.3

The Mandatory Disclosure on Intangible Assets and Non-financial Information

The mandatory disclosure of intangible assets and non-financial information is a recently established kind of corporate disclosure investing intangible information and results, such as environment, human rights, corruption prevention, diversity, social responsibility and so on (Aureli et al., 2020; D’Onza et al., 2017; Fazzini & Dal Maso, 2016; La Torre et al., 2018; La Torre et al., 2020; Lombardi et al., 2021; Pizzi et al., 2020; Romano et al., 2020). Especially in the last two decades, companies have been devoted towards disclosing intangible or non-financial information following the main international guidelines and standards (e.g. GRI, IIRC, SDGs, SASB, CDSB) and adopting digital reporting (Lombardi & Secundo, 2021). However, some legislations on non-financial information has been published, even if this trend seems to be rapidly changing, activating paths of social responsibility and

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accountability (De Luca, 2020; Fortuna et al., 2020; Monciardini and Conaldi, 2019; Veltri et al., 2020). Here, it is presented a synthesis of the following topics and even before a primary content and bibliometric analysis of the literature on corporate sustainability reporting and disclosure: • European Directive 2014/95/UE on non-financial information • Italian Legislative Decree No. 254/2016 on non-financial information • New Zealand Government’s proposal on climate-related financial disclosures After, the main international initiatives for sustainability reporting and disclosure are reported.

2.4

Literature on the Sustainability Reporting and Disclosure: A Primary Content and Bibliometric Analysis

Searching for sustainability (or non-financial) reporting and disclosure in the Scopus database (www.scopus.com), many documents were retrieved (more than 2500). Adopting the business, management and accounting perspective and choosing articles in English language, such results are more than 1200. This analysis has been developed using the last five years (2017–2021). More than 700 articles (the dataset) were retrieved and analysed through a combination of the content and bibliometric analysis. Thus, the content of the dataset is assumed without further adjustments. Interestingly, the articles by countries’ analysis reveal that the top five countries are the USA (81 articles), Spain (78 articles), Italy (74 articles), United Kingdom (72 articles) and Australia (64 articles). The total citations of articles composing the dataset are more than 7300. Table 2.2 shows the trend of citations per year. The most cited articles (with more than 100 citations) are the following (top four): • Hussain, N., Rigoni, U., & Orij, R. P. (2018). Corporate governance and sustainability performance: Analysis of triple bottom line performance. Journal of Business Ethics, 149(2), 411–432 • Ben-Amar, W., Chang, M., & McIlkenny, P. (2017). Board gender diversity and corporate response to sustainability initiatives: Evidence from the carbon disclosure project. Journal of business ethics, 142(2), 369–383 • Zhou, S., Simnett, R., & Green, W. (2017). Does integrated reporting matter to the capital market? Abacus, 53(1), 94–132

Table 2.2 Trend of citations

Year Citations

2017 145

2018 476

2019 1212

Source: Own elaboration on Scopus data

2020 3072

2021 2464

2.4 Literature on the Sustainability Reporting and Disclosure: A Primary. . .

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Table 2.3 Scientific journals’ rating positioning Journal Accounting Auditing and Accountability Journal Accounting Economics and Law A Convivium Business Strategy and the Environment Corporate Social Responsibility and Environmental Management Journal of Asian Finance Economics and Business Journal of Business Ethics Journal of Cleaner Production Meditari Accountancy Research Social Responsibility Journal Sustainability, Accounting Management and Policy Journal

ANVUR x (A) x x (A) x (A)

ABS 3

ABDC A*

3 1

A C

x (A) x (A) x (A) x x

3 2 1

A A A B B

2

Source: Own elaboration

• Fuente, J. A., García-Sanchez, I. M., & Lozano, M. B. (2017). The role of the board of directors in the adoption of the GRI guidelines for the disclosure of CSR information. Journal of Cleaner Production, 141, 737–750 The most important scientific journals are listed below (top ten): • • • • • •

Journal of Cleaner Production (63 articles) Corporate Social Responsibility and Environmental Management (52 articles) Business Strategy and the Environment (36 articles) Accounting Auditing and Accountability Journal (29 articles) Journal of Business Ethics (29 articles) Sustainability, Accounting Management and Policy Journal (29 articles) Social Responsibility Journal (22 articles) • Meditari Accountancy Research (14 articles) • Journal of Asian Finance Economics and Business (12 articles) • Accounting, Economics, and Law A Convivium (9 articles) Table 2.3 is directed towards showing the positioning of the top ten scientific journals in the Italian (i.e. ANVUR), UK (i.e. ABS) and Australian (i.e. ABDC) journal ratings. Journals are presented in alphabetical order. The most relevant journals are currently included in all three proposed ratings by different countries. There are seven journals (e.g. Accounting Auditing and Accountability Journal, Business Strategy and the Environment, Journal of Business Ethics, Meditari Accountancy Research, Sustainability, Accounting Management and Policy Journal). Using the VOSviewer software (Van Eck & Waltman, 2014, 2017), the first data presented in Fig. 2.2 is the bibliographic coupling of the dataset based on the articles connected by the same topics through references.3 Retrieved clusters are five in different colour (Fig. 2.2).

3

The minimum number of documents per author is four.

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Fig. 2.2 Bibliographic coupling per author

The top five authors retrieved in Fig. 2.2 are reported below: • • • • •

Maroun W., 12 documents García-sánchez I.M., 11 documents Martínez-Ferrero J., 11 documents Boiral O., 10 documents Uyar A., 7 documents

The co-occurrence of all keywords included in the dataset4 is reported in Fig. 2.3 showing interesting clusters of keywords. Assuming an increasing trend of publication in the selected topic during 2017–2021, Fig. 2.3 shows 124 keywords, and the most important keyword is “sustainability reporting” with 213 occurrences. After, in descending order, relevant keywords are sustainable development (118), sustainability (112), corporate social responsibility (112), sustainability report (66) and integrated reporting (60). Table 2.4 shows the top ten keywords that have frequently occurred. All keywords are retrieved in eight clusters. These are significant in understanding the main topics by literature and also emerging trends together with the bibliographic coupling analysis. The following are the emerging clusters:

4

The minimum number of occurrences of a keyword for this analysis is five.

2.4 Literature on the Sustainability Reporting and Disclosure: A Primary. . .

41

Fig. 2.3 Co-occurrence of keywords. Source: Own elaboration Table 2.4 Top 10 frequently occurring keywords

Keywords Sustainability reporting Sustainable development Sustainability Corporate social responsibility Sustainability report Integrated reporting Content analysis Corporate governance Global reporting initiative Stakeholder engagement

Occurrences 213 118 112 112 66 60 49 44 43 39

Source: Own elaboration

• Cluster 1: Biodiversity, commerce, communication, corporate social responsibility, corporate sustainability, economic and social effects, environmental impact, environmental policy, finance, financial reporting, gender diversity, impression management, Indonesia, intellectual capital, investments, legitimacy, Malaysia, planning, quality control, social and environmental, sustainability accounting, sustainability disclosure, sustainable development (goals), transparency • Cluster 2: Accounting agency, Australia, climate change, corporate reporting, disclosure, environment, environmental economics, ESG, Europe, European

42

•

• •

•

• •

2 The Corporate Sustainability Reporting and Disclosure

union, financial system, governance approach, institutional theory, Italy, legitimacy theory, non-financial information, non-financial reporting, regression analysis, regulation, reporting, strategic approach, sustainability, United Kingdom, value relevance, voluntary disclosure Cluster 3: Content analysis, corporate social responsibility (reporting), corporate sustainability, CSR, Directive 2014/95/EU, firm performance, global reporting initiative, non-financial disclosure, SDGs, stakeholder engagement, sustainability reports Cluster 4: Assurance, banks, board of directors, CSR reporting, developing countries, ESG disclosure, global reporting initiative, greenwashing, GRI, information asymmetry, institutional logics, performance, sustainability reporting Cluster 5: China, circular economy, corporate strategy, decision making, economics, environmental management, environmental reporting, hotel industry, innovation, social responsibility, sustainability assurance, sustainability performance Cluster 6: Corporate governance, corporate social responsibility, corporate sustainability, environmental protection, mining industry, social sustainability, stakeholder theory, supply chain (management), sustainability indicators, sustainability report, triple bottom line Cluster 7: corporate social responsibility, environmental, environmental disclosure, environmental performance, external assurance, financial performance, firm value, materiality, social (disclosure) Cluster 8: Accountability, accounting, business model, integrated reporting, integrated thinking, non-financial disclosure, public sector, quality, stakeholder (development)

Some clusters seem more target-oriented, such as clusters 7 and 8 (e.g. accountability and non-financial disclosure, CSR, firm value and materiality). Other clusters seem more generalized in investigating the sustainability reporting and disclosure, such as clusters 1, 4 and 5. Additionally, some clusters are anchored to research theories, such as clusters 2 and 6 (e.g. institutional and legitimacy theories, stakeholder theory).

2.5

The European Directive 2014/95/UE on Non-financial Information

In the European scenario, the accounting rules, in the last two decades, through, for example, the update of the International Accounting Standard (IAS) 1 (Capalbo et al., 2019), increased the corporate reporting information in the direction of intangibles assets. Additionally, the advent of the Directive 2014/95/UE on non-financial information (or EU Directive) has been directed towards revising the Directive 2013/34/EU in the accounting field fostering corporate social responsibility and accountability (Gherardi et al., 2021; Lombardi et al., 2021; Monciardini and

2.5 The European Directive 2014/95/UE on Non-financial Information

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Conaldi, 2019; Pizzi et al., 2020; Venturelli et al., 2019). The EU Directive (www. ec.europa.eu) introduces non-financial results and information in the mandatory annual financial reports. However, non-financial information can be included in a separate report accompanying the annual financial report. The inclusion of non-financial information in the annual financial reports since 2017 is applied to large public-interest companies (or PIEs) having more than 500 employees recognized in the following categories (https://ec.europa.eu/info/ business-economy-euro/company-reporting-and-auditing/company-reporting/nonfinancial-reporting_en): • • • •

Listed companies Banks Insurance companies Other companies of public-interest entities

European countries adopted national law to welcome the EU Directive dispositions investing in public-interest companies (Corsi et al., 2016). Information on the protection of the environment, social responsibility and treatment of employees, protection of human rights, corruption and bribery prevention and gender diversity has to be included in the corporate reports (e.g. annual reports or separate reports) to inform all stakeholders (e.g. investors, lenders, banks, institutions) (D’Onza et al., 2017; Monciardini et al., 2017). Public-interest companies can choose which guidelines they have to adopt in disclosing non-financial information (e.g. OECD, UN Global Compact, GRI, ISO 26000) (Gherardi et al., 2021). In recent years, the European Commission provided two guidelines on non-financial information fostering the path towards accountability (Newell, 2008): i) Communication from the Commission—Guidelines on non-financial reporting (methodology for reporting non-financial information) (2017/C 215/01) (i.e. environmental and social information guidelines); ii) Communication from the Commission—Guidelines on non-financial reporting: Supplement on reporting climate-related information (2019/C 209/01) (i.e. climate-related information guidelines). Such guidelines are also aligned to the recommendations by the Task Force on Climate-Related Financial Disclosures (TCFD) of the Financial Stability Board (www.fsb-tcfd.org) based on the following recommendations (TCFD, 2017; p. 14): • Governance: “Disclose the organization’s governance around climate- related risks and opportunities”. • Strategy: “Disclose the actual and potential impacts of climate-related risks and opportunities on the organization’s businesses, strategy, and financial planning where such information is material”. • Risk management: “Disclose how the organization identifies, assesses, and manages climate-related risks”. • Metrics and targets: “Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material”.

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TCFD’s recommendations are aligned to the recommended disclosure, guidance for all sectors and supplemental guidance for certain sectors (TCFD, 2017). The recommended disclosure describes opportunities, risks and financial impacts of climate change. Communication from the Commission: Guidelines on Non-financial Reporting (Methodology for Reporting Non-financial Information) (2017/C 215/01) According to the EU Directive, PIEs as previously described have to prepare the non-financial statement “. . .containing information to the extent necessary for an understanding of the undertaking’s development, performance, position and impact of its activity, relating to, as a minimum, environmental, social and employee matters, respect for human rights, anti-corruption and bribery matters” (EU Directive available at www.eu.europa.eu). Article 2 of the EU Directive allows the European Commission to carry out non-binding guidelines on non-financial information reporting. Thus, in 2017 the European Commission issued these guidelines to: help companies disclose high quality, relevant, useful, consistent and more comparable non-financial (environmental, social and governance-related) information in a way that fosters resilient and sustainable growth and employment, and provides transparency to stakeholders (par. 2, Communication from the Commission, 2017, available at www.eu. europa.eu).

Focusing on the content of the environmental and social information, these guidelines provide valuable tips to deepen non-financial information included in the report. Particularly, the European Commission suggests how to describe information related to the following key elements to be included in the non-financial statements by PIEs (www.eu.europa.eu): • • • • •

Business model Policies and due diligence Main outcome of the policies Principal risks and their management Non-financial key performance indicators

Additionally, the European Commission focuses on the possible content of the following non-exhaustive list of thematic aspects to be considered when PIEs disclose non-financial information in the non-financial statements required by the EU Directive: • • • • •

Environmental matters Social and employee matters Respect for human rights Anti-corruption and bribery matters Others (supply chains and conflict minerals)

The non-financial statement published by PIEs should consider and assess both favourable and unfavourable non-financial aspects, providing information in an unbiased way, without omitting material information or disclosing immaterial

2.5 The European Directive 2014/95/UE on Non-financial Information

45

information. Thus, the non-financial statement should be concise, and avoiding the disclosure of immaterial information makes it easier to understand readers identified in all stakeholders (e.g. investors). This statement should also explain the short-term, medium-term and long-term implications of the reported non-financial information and consider all relevant stakeholders’ information needs rather than focusing on individual or non-relevant stakeholders’ needs. Lastly, the non-financial statement should be consistent over the time and consistent with other disclosed information by PIEs. Communication from the Commission: Guidelines on Non-financial Reporting: Supplement on Reporting Climate-Related Information (2019/C 209/01) During the last few years, climate-related issues have been gaining increasing attention, and many initiatives have started to face climate change, among which are the 2015 Paris Agreement on Climate Change, the United Nations’ Sustainable Development Goals and the Special Report of the Intergovernmental Panel on Climate Change. In this scenario, the European Commission in 2019 broadened its guidelines on non-financial reporting, providing a supplement on climate-related information reporting (Communication from the Commission, 2019 available at www.eu.europa.eu). Companies and financial institutions play a crucial role in the transition to a low-carbon and climate-resilient economy, and they can get significant benefits from an improved disclosure of climate-related information, among which are i) the increased awareness and understanding of climate-related risks and opportunities, ii) the better risk management and iii) more informed decision-making and strategic planning. The European Commission pays significant attention to climate-related risks, suggesting how “under the Non-Financial Reporting Directive, climate-related information should, to the extent necessary, include both the principal risks to the development, performance and position of the company resulting from climate change, and the principal risks of a negative impact on the climate resulting from the company’s activities” (par. 2.3 Communication from the Commission, 2019 available at www.eu.europa.eu). Thus, these guidelines assume information based on the double materiality perspective: i) the first reflects climate change’s impact on a company from a financial point of view; ii) the second considers the company’s impact on climate. This is a relevant aspect of the EU non-financial reporting directive, sharing the financial, environmental and social materialities extending the single materiality (e.g. financial) by the TCFD’s recommendations (Fig. 2.4) and investing not only investors but also collectivity, consumers and other stakeholders. Additionally, the EU guidelines divide climate change risks for financial performance into transition risks and physical risks (Communication from the Commission, 2019, available at www.eu.europa.eu). The former are risks that arise from the transition to a low-carbon and climate-resilient economy and include the following: i) policy risks, ii) legal risks, iii) technology risks, iv) market risks and v) reputational risks. The latter are risks that arise from the physical effects of climate change and are divided into i) acute physical risks and ii) chronic physical risks.

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2 The Corporate Sustainability Reporting and Disclosure

Fig. 2.4 Double materiality. Source: Own elaboration

Financial Materiality

Double Materiality Nonfinancial Materiality

As in the non-financial reporting (Communication from the Commission, 2017, available at www.eu.europa.eu), even in this case, the European Commission provides guidelines on how to report climate-related information on the following elements: • • • • •

Business model Policies and due diligence The outcome of the policies Principal risks and their management Non-financial key performance indicators

Additionally, Annex 1 provides further guidance for banks and insurance companies because of the particular sector in which they operate. Lastly, these guidelines encourage companies to disclose information following widely accepted reporting standards and frameworks (see following sections of this chapter). The Last Advances in the Field of Non-financial Disclosure However, during 2020 there was a public consultation to revise the EU Directive to increase sustainable investment. In 2021, involving a significant number of companies in the non-financial reporting and retrieving their fundamentals in the EU sustainability reporting standards was introduced by the EU directive proposal 2021/0104. EFRAG European Financial Reporting Advisory Group (www.efrag. org) will be involved in the path towards EU sustainability reporting drafting related standards. Thus, the proposals of the Corporate Sustainability Reporting Directive (CSRD) by the European Commission, foreseeing some changes to the non-financial reporting disclosure, are as follows (www. ec.europa.eu): • Inclusion of all large companies and all companies listed on regulated markets excluding the listed micro-enterprises • Introduction of the audit of information

2.6 The Italian Legislative Decree No. 254/2016 on Non-financial Information

47

• Additional reporting requirements, including the requirement to report according to the UE Directive • Introduction of the digitally ‘tag’ of information.

2.6

The Italian Legislative Decree No. 254/2016 on Non-financial Information

Among the other European countries, in Italy the Directive 2014/95/UE on financial information has been received in the Legislative Decree No. 254/2016 (www. gazzettaufficiale.it), introducing the mandatory disclosure on the non-financial and diversity information for public interest entities or PIEs (Fig. 2.5). PIEs are recognized in the following companies: • Companies with more than 500 employees • Companies that exceed one of the following criteria at the end of the fiscal year: – Total net asset value of 20,000,000 euros – Total net revenues from sales/services of 40,000,000 euros Since the fiscal year 2017, Italian PIEs have to report and disclose in the non-financial report, among other information, its environmental and social impacts as well as information about human rights, employment, corruption and bribery prevention (Balluchi et al., 2020; Lombardi et al., 2021). Particularly, Article 3 of the Legislative Decree lists the description of the following elements by the individual or consolidated non-financial statement: (a) Business model of the activity’s organization, including management model (e.g. Legislative Decree 231/2001) (b) Corporate policies and connected results; non-financial outcome indicators (c) Risks by the corporate ongoing Additionally, PIEs need to include information on energetic resources (e.g. renewable and non-renewable sources and employment of hydric resources), Fig. 2.5 Legislative source on non-financial disclosure. Source: Own elaboration

Directive 2014/95/UE on non-financial information

Italian Legislative Decree No. 254/2016

Other Receiving European Countries

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2 The Corporate Sustainability Reporting and Disclosure

b) greenhouse gas emissions and emissions in the atmosphere; environmental, health and safety impacts, recognizing environmental and health risks; social aspects and related employee’s management (e.g. gender equality); human rights and discrimination avoidance; corruption prevention; and related models. The non-financial statement can be included in the annual financial report in a specific section of the management report in Article 2428 of the Civil Code or in a separate report. After the approval of the separate report by the board of directors, it is assessed by the auditors (e.g. certification of conformity to the Legislative Decree) and published in the Registro delle Imprese. However, the non-financial statement includes a declaration of the standard used to report non-financial information and indicators adopted.

2.7

New Zealand Government’s Proposal on Climate-Related Financial Disclosures

In the same direction, the New Zealand Government issued mandatory climaterelated financial disclosures for publicly listed companies, large insurers, banks, non-bank deposit takers and investment managers. Particularly, such requirements need to be approved by the New Zealand Parliament modifying the Financial Markets Conduct (FMC) Act foreseeing their application to financial entities’ reports by 2022. The introduction of mandatory climate-related information in the annual reports is directed towards emphasizing the role of climate change in several aspects starting from its influence on the business ongoing and increasing transparency and responsibility towards zero carbon emissions. Interestingly, the Financial Sector (climate-related disclosure and other matters) Amendment Bill (https://legislation.govt.nz/bill/government/2021/0030/latest/ LMS479633.html?src¼qs) shows in part 7A the “climate-related disclosures for certain FMC reporting entities with higher level of public accountability”. After the overview, the “meaning of climate reporting entities” is also reported.

2.8

International Initiatives for the Sustainability Reporting and Disclosure

Corporate sustainability reporting and disclosure are more and more relevant in communicating to stakeholder’s credible non-financial or sustainability performance (Busco et al., 2018; de Villiers et al., 2014; Ernst & Young, 2014; Healy & Palepu, 2001; PricewaterhouseCoopers, 2018; Xiao & Shailer, 2021). Even if non-financial performance is connected to corporate results, financial and non-financial performance (or social, environmental, financial and governance) information (Dey & Burns, 2010; Hopwood et al., 2010; La Torre et al., 2018; Pizzi et al., 2020; Uang et al., 2006) are often integrated into the mandatory annual reports. The

2.9 The Global Reporting Initiative

49

environmental, social and governance (ESG) disclosure increased its relevance in the last decades. The criteria by the ESG have been applied in sustainable finance for several years and retrieved in the voluntary reporting and disclosure by companies using several frameworks.5 Particularly, corporate reporting and disclosure about climate change, environment, security and health, corruption and so on are central in the frameworks and standards by international organizations and specific regulations increasing accountability and transparency towards stakeholders (Odongo & Wang, 2018; Parker, 2005; Shehata, 2014). Additionally, the report and measure of corporate sustainability performance can be associated with i) the increasing social, environmental and governance performance; ii) the improvement of sustainability performance associated with the improvement of equity; iii) the rewarding of investors and consumers to companies in terms of increasing sustainability performance; and iv) the establishment of more rigorous measurement models of social and environmental impacts (Pucker, 2021). In this direction, the main international experiences adopted in recent years by companies are reported below. Adopting the qualitative methodology, this chapter proposes the most diffused frameworks and standards used to report and disclose social, environmental and governance information. However, it is relevant to emphasize that this stream of research has rapidly changed owing to the increasing attention paid to corporate social responsibility and stakeholder engagement (Campra et al., 2020; Greco et al., 2015). The multiplication of initiatives seems to be directed towards a wide harmonization of frameworks and standards as well as regulations in the international scenario. The path towards integrated reporting and disclosure (de Villiers et al., 2014; de Villiers et al., 2017; Paolucci & Cerioni, 2017) is lively, open and will be further defined in the near future.

2.9

The Global Reporting Initiative

Global Reporting Initiative (GRI). This is an international organization started in 1997, which provides a set of guidelines/standards for private and public organizations communicating sustainable information to stakeholders in the sustainable reports: “The GRI Standards represent global best practice for reporting publicly on a range of economic, environmental and social impacts” (www.globalreporting.

5

In 2009, the ESG reporting started with the submission of this project to the European Federation of Financial Analysts Societies (EFFAS). This project was presented by the German entity DVFA, proposing a set of key indicators based on the environmental (e.g. emissions), social (e.g. employees’ turnover) and governance (e.g. corruption) issues. However, in the last years, the ESG reporting guideline has been published fostering sustainability, profitability and stakeholder’s satisfaction and reducing risk management. For example, you can consult www.nasdaq. com/ESG-Guide.

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2 The Corporate Sustainability Reporting and Disclosure

Economy

Environmental

Society

Fig. 2.6 GRI standards and organizations’ impact. Source: Own elaboration

org). The Global Sustainability Standard Board issues the GRI standards currently divided into universal standards (e.g. GRI 102 General Disclosure; GRI 103 Management Approach) and topic-specific standards (e.g. grouping category GRI 200 Economic; GRI 300 Environmental; GRI 400 Social) using a set of key indicators. The first version of the GRI report has been intended as an evaluation model of the corporate financial, social and environmental performance through a set of indicators. Companies applying the GRI standards for their sustainability reports can consult and apply specific standards based on the requirements, recommendations and guidance. The GRI report is developed following a set of principles to define its content and quality as follows (GRI 101: foundation , 2016, www. globalreporting.org): • The principles for the report content are i) stakeholder inclusiveness, ii) sustainability context, iii) materiality and iv) completeness. • The principles for the quality report are i) accuracy, ii) balance, iii) clarity, iv) comparability, v) reliability and vi) timeliness. Thus, the GRI sustainability reporting standards draft the organizations’ impact on the economy (e.g. economic performance, market presence, indirect economic impact, procurement practices, anti-corruption, anti-competitive behaviour, tax), environment (e.g. materials, energy, water and effluents, biodiversity, emissions, waste, supplier environmental assessment) and society (e.g. employment, labour/ management relations, occupational health and safety, training and education, diversity and equal opportunity, non-discrimination, freedom of association and collective bargaining, child labour, forced or compulsory labour, security practices, rights of indigenous peoples, human rights assessment, local communities, supplier social assessment, public policy, customer health and safety, marketing and labelling, customer privacy, socioeconomic compliance) in the light of the goal of sustainable development (Fig. 2.6). After the universal standards GRI 100 (e.g. GRI 101 Foundation, GRI 102 General Disclosure and GRI 103 Management Approach), GRI proposed the topic-

2.10

The SDG Initiatives and the UN Global Compact

51

specific standards GRI 200 (economic), GRI 300 (environmental) and GRI 400 (social) to assess the economic, environmental and social impacts of companies adopting the GRI sustainability report. Recently, GRI issued some new standards in the following emerging topics (Global Reporting Initiative (GRI) & GSSB, 2020): • n. 207 TAX. Organizations disclose their management approach to tax (207-1), tax governance, control and risk management (207-2), stakeholder engagement and tax’s concerns (207-3) foreseeing a country-by-country reporting (207-4) as topic-specific disclosure since 1 January 2021. • n. 303 Water and Effluents. Organizations disclose the management of water as resource (303-1) and as discharge-related impacts (303-2). They additionally disclose the water withdrawal (303-3), discharge (303-4) and consumption (303-5) as topic-specific disclosure by 1 January 2021. • n. 306 Waste. Organizations disclose the generation of waste and its impact (306-1) and the management of waste (306-2). As topic-specific disclosure, organizations disclose the generated waste (306-3), waste diverted from disposal (306-4) and waste directed to disposal (306-5) by 1 January 2022. • n. 403 Occupational Health and Safety. Organizations disclose, in the management perspective, the health by occupation and safety management system (403-1); the identification of hazard, risk assessment and incident (403-2); the health services in the occupation (403-3); the worker involvement in health and safety (403-4) and its promotion (403-6); the worker health promotion (403-5); and the prevention of health and safety impacts on the workers (403-7). Additionally, they disclose the topic-specific on workers and health/safety management system (403-8), injuries (403-9) and ill health (403-10) by 1 January 2021.

2.10

The SDG Initiatives and the UN Global Compact

The Sustainable Development Goals (SDGs) have been adopted in 2015 by the 178 United Nations Member States (www.sdgs.un.org) to achieve cooperation in the sustainable development improving human lives and protecting the environment. Sustainable development is currently based on 17 goals and 169 targets started initially by Agenda 21 in 1992. After several steps, the 2030 Agenda for Sustainable Development was developed in 2015 at the UN Sustainable Development Summit. In fact, the Division for Sustainable Development Goals (DSDG) in the United Nations Department of Economic and Social Affairs (UNDESA) is widely involved in facilitating action plans for adopting SDGs. However, SDGs are currently based on the areas of people, planet, prosperity, peace and partnership, following these goals (www.sdgs.un.org): 1. “Goal 1. End poverty in all its forms everywhere 2. Goal 2. End hunger, achieve food security and improve nutrition and promote sustainable agriculture 3. Goal 3. Ensure healthy lives and promote well-being for all at all ages

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2 The Corporate Sustainability Reporting and Disclosure

4. Goal 4. Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all 5. Goal 5. Achieve gender equality and empower all women and girls 6. Goal 6. Ensure availability and sustainable management of water and sanitation for all 7. Goal 7 Ensure access to affordable, reliable, sustainable and modern energy for all 8. Goal 8. Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all 9. Goal 9. Build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation 10. Goal 10. Reduce inequality within and among countries 11. Goal 11. Make cities and human settlements inclusive, safe, resilient and sustainable 12. Goal 12. Ensure sustainable consumption and production patterns 13. Goal 13. Take urgent action to combat climate change and its impacts* 14. Goal 14. Conserve and sustainably use the oceans, seas and marine resources for sustainable development 15. Goal 15. Protect, restore and promote sustainable use of terrestrial ecosystems, sustainably manage forests, combat desertification and halt and reverse land degradation and halt biodiversity loss 16. Goal 16. Promote peaceful and inclusive societies for sustainable development, provide access to justice for all and build effective, accountable and inclusive institutions at all levels 17. Goal 17. Strengthen the means of implementation and revitalize the Global Partnership for Sustainable Development”. The SDG guide (Global Reporting Initiative and United Nations Global Compact, 2017) provides information to include the 17 goals in the corporate reporting. Such a guide proposes the following: 1. The priority awareness on SDGs by a company helping itself to prioritize impacts and define its main SDGs 2. The path to measure goals, choosing the corporate disclosure and investigating performance 3. Suggestions to develop the corporate report fostering the SDG performance The SDG Guide and Business Reporting of the SDGs: An Analysis of the Goals and Targets (Global Reporting Initiative and United Nations Global Compact, 2018) are developed in collaboration with the UN Global Compact (it is represented below through its ten principles) and the GRI. The SDG Guide is also aligned with the following guidelines: • The UN Guiding Principles on Business and Human Rights (United Nations, 2011, available at www.ohch.org). It is based on the corporate responsibility of protecting human rights.

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The SDG Initiatives and the UN Global Compact

53

• The OECD Guidelines for Multinational Enterprises published in 2011 (OECD, 2011, available at www.oecd.org). Such guidelines are based on principles and standards on the business conduct providing recommendations by governments to multinational enterprises belonging to the involved countries. • The OECD Due Diligence Guidance for Responsible Business Conduct (OECD, 2018, available at www.oecd.org). It provides criteria to develop due diligence for responsible business conduct, starting from the previous OECD Guidelines. Referring to the UN Global Compact (www.unglobalcompact.org), organizations can adopt ten principles by the UN Global Compact to achieve the Sustainable Development Goals (SDGs) in preparing their non-financial reporting: we aim to mobilize a global movement of sustainable companies and stakeholders to create the world we want. That’s our vision. . .the UN Global Compact supports companies to: 1. Do business responsibly by aligning their strategies and operations with Ten Principles on human rights, labour, environment and anti-corruption; and 2. Take strategic actions to advance broader societal goals, such as the UN Sustainable Development Goals, with an emphasis on collaboration and innovation. (www.unglobalcompact.org)

The UN Global Compact’s principles are based on the following issues, supported by transparent information to stakeholders in achieving sustainability (United Nations, 2015). Your company’s annual Communication on Progress (COP) is a key component of your commitment to the UN Global Compact” (www. unglobalreporting.com): • Human rights: each business respects human rights at international level (principle 1), and it is not complicit in abuses (principle 2). • Labour: each business sustains the freedom of association and the negotiation right (principle 3), the removal of forced and compulsory labour (principle 4), the child labour’s elimination (principle 5) and the discrimination’s removal in the employment context (principle 6). • Environment: each business should adopt precaution in the environmental changes (principle 7), the adoption of initiative to foster environmental responsibility (principle 8) and the fostering of environmentally friendly technologies (principle 9). • Anti-corruption: each business should avoid all forms of corruption during its ongoing (principle 10). The goal and target 12.6 of the SDGs is directed towards encouraging companies to adopt sustainable practices integrating sustainability information into their reporting practices. In this way, a renewed business model emerged fostering accountability (Bebbington & Unerman, 2020; Gray, 2010). Additionally, in September 2020, a report was published linking the Sustainable Development Goals (SDGs) and the GRI topics and standards (GRI, 2017), helping companies in achieving sustainable development and accountability towards stakeholders. The detailed list of SDGs has been connected to the related GRI standards (e.g. SDGs 1 No poverty-target 1-GRI 207; SDGs 13 Climate action-Target 13.1-GRI 201/GRI 302/GRI 305).

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2.11

2 The Corporate Sustainability Reporting and Disclosure

The International Integrated Reporting Council (IIRC)

The International Integrated Reporting Council (IIRC) is a coalition of regulators, standard setters, accounting professionals, academia, investors, companies and NGOs providing an integrated reporting framework: it improves the quality of information disclosed to the investors and other stakeholders. The IR Framework was published in 2013 as a guide for the preparation of the corporate integrated report mainly based on communicating the corporate value creation (and also preservation and erosion) to stakeholders emphasizing the social and environmental performances (Badia et al., 2019). It is based on guiding principles and elements in applying this framework updated on January 2021. The guiding principles by the IR Framework are as follows: i) strategic focus and future horizon, ii) connectivity of information, iii) stakeholder relationships, iv) materiality, v) conciseness, vi) reliability and completeness and vi) consistency and comparability. Additionally, the IR Framework is based on the following guiding elements that companies need to emphasize (IIRC, 2021; Rodríguez-Gutiérrez, 2021): • The organization’s strategy • The business model and corporate governance • Performance Particularly, the guiding elements by the IR Framework are as follows: i) organizational overview and external environment, ii) governance, iii) business model, iv) risks and opportunities, v) strategy and resource allocation, vi) performance, vii) outlook, viii) basis of the path for the reporting development and presentation and ix) general information about the reporting (more details are available at www.integratedreporting.org). The IR Framework is applied to the private sector and for-profit companies (if necessary, also public sector and nonfor-profit organizations). Many companies adopted the IR Framework in reporting and disclosing their intangibles. Some of them received the awards by IIRC for their outstanding implementation and reporting of their guidelines. These are real best practices in applying the IF Framework to the company’s sustainable reporting and disclosure.

2.12

The Sustainability Accounting Standards Board (SASB)

The Sustainability Accounting Standards Board (SASB) is an independent non-profit organization publishing standards to disclose corporate financial material sustainability information to stakeholders (www.sasb.org). SASB assumes the corporate communication of environmental, social and governance pillars connected to

2.12

The Sustainability Accounting Standards Board (SASB)

55

corporate financial performance. In this perspective, sustainability information is useful for companies in creating value, and SASB standards are directed towards adopting principles by the Task Force for Climate-Related Financial Disclosures (TCFD). Through the identification of main sustainability issues in relation to financial performance as well as of 77 industries in which companies are operating (and related sectors), SASB proposes the use of the materiality map as an interactive tool useful for companies in disclosing the following macro topics (26 topics) adopting accounting metrics (or dimensions as rows in the map): 1. 2. 3. 4. 5.

Environment Social capital Human capital Business model and innovation Leadership and governance

In the materiality map, such dimensions are crossed with industries and sectors. These are classified sectors in the map (as columns): • • • • • • • • • • •

Consumer goods Extractives and Minerals Processing Financial Food and Beverage Health Care Infrastructure Renewable Resources and Alternative Energy Resource Transformation Services Technology and Communications Transportation

Figure 2.7 shows the materiality map by SASB (www.sasb.org) including macro topics and metrics. Sustainability corporate reporting and disclosure are directed towards choosing specific indicators by the company sector and topics. For example, at the crossing of the environment (Greenhouse Gas Emissions) as topic to disclose and the agricultural products as industry, the accounting metrics proposed by the materiality map by SASB are as follows (www.sasb.org): “FB-AG-110a.1 Gross Global Scope 1 emissions”; “FB-AG-110a.2 Discussion of long-term and short-term strategy or plan to manage Scope 1 emissions, emissions reduction targets and an analysis of performance those targets”; “FB-AG-110a.3 Fleet fuel consumed, percentage renewable”. Another example is the accounting metrics at the crossing of the human rights & Community Relations (topic Safety of clinical trial participants) and biotechnology & pharmaceuticals (industry): “Hc-BP-210a.1 Discussion, by world region, of management process for ensuring quality and patient safety during clinical trials” (www.sasb.org). During 2020, SASB and GRI activated a joint plan for the utilization of their standards in the communication of sustainable information to stakeholders (www.

Fig. 2.7 Materiality map by SABS. “© YEAR. Reprinted with permission from the SASB Foundation. All rights reserved”

56 2 The Corporate Sustainability Reporting and Disclosure

2.13

The Climate Disclosure Standards Board

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globalreporting.org; www.sasb.org). Additionally, SASB and IIRC proposed the establishment of the Value Reporting Foundation in 2021 to increase the transparency and accountability of sustainable disclosure. The Value Reporting Foundation is an international organization mainly using the integrated reporting framework and sustainability disclosure standards to create corporate value in the long term emphasizing sustainability and intangible value.

2.13

The Climate Disclosure Standards Board

The Climate Disclosure Standards Board (CDSB) was established in 2007 by several non-governmental organizations, among which are the Climate Disclosure Project (CDP), Sustainability Accounting Standards Board (SASB), World Economic Forum (WEF), World Business Council for Sustainable Development (WBCSD) and CERES, to provide companies a framework for the environmental reporting (the CDSB framework). It is operating as a consortium providing a dedicated framework for the environmental and climate change reporting and disclosure to stakeholders. CDSB information to be reported in the annual corporate reporting is useful for regulators, investors, analysts and so on. The CDSB framework includes environmental and climate change information to be included in the mainstream corporate reports. Particularly, “companies can use the CDSB Framework to incorporate climate change, environmental and natural capital-related information in mainstream financial reports, assisting companies in achieving a holistic view of how climate change and natural capital can affect their performance and the necessary actions they could take to address the risks and opportunities”. (www.cdsb.net) The CDSB framework is mainly based on guiding principles and requirements. CDSB recognizes the environmental information in the following topics (CDSB, 2019): • • • • •

“Natural capital dependencies; Environmental results; Environmental risks and opportunities; Environmental policies, strategies and targets; Performance against environmental targets”

The guiding principles reported in the environmental information are as follows (www.cdsb.org): 1. 2. 3. 4. 5.

Relevance and materiality Information faithfully represented Connection with other information Consistent and comparable Clear and understandable

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6. Be verifiable 7. Be forward-looking The requirements are as follows, which are inherent to the following environmental topics (CDSB, 2019): • • • • • • • • •

Corporate governance (REQ-01) Environmental policies, strategy and targets (REQ-02) Opportunities and risks (REQ-03) Sources of environmental impact (REQ-04) Performance having comparative analysis (REQ-05) Outlook (REQ-06) Organizational boundary (REQ-07) Reporting policies and period (REQ-08 and REQ-09) Restatements, conformance, assurance (REQ-10, REQ-11 and REQ-12)

2.14

The Climate Disclosure Project

The Climate Disclosure Project (CDP) started twenty years ago as a non-profit organization to support the environmental disclosure system (www.cdp.net). CDP is directed towards sustaining companies, cities, states and regions in managing the following issues: • Climate change • Water security • Deforestation CDP implemented a detailed questionnaire through which it is possible to measure a company’s score in impacting climate change, forests and water security. Some Scholars provide interesting evidence on the corporate responses to the CDP questionnaire (Peters & Romi, 2009; Stanny & Ely, 2008). CDP also proposes a database containing the CDP scoring from A to F of the disclosure of more than 9600 companies on climate change, water security and forests. For example, searching for the European scenario in the sector of electric utilities, 79 companies disclosing on climate change were retrieved (www.cdp.net): each of us received a score in the application of the CDP issues (Table 2.5). One of the main profitable tools in examining the effect of climate change is the climate scenario analysis: it allows for the corporate investigation of positive and negative influences also engaging stakeholders to draft opportunities and risks by the climate change (Nathan-King, 2021). CDP establishes partnership to create accredited solutions all over the world for all services and sectors.

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The Climate Disclosure Project

59

Table 2.5 CDP scoring in the electric utilities Number of Companies 2 1 1 1 2 5 8 1 1 2 1 7

Company countries Austria Belgium Czechia Denmark Finland France German Greece Hungary Iceland Ireland Italy

3 4 2 9

Netherlands Poland Portugal Russian Federation

6

Spain

1 3 10

Sweden Switzerland Turkey

2 7

Ukraine United Kingdom of Great Britain and Northern Ireland

Score A-; B B C A F; AF; F; A; A; + see another F; F; F; A; B; B; A; AF F C; AA A; A; A; A-; A-; A-; Not scored A; F; F F; F; F; D D; A F; F; F; F; F; F; A-; D-; Not scored A; A; A; A-; see another; not scored A F; F; F B-; F; D; D-; F; D; B; B; F; see another F; F A-; A; F; A-; D; A; A-

Source: Own elaboration on data CDP, www.cdp.net

2.14.1 The Corporate Water Disclosure The corporate water disclosure is proposed by an international guideline developed by the CEO Water Mandate6 in collaboration with other partners and adviser organizations: the Carbon Disclosure Project (CDP), Global Reporting Initiative (GRI), World Resources Institute (WRI) and PricewaterhouseCoopers LLP (Pacific Institute, 2014). Particularly, the water management by companies is a relevant issue to report and disclose to stakeholders aligned to principles directed towards safeguarding the environment.

6 Such initiative born from the UN Secretary-General and the UN Global Compact, www. ceowatermandate.org.

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The aims of such guideline are mainly directed towards defining metrics and paths to foster the comparability of information disclosed to stakeholders. Thus, another aim is the method to report such information. Lastly, the corporate water management needs to be aligned with the disclosure activities directed towards stakeholders. The corporate water disclosure framework is proposed for a better understanding of water information disclosure (Pacific Institute, 2014; www.ceowatermandate. org). This framework is mainly divided into three parts: • Company water profile • Defining what to report • Detailed disclosure The detailed disclosure (and also reporting) is mainly based on the i) current state (i.e. context, performance, compliance), implications (i.e. business risks, business opportunities and external impacts) and response (policies, governance and targets, internal actions and external engagement). Particularly, the reporting practices are of basic and advanced nature in relation to the corporate experience in the water management (Pacific Institute, 2014, p. 31). Understanding the information retrieved from the basic and advanced reporting and disclosure, an example is represented by details of the “current state” and subsection “performance”7: • The basic information is as follows (Pacific Institute, 2014; www. ceowatermandate.org): – “Total and percentage of withdrawals in water-stressed or water-scarce areas – Percent of facilities adhering to relevant water quality standards – Average water intensity in water-stressed or water-scarce areas (as appropriate) – Percent of facilities with fully functioning WASH services for all workers” • The advanced information is as follows (Pacific Institute, 2014; www. ceowatermandate.org): – “Location-specific performance data: Water withdrawals by source type Water intensity Water consumption Water discharge by destination type Water performance in the value chain” The reporting and disclosure in the water management can include a section to explain the connection between water and sustainability issues directed towards safeguarding the environment and collectivity.

7

This is an example of one of the information to be disclosed.

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The Climate Disclosure Project

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2.14.2 AccountAbility 1000 The AccountAbility 1000 (AA1000) Assurance Standards v3 (www.accountability. org) are the standards supporting the high-quality sustainability assurance in the corporate reporting. AA100 replaces the previous AA series standards, and it is applied from the beginning of 2021. Particularly, AA1000 Assurance Standards v3 are focused on four main principles (AccountAbility, 2020, p. 1): • “Inclusivity—People should have a say in the decisions that impact them. • Materiality—Decision makers should identify and be clear about the sustainability topics that matter. • Responsiveness—Organisations should act transparently on material sustainability topics and their related impacts. • Impact—Organisations should monitor, measure, and be accountable for how their actions affect their broader ecosystems”. Following the previous standards, the last version of AA1000 Assurance Standards v3 is directed towards providing a guideline in the sustainability management, performance and reporting practices by companies: It is aligned to the previous standards AA1000AP 2018 (www.accountability.org) that are inclusivity, materiality, responsiveness and impact. The structure of the AA100 Assurance Standards v3 is based on four sections: • • • •

Purpose, scope, users, how to apply the standards Characteristics and preconditions in the engagement Engagement path Assurance statement and optional report to management

Additionally, sustainability assurance allows for the recognition of the “nature and extent of adherence to the AA1000 AccountAbility Principles” and “If defined in the scope of the engagement, the reliability and quality of disclosed information on sustainability performance” (AccountAbility, 2020; p. 10).

2.14.3 International Organization for Standardization (ISO) 26000 The International Organization for Standardization (ISO) was established in 1947 and represents “the world’s largest developer of voluntary International Standards. International Standards provide state-of-the art specifications for products, services and good practices, helping to make industry more efficient and effective” (ISO & OECD, 2019, p. 3). Among its over 21,000 standards, the ISO standards are directed towards supporting the sustainable development, including in the standards of the economic, social and environmental information.

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The International Organization for Standardization (ISO) of 26000 “Guidance for social responsibility” (www.iso.org) constitutes an international voluntary guideline standard for organizations providing a social responsibility guidance directed towards safeguarding the society and environment. It was applied on November 2020 by all types of organizations (e.g. private and public companies; small, medium and large companies; companies all over the world). The ISO 26000 is based on seven clauses directed towards supporting the sustainable development. They are reported as follows (ISO & OECD, 2019, p. 72): • • • • • • •

Clause 1—Scope Clause 2—Terms and definitions Clause 3—Understanding social responsibility Clause 4—Principles of social responsibility Clause 5—Two fundamental practices of social responsibility Clause 6—Social responsibility core subjects Clause 7—Integrating social responsibility throughout an organization

Among the previous clause, the two fundamental practices of social responsibility are the recognition of i) social responsibility and ii stakeholders (including their engagement). Additionally, the core subjects of the social responsibility are identified by ISO (alphabetical order) in the community involvement and development, consumer issues, environment, fair operating practices, human rights and labour practices (ISO & OECD, 2019, p. 72). Lastly, the integration of social responsibility throughout an organization is shown by specific social responsibility practices such as target communication, voluntary initiatives, increase in credibility, meaning of social responsibility adopted by the organization and so on. Often, organizations apply the ISO 26000 and OECD Guidelines for Multinational Enterprises published in the updated version of 2011 to increase the social responsibility.8 The last one is specifically applied to multinational enterprises and directed towards guaranteeing that their operations “are in harmony with government policies, to strengthen the basis of mutual confidence between enterprises and the societies in which they operate, to help improve the foreign investment climate and to enhance the contribution to sustainable development made by multinational enterprises” (OECD, 2011, p. 13). Following the OECD Guidelines, multinational companies disclose information about financial, social and environmental results in relation to their characteristics (e.g. location) and apply also other standards for social and environmental information. However, the OECD Guidelines suggest to disclosure also material information (OECD, 2011, p. 28): (a) the financial and operating results of the enterprise; (b) enterprise objectives;

8 The first version of the OECD Guidelines for Multinational Enterprises was published in 1976 (www.oecd.org).

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(c) major share ownership and voting rights, including the structure of a group of enterprises and intra-group relations, as well as control enhancing mechanisms; (d) remuneration policy for members of the board and key executives, and information about board members, including qualifications, the selection process, other enterprise directorships and whether each board member is regarded as independent by the board; (e) related party transactions; (f) foreseeable risk factors; (g) issues regarding workers and other stakeholders; (h) governance structures and policies, in particular, the content of any corporate governance code or policy and its implementation process.

2.14.4 The GBS Standards The GBS standards are created by an association promoting the culture of social reporting and sustainability reporting in Italy providing several models in relation to the organization’s specificity (Ricci, 2006). In this direction, the “Gruppo di Studio per il Bilancio Sociale” (GBS) (www.gruppobilanciosociale.org) published the following standards: 1. GBS standard 2001 2. GBS standard 2013 3. GBS standard in the public administration GBS Standard 2001 The first standard by the GBS was published in 2001 establishing the Italian experience posing principles and procedures for the development of the social report (www.gruppobilanciosociale.org). Particularly, such standard is based on three sections as follows: 1. Principles supporting the social reporting (i.e. scope and standards) 2. Sections by the social reporting (i.e. structure and content). They are the business identity, production and distribution of added value (i.e. the corporate identity, corporate structure, values, mission, strategies and policies). Additionally, the social report is based on the qualitative and quantitative identifications of the corporate results (i.e. the creation and allocation of added value through a specific path of calculation) and the actions and effects on stakeholders (i.e. the social account and its content, stakeholder identification, key assumptions and integrative sections among which stakeholder feedback, opinions, comments and statements and improvements to the social reporting); 3. Appendix. This section is dedicated to the calculation of the added value and the utilization of schemes to translate financial business report into added value tables. Interestingly, the GBS standard 2001 is directed towards diffusing the culture of the social report and regulation. Particularly, the calculation of the value added is directed towards measuring the value creation to stakeholders. A measurement path

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is adopted by the income of statement drafting the production and distribution of the added value to stakeholders (www.gruppobilanciosociale.org). The (global) added value (GAV) is represented with or without the asset’s depreciation as corporate remuneration. There are two schemes for the evaluation of the added value or GAV (Gruppo di studio per il bilancio sociale, 2001): • The added value scheme based on the comparison among intermediate income and costs • The added value scheme based on the sum of remunerations of internal stakeholders and external liberality Thus, GAV is evaluated as follows using a summarized scheme from the path proposed by the GBS: + Goods/Services Sales – Intermediate costs (e.g. raw materials, goods, services) ¼ gross GAV – assets’ depreciations ¼ net GAV The scheme for the added value distribution is summarized as follows (Gruppo di studio per il bilancio sociale, 2001): A) Remuneration of staff B) Public administration remuneration C) Remuneration of credit capital D) Remuneration of capital risk E) Company remuneration F) Donations Net GAV GBS Standard 2013 Following the Italian experience in the social reporting and sustainability report disclosed to all stakeholders (e.g. internal and external stakeholders), the GSB standards increased during the time. Particularly, an updated version of the GBS standard has been published in 2013, including revisions directed towards increasing transparency in social and environmental issues. In this direction, the structure of the GBS standard 2013 is firstly based on the introduction of this new standard version and its motivation, what is social reporting and social responsibility. Interestingly, the GSB standard 2013 highlights the increasing awareness by companies in the sustainable development activating the path towards transparency of corporate social and environmental impacts. These are information more and more required by stakeholders among which investors and collectivity play a crucial role. In the same direction, a set of social and environmental information (e.g. non-financial information) becomes also relevant in the annual financial reporting (Gruppo di studio per il bilancio sociale, 2013). However, the GBS standard 2013 is also focused on the objectives and principles to be adopted in the social reporting development and the content of the social report. Among the other information, the last one foresees the following sections:

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(. . .) 1. Corporate identity and context 1.1. The Institutional Framework 1.1.1. Corporate Governance 1.1.2. Indicators of Corporate Governance 1.2. Reference values 1.3. The mission 1.4. Strategies and policies 1.5. Company System 1.6. Areas of intervention 2. Reclassification of accounting data and calculation of Value Added 2.1. Statement for Added Value 2.2. Allocation for Added Value A. Remuneration of Staff B. Remuneration of Public Administration C. Remuneration of Capital Credit D. Remuneration of Capital Risk E. Company remuneration F. Donations G. Environment 3. Report socio-environmental 3.1. General aspects 3.2. The social dimension 3.2.1. The identification of stakeholders and areas of intervention 3.2.2. The staff 3.2.3. Members and shareholders 3.2.4. Money lenders 3.2.5. Public Administration 3.2.6. Community 3.2.7. Customers 3.2.8. Suppliers 3.3. The environmental dimension 3.3.1. General aspects 3.3.1.1. Economic and financial information 3.3.1.2. Qualitative information 3.3.1.3. Quantitative information 3.3.2. Environmental Report 3.3.2.1. Environmental identity 3.3.2.2. Direct environmental aspects 3.3.2.3. Indirect environmental aspects 3.3.3. Table of environmental indicators 4. Integrative Sections 4.1. Judgments and opinions of stakeholders 4.2. Improvement of Social Report (. . .). (www.gruppobilanciosociale.org)

It seems relevant to understand the structure of the updated standard by GBS in order to emphasize the role of three elements: i) the added value, ii) the social and environmental information and ii) the stakeholders’ role. Additionally, the development of the social report following the GBS standard 2013 is widely connected to the quality of information and principles declared by the GBS, such as responsibility, identification, transparency, inclusion, coherence, neutrality, third-party independence, temporal competence, homogeneity, significance and periodicity of information collected and provided to stakeholders. Following the GBS standard 2013, the accounting data are classified to generate the added value (at the macro and micro levels). Only in the micro perspective, the added value is determined by corporate productive factors, and it is shared with stakeholders (Gruppo di studio per il bilancio sociale, 2013). The scheme for the transfer of the added value to stakeholder is created by the GBS also including information about the environment. The fundamental report is the income of statement and its reclassification following the scheme proposed by the GBS. The GAV evaluation path is the same as that in the previous standard 2001, including environmental information. Perhaps, the scheme for the added value distribution is as follows (Gruppo di Studio per il Bilancio sociale, 2013): A) Remuneration of staff B) Public administration remuneration C) Remuneration of credit capital D) Remuneration of capital risk E) Company remuneration F) Donations G) Environment Net GAV GBS Standard in the Public Administration The social reporting in the public administration is developed following the dispositions of the GBS standard published in 2005. This standard is dedicated

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towards public companies to promote the transparency towards all stakeholders (www.gruppobilanciosociale.org). It is based on two main sections after the recognition of the business identity (Gruppo di studio per il bilancio sociale, 2005): • “the reclassification of accounting details and added value calculation, highlighting the resources employed and distributed, and, in some cases, the wealth created, also indicating the operational areas in which the management is involved; • the social report, exposing the obtained results in the different operational areas and the effects produced on the many categories of involved stakeholders”. (www.gruppobilanciosociale.org) In this perspective, the GBS standard 2005 proposes the calculation of the public added value starting from the accounting details (Gruppo di studio per il bilancio sociale, 2005). The public added value is evaluated with the same scheme proposed before in the private sector knowing that the balance sheets by public companies are different from the private ones in terms of items. The scheme for the public added value distribution to stakeholders is as follows (Gruppo di Studio per il Bilancio sociale, 2005): A) B) C) D)

Remuneration of staff Public administration remuneration Remuneration of credit capital Unshared value destined to the equity

The social relation is the last part of this standard, which also highlights the categories of stakeholders. Other Experiences and the Joint Sustainability and Climate-Change Initiatives Towards Integrated Information and Disclosure Following the previous discussion on jurisdictions, frameworks, standards and initiatives in the sustainability reporting and disclosure, the current section is shortly directed towards listing some other experiences in this field. Interestingly, initiatives are more and more increased by several organizations and sometimes used in the mandatory reporting and disclosure (e.g. GRI, IIRC). Thus, the need to adopt harmonization in the frameworks and standards on sustainability reporting and disclosure emerged. Especially in recent times, there was a multiplication of frameworks and standards in the sustainability field. Thus, the need to increase transparency, accountability and comparability fostered the birth of joint sustainability and climate-change experiences. In 2020, the International Financial Reporting Standards (IFRS) Foundation proposed the creation of the Sustainability Standards Board (SSB) composed of five frameworks and standards: Global Reporting Initiative (GRI), International Integrated Reporting Council (IIRC), Sustainability Accounting Standard Board (SASB), Climate Disclosure Standards Boards (CDSB) and Carbon Disclosure Project (CDP). Entities participating in the SSB would have a common vision for the realization of a comprehensive corporate reporting system based on financial

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accounting and sustainability disclosure that are more and more relevant in the international scenario (Pulejo & Rapazzo, 2013). In this perspective, sustainability standards and frameworks are connected to generally accepted accounting principles (www.sasb.org). They also focused on the climate disclosure standard. Even if the materiality is defined in a unique manner, companies can adopt frameworks and standards following their aims, value and vision. Also, the International Organization of Securities Commissions (IOSCO) assumes the need “. . . for globally consistent, comparable, and reliable sustainability disclosure standards and announces its priorities and vision for a Sustainability Standards Board under the IFRS Foundation” (www.iosco.org/news/pdf/ IOSCONEWS594.pdf). Fostering a sustainable disclosure through global standards, IOSCO will be involved in the IFRS Foundation in the new path towards the sustainability disclosure standards.

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Chapter 3

The Going-Concern in Non-financial Information

Abstract The purpose of this chapter is to introduce primary evidence based on the relevance of the going-concern in sustainability and non-financial reporting and disclosure. This is an innovative perspective of analysis directed towards showing the role and characteristics of the going-concern in sustainability reporting and disclosure towards stakeholders. Thus, evidence provided by this chapter supports reflections on the opportunity to identify and assess the going-concern in non-financial (voluntary and mandatory) disclosure. This analysis is qualitative and is also directed towards investigating the business continuity and the connection with the going-concern applied to the corporate systems.

3.1

Introduction

This chapter aims to investigate the going-concern in non-financial disclosure (Adams & Abhayawansa, 2021; Aureli et al., 2020; La Torre et al., 2018; Veltri et al., 2020) as an innovative stream of analysis. The motivation of this renewed analysis is derived from the increasing attention on the corporate going-concern and connected actions directed towards guaranteeing the business continuity in the long term (Cerullo & Cerullo, 2004; Gibb & Buchanan, 2006; Graham & Kaye, 2015; Herbane et al., 2004). The going-concern is a specific principle in the accounting field, and companies need to guarantee it in the development of the annual financial reports disclosing their performance (Adamo et al., 2019; Dell’Atti, 2003; Lacchini & Trequattrini, 2007; Marchi & Trucco, 2017; Melis, 2008; Paoloni et al., 2015; Pizzo, 2010). Thus, an overview of the going-concern principle in the most relevant accounting literature, through its definitions, meaning and applications (American Accounting Association, 1966; Deegan, 2009; Trequattrini, 2000) also in the light of the business continuity (Herbane et al., 2004), has been provided in Chap. 1. Conversely, in the sustainability reporting and disclosure born from the integrated thinking (Paoloni et al., 2015) and based on non-financial information, the goingconcern is underinvestigated (Fig. 3.1). Thus, what are the role and quality of © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 R. Lombardi, The Going-Concern-Principle in Non-Financial Disclosure, SIDREA Series in Accounting and Business Administration, https://doi.org/10.1007/978-3-030-81127-3_3

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Fig. 3.1 Sharing goingconcern and non-financial disclosure. Source: Own elaboration

information about going-concern in non-financial reporting and disclosure? Is it going-concern represented in the corporate sustainability reports? Scholars and practitioners are increasingly putting more emphasis on the role of sustainable reporting and disclosure to make companies more transparent and accountable towards stakeholders and to achieve high performance and competitive advantage in the long term (Adams & Abhayawansa, 2021; Aras & Crowther, 2008; Chersan et al., 2019; Lokuwaduge & Heenetigala, 2017; Masum et al., 2020; Sani et al., 2020; Usenko & Zenkina, 2016). Corporate value creation is another relevant aim (Paoloni, 2021). In recent times, many initiatives are directed towards harmonizing frameworks and standards based on non-financial information and intangibles (Adams & Abhayawansa, 2021; La Torre et al., 2018). Thus, the investigation of the going-concern and its role in the sustainability reports can be an innovative path towards drafting emerging issues discovering its function. As in the accounting landscape, the going-concern is one of the most relevant principles that companies need to guarantee when they realize the annual financial reports (Laghi et al., 2013; Maffei, 2017; Pisoni et al., 2007; Tommasetti & Bisogno, 2010; Trequattrini, 2000; Zanda, 2007) and before assume decision-making and business strategy (De Luca et al., 2013; Galeotti & Garzella, 2013). The need is to draft a primary state of the art in the context of the non-financial reports realized following different frameworks and standards, such as the Global Reporting Initiative (GRI), International Integrated Reporting Council (IIRC), UN Global Compact and Sustainable Development Goals, Sustainability Accounting Standards Board (SASB), Climate Disclosure Standards Board (CDSB), Carbon Disclosure Project (CDP), AccountAbility Assurance Standard 1000 v3, Corporate Water Disclosure, International Organization for Standardization (26000) and Gruppo di Studio per il bilancio sociale (Table 3.1). In the light of the previous consideration, this chapter is directed towards discovering the role of the going-concern in the non-financial reporting and disclosure under several theoretical lenses (e.g. corporate disclosure theory, stakeholder theory) (Freeman et al., 2007; Guthrie & Parker, 1989; Heitzman et al., 2010; Hummel & Schlick, 2016; Shehata, 2014) using four samples of analysis based on sustainability

3.1 Introduction

81

Table 3.1 Main research aims International dataset on sustainability reporting

Choosing the main application in the following list: Directive 2014/05/EU and its Guidelines Country-based legislation (e.g. Italian Legislative Decree 254/2016) Global Reporting Initiative (GRI) International Integrated Reporting Council (IIRC) UN Global Compact and Sustainable Development Goals Sustainability Accounting Standards Board (SASB) Climate Disclosure Standards Board (CDSB) Carbon Disclosure Project (CDP) Corporate Water Disclosure International Organisation for Standardization (ISO 26000) AccountAbility1000 Assurance Standard v3 Gruppo di studio per il bilancio sociale (GBS) Value Reporting Foundation Corporate Sustainability Reporting by EU

Source: Own elaboration Fig. 3.2 Four sample industries. Source: Own elaboration

Industrial Products & Services

Software & IT Services

Multiple Sectors

Food & Beverage

reports published in the recent time by companies in relevant industries for this kind of qualitative analysis (Fig. 3.2). Thus, adopting qualitative methodology to achieve the research aims (Parker & Narthcott, 2016), this chapter used the content analysis approach to collect information about the state of the art of the going-concern in the non-financial reporting. The main idea is to verify and define the presence/absence of the going-concern in a set of sustainable reports by companies adopting some relevant legislations or frameworks. Particularly, this chapter presents the following analysis: • The going-concern and EU Directive. The going-concern and the mandatory non-financial disclosure is investigated under the Directive 2014/95/UE lens using a representative sample of Italian Industrial Products and Services listed companies

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• The going-concern and Sustainable Disclosure Standard (SASB). The goingconcern is investigated under the SASB lens using a sample of software and IT service companies • The going-concern and IIRC. The going-concern is analysed under the IR Framework using a sample of awarded companies • The going-concern and the environmental and climate change disclosure using two cases in the food and beverage sector

3.2

The Going-Concern and the (Mandatory) Non-financial Disclosure by the EU Directive: The Case of the Italian Industrial Products and Services Listed Companies

This section presents the analysis of the sustainability reports published by the Italian Industrial Products and Services listed companies to disclose non-financial information to all stakeholders (e.g. investors). In the sample selection, the following two main initial criteria were applied: • The intention to analyse the going-concern in the mandatory non-financial disclosure by the Directive 2014/95/UE and its subsequent application through the European national laws • The choice of significant economic sector/companies in applying the mandatory non-financial disclosure Interestingly, this section would draft some primary evidence on the role of the going-concern in the non-financial reporting and disclosure and so in the sustainability reports (rather than in the annual financial reports). Thus, the Italian scenario has been selected as one of the most representative contexts in the European context, adopting the Legislative Decree No. 254/2016 on non-financial information. Additionally, the sample selection is based on the choice of a significant sector in welcoming the mandatory non-financial disclosure requirements: the industrial products and services. The selection of the Italian Industrial products and services listed companies is based on a representative sample of thirty-four (34) companies applying the Legislative Decree No. 254/2016 on non-financial information. They are reported anonymously in the following analysis. The data collection has been developed using both the website of the Borsa Italiana (www.borsaitaliana.it) and each company website to collect information and sustainability reports of the sample. The analysis has been conducted on a single and most recent one year (2019) owing to the current adoption of the Legislative Decree No. 254/2016. Companies (or public large entities or PIEs) are obliged to provide sustainability information or non-financial information since the annual report was published in 2017. In the absence of many sustainability reports for the year 2020 (at the time of this research), the year 2019 has been selected for the analysis. Such listed companies are large

3.2 The Going-Concern and the (Mandatory) Non-financial Disclosure by the EU. . .

83

corporate systems adopting for the reporting and disclosure of non-financial information the Global Reporting Initiative framework (GRI, 2016; www. globalreporting.org). Even if this sample has some criticism owing, for example, to its dimension, five companies in the sample (about 15%) adopt the integrated model: non-financial information is incorporated in the annual financial report instead to present a separate report. The majority of companies in the sample adopt the separate model: non-financial information is included in a separate report (the sustainability report) dedicated to non-financial information provided to all stakeholders. Table 3.1 also shows the characteristics of the sample in adopting the specific reporting model (e.g. separate or integrated) and framework (e.g. GRI). Additionally, Table 3.1 shows the summary of the searching for the going-concern in the sustainability reports analysed in the sample. Particularly, the words “going-concern” is not present in the sustainability reports by the sample. It is possible to note that such reports are in the Italian language, and one reason could be connected to the translation issues. However, searching for the “business continuity” (adopting the language translation) in such reports, it is possible to emphasize the presence of such word and meaning in the text of thirtytwo companies. Only two companies are excluded (company 21 and company 25). As this is a content analysis of the sustainability reports’ text, the last column of Table 3.2 shows which information(only relevant) are provided when the text of each report is associated with the business continuity. The only case associated with the going-concern principle (in the accounting perspective) is retrieved in one company (i.e. company 5). However, the sustainability reports of the sample mainly detail several key issues about the business continuity such as: • • • • • •

The services and operative continuity Stakeholder engagement Supply chain, environment and climate change risks Relationships with providers Human resources (HR), education Others

Additionally, the analysis has been conducted retrieving in the sustainability reports the nature of information provided by companies of the sample (Table 3.3). First of all, information on the business continuity is of qualitative nature in all sustainability reports analysed without quantitative metrics proposed to stakeholders. The description of the business continuity (adopting an extended meaning) in the collected sustainability reports has also been analysed checking for the following information categories: 1. The description of the business continuity is included in the text. 2. The description of the business continuity is included in one or more box(es) and/ or highlights and/or figure(s). 3. The description of the business continuity is included in one or more tables.

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Table 3.2 Sustainability reports and going-concern Company & non-financial disclosure

Company Company 1

Company 2

Company 3

Company 4

Company 5

Company 6

Company 7

Company 8

Company 9

Sector Industrial Products & Services Industrial Products & Services Industrial Products & Services Industrial Products & Services Industrial Products & Services Industrial Products & Services Industrial Products & Services Industrial Products & Services Industrial Products & Services

Company 10 Industrial Products & Services Company 11 Industrial Products & Services Company 12 Industrial Products & Services Company 13 Industrial Products & Services Company 14 Industrial Products & Services

Keywords & details Business Reporting Going- continuity model Framework concern (BC) BC details Separate GRI No Yes Services continuity Report

Separate Report

GRI

No

Yes

Stakeholder engagement

Separate Report

GRI

No

Yes

Supply chain

Separate Report

GRI

No

Yes

Separate Report

GRI

No

Yes

Separate Report

GRI

No

Yes

Separate Report

GRI

No

Yes

Education and soft skill for business; processes quality Going-concern principle, risks and uncertainty Climate change risks; relationship with providers Risks; climate change risks

Separate Report

GRI

No

Yes

Relationship with providers

Separate Report

GRI

No

Yes

Separate Report

GRI

No

Yes

Succession plan top management; BC management systems; operative continuity Stakeholder engagement

Integrate Report

GRI

No

Yes

Market and operative risks

Separate Report

GRI

No

Yes

Board of Anticorruption model

Separate Report

GRI

No

Yes

Services continuity

Separate Report

GRI

No

Yes

Relationship with providers (continued)

3.2 The Going-Concern and the (Mandatory) Non-financial Disclosure by the EU. . .

85

Table 3.2 (continued) Company & non-financial disclosure

Keywords & details Business Reporting Going- continuity Company Sector model Framework concern (BC) BC details Company 15 Industrial Separate GRI No Yes Remuneration policy; Products Report contractor companies’ & Services management; education; climate change Company 16 Industrial Separate GRI No Yes Supply chain; risks; Products Report health and safety; fam& Services ily succession plan Company 17 Industrial Integrate GRI No Yes Services continuity; Products Report ESG risks & Services Company 18 Industrial Separate GRI No Yes Disasters recovery plan Products Report for IT systems & Services Company 19 Industrial Integrate GRI No Yes Relationship with Products Report providers & Services Company 20 Industrial Separate GRI No Yes Human capital Products Report & Services Company 21 Industrial Integrate GRI No No Products Report & Services Company 22 Industrial Separate GRI No Yes Operative continuity; Products Report BC institute guidelines; & Services succession plan HR; environment risks; operative risks Company 23 Industrial Separate GRI No Yes Services continuity Products Report & Services Company 24 Industrial Separate GRI No Yes Risks Products Report & Services Company 25 Industrial Separate GRI No No Products Report & Services Company 26 Industrial Separate GRI No Yes HR Products Report & Services Company 27 Industrial Separate GRI No Yes Supply chain and Products Report operations; environ& Services ment risks; cybersecurity (continued)

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Table 3.2 (continued) Company & non-financial disclosure

Company Company 28

Company 29

Company 30

Company 31

Company 32

Company 33

Company 34

Keywords & details Business Reporting Going- continuity Sector model Framework concern (BC) BC details Industrial Separate GRI No Yes Operative risks; cyberProducts Report security; environment & Services risks Industrial Separate GRI No Yes R&D, HR Products Report & Services Industrial Separate GRI No Yes Supply chain and Products Report operations; corruption & Services prevention; management approach Industrial Separate GRI No Yes Risks Products Report & Services Industrial Integrate GRI No Yes Relationship with Products Report providers & Services Industrial Separate GRI No Yes Health safety Products Report & Services Industrial Separate GRI No Yes EBITA & ROE Products Report & Services

Source: Own elaboration

Results seem interesting in emphasizing how the text is the traditional path for sharing such information, while the utilization of tables (eight sustainability reports) and boxes, highlights and figures (six sustainability reports) is very limited. Lastly, the weight of the business continuity has been investigated through the frequency (citations) analysis using the NVivo software and here translating the keywords. Particularly, searching for the business continuity as keyword in the first 500 words with minimum ten letters included in all sustainability reports belonging to the sample, the results seem interesting, numbering 193 citations of business continuity and 0.02% as weighted referring to all sustainability reports analysed. However, this is not a high value in the resulting range of keywords locating the business continuity in the middle of the list at the 197th place (Fig. 3.3): (1) the maximum score is associated with the keyword “employees” having 2831 citations (0.22%); (2) the minimum value is associated with the keyword “organization” having 85 citations (0.01%).

3.3 The Going-Concern and Sustainability Disclosure: The Case of the Software. . .

87

Table 3.3 Sustainability reports, business continuity and information shape Company Company 1 Company 2 Company 3 Company 4 Company 5 Company 6 Company 7 Company 8 Company 9 Company 10 Company 11 Company 12 Company 13 Company 14 Company 15 Company 16 Company 17 Company 18 Company 19 Company 20 Company 21 Company 22 Company 23 Company 24 Company 25 Company 26 Company 27 Company 28 Company 29 Company 30 Company 31 Company 32 Company 33 Company 34

Information shape Qualitative/quantitative information Qualitative Qualitative Qualitative Qualitative Qualitative Qualitative Qualitative Qualitative Qualitative Qualitative Qualitative Qualitative Qualitative Qualitative Qualitative Qualitative Qualitative Qualitative Qualitative

Text 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

Qualitative Qualitative Qualitative

1 1 1

Qualitative Qualitative Qualitative Qualitative

1 1 1 1 1 1 1 1 1

Qualitative Qualitative Qualitative Qualitative

Box/highlights/figure

Table 1

1

1

1 1

1

1 1

1 1

1

1 1 1

Source: Own elaboration

3.3

The Going-Concern and Sustainability Disclosure: The Case of the Software & IT Services Industry

In the light of the existing frameworks and standards to develop corporate sustainability reporting and disclosure, the present analysis is directed towards verifying the presence and the understanding of the going-concern information in a set of

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Fig. 3.3 Business continuity frequency in the Italian Industrial listed companies. Source: Own elaboration

sustainability reports. Particularly, the content analysis of a companies’ sample operating in the software and IT services as a significant industry in the international scenario (technology and communications sector) is proposed. Such companies are chosen among companies applying the SASB standards (www.sasb.org) in their sustainability reports and are reported anonymously. This sample has been constructed through the open database by SASB (www. sasb.org) using the year 2020 (when it is available) as the most recent publication year of the sustainability reports (or the last available at maximum 2019). The final sample is composed of 19 companies operating in several countries, among which the United States is the most prominent. They are reported anonymously in the following analysis. Table 3.3 shows details of the sample used for the content analysis. Even if this sample can be subject to some criticism owing, for example, to its dimension, the word “going-concern” was not retrieved in the collected reports composing the analysed sample. The meaning of the going-concern has been searched in the “business continuity” of which almost all selected companies included it in their sustainability reports. The list below is presented in ascending order per citation of “business continuity” in the 19 sustainability reports analysed (Table 3.4). The results of this primary analysis shows that only in one case there is no reference to the business continuity, while the other sustainability reports include such reference to the business continuity. However, this analysis needs to be widely developed in the future research, extending the sample and using several years of analysis. Below it is proposed a very primary step advancing such results. Adopting a system of score value based on the business continuity citations in analysing the collected sustainability reports, Table 3.5 shows the business continuity (BS) Score Value following the proposed range in Table 3.6.

3.3 The Going-Concern and Sustainability Disclosure: The Case of the Software. . .

89

Table 3.4 Sustainability reports and going-concern Company name Company 1 Company 2 Company 3 Company 4 Company 5 Company 6 Company 7 Company 8 Company 9 Company 10 Company 11 Company 12 Company 13 Company 14 Company 15 Company 16 Company 17 Company 18 Company 19

Industry Software & IT Services Software & IT Services Software & IT Services Software & IT Services Software & IT Services Software & IT Services Software & IT Services Software & IT Services Software & IT Services Software & IT Services Software & IT Services Software & IT Services Software & IT Services Software & IT Services Software & IT Services Software & IT Services Software & IT Services Software & IT Services Software & IT Services

Country United States United States United States United States United States United States United States South Korea United States United States Puerto Rico Brazil United States United States United States Argentina United States United States United States

Type of document Corporate Responsibility Reports Corporate Responsibility Reports Corporate Responsibility Reports Corporate Responsibility Reports Corporate Responsibility Reports Corporate Responsibility Reports Corporate Responsibility Reports Corporate Responsibility Reports Corporate Responsibility Reports Corporate Responsibility Reports Corporate Responsibility Reports Sustainability Annual Reports Corporate Responsibility Reports Corporate Responsibility Reports Corporate Responsibility Reports Integrated Annual Reports Corporate Responsibility Reports Corporate Responsibility Reports Corporate Responsibility Reports

Year 2020

Business continuity Yes

2020

Yes

2020

Yes

2020

Yes

2019

Yes

2020

Yes

2020

Yes

2020

Yes

2020

Yes

2020

Yes

2020

Yes

2019

Yes

2020

Yes

2020

Yes

2020

Yes

2020

Yes

2020

Yes

2020

Yes

2020

No

Source: Own elaboration and revised version of data retrieved from the public database by SASB (www.sasb.org)

The BS Score Value assumes a low value in the major number of sustainability reports analysed (i.e. 13 sustainable reports); in three sustainability reports, the BS Score Value assumes a medium value. Marginal results are retrieved for the high and absent information.

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Table 3.5 Sustainability reports and business continuity Company Company 1 Company 2 Company 3 Company 4 Company 5 Company 6 Company 7 Company 8 Company 9 Company 10 Company 11 Company 12 Company 13 Company 14 Company 15 Company 16 Company 17 Company 18 Company 19

Business continuity (Citations) 13 8 7 5 5 4 3 3 2 2 2 2 2 2 1 1 1 1 0

BC Score Value High Medium Medium Medium Medium Low Low Low Low Low Low Low Low Low Low Low Low Low Absent

Source: Own elaboration Table 3.6 BS Score Value (range per citation)

(1) Absent information (2) Low information (3) Medium information (4) High information

0 citations 1–4 citations 5–8 citations 9–13 citations

Source: Own elaboration

3.4

The Going-Concern and the IR Awarded Companies

This section introduces the analysis of the going-concern in the Integrated Report (IR) Framework by IIRC (www.integratedreporting.org). Particularly, the content analysis is applied to the selected sample of IR reports. Companies receiving the IIRC award in the last years between 2016 and 2020 (www.integratedreporting.org) are selected using their IR reports. The collected IR reports are fifteen, representing relevant corporate best practice all over the world. Results of the content analysis show that searching for the keywords “goingconcern” in the IR reports allows for an interesting finding (Table 3.7). Thus, 60% of the sample reports the going-concern. This is a significant evidence in showing that the going-concern impacts the IR reports and sustainability reports. A comparison among the going-concern and business continuity’s citations included in the sample by the collected IR reports is shown in Table 3.8. Particularly,

3.4 The Going-Concern and the IR Awarded Companies

91

Table 3.7 IR reports and going-concern Company Company 1 Company 2 Company 3 Company 4 Company 5 Company 6 Company 7 Company 8 Company 9 Company 10 Company 11 Company 12 Company 13 Company 14 Company 15

Going-concern (Presence)

Going-concern (absence) x

Going-concern (citations)

x x x x x

20 11 12 1 13 x x

x

14 x x

x x

13 15 x

x

13

Source: Own elaboration Table 3.8 Comparison between going-concern and business continuity in the IR reports Company Company 1 Company 2 Company 3 Company 4 Company 5 Company 6 Company 7 Company 8 Company 9 Company 10 Company 11 Company 12 Company 13 Company 14 Company 15

IR report (year) 2019 2016 2017 2016 2019 2017 2016 2020 2016 2020 2016 2016 2017 2016 2017

Going-concern (citations) 20 11 12 1 13

Business continuity (citations) 6 3 1 1 2 5 9

14

13 15

1 2 1

13

Source: Own elaboration

the IR reports include a wide distribution of the going-concern and the business continuity along the collected sustainability reports. Seven IR reports reported both the going-concern and business continuity. Figure 3.4 shows the comparison between the going-concern and the business continuity’s citations. In three IR reports, it does not include the citations of both

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Fig. 3.4 Citations of the going-concern and business continuity in the IR reports. Source: Own elaboration

terms, even if this seems a limited evidence in the sample. Interestingly, the majority of IR reports receiving the IR awards cite the two terms so relevant in assuring and declaring to stakeholders the ongoing of the company over the single financial period. Seven IR reports cite both the going-concern and business continuity. Nine sustainability reports cite the going-concern. Ten sustainability reports cite the business continuity. The next future research is directed towards overcoming some limitations of this analysis. Particularly, the investigation of the text meaning in relation to the citations of the going-concern and business continuity can provide further details in understanding the valence of the going-concern in the sustainability reports.

3.5

The Going-Concern and the Environmental and Climate Change Disclosure: Cases in the Food and Beverage Sector

The introduction of the environmental and climate change disclosure is a very recent initiative started in the last years in the light of some frameworks and standards. Among the most prominent initiatives, the Directive 2014/95/UE on non-financial information or EU Directive fosters corporate social responsibility and accountability (Lombardi et al., 2021; Monciardini & Conaldi, 2019; Pizzi et al., 2020; Venturelli et al., 2019), also providing the environmental and social information

3.5 The Going-Concern and the Environmental and Climate Change Disclosure:. . .

93

guidelines and climate-related information guidelines (www.ec.europa.eu), suggesting a scheme (e.g. business model, policies and due diligence, main outcome of the policies, principal risks and their management, non-financial key performance indicators) to reporting environmental and social information (e.g. environmental matters, social and employee matters, respect for human rights, anti-corruption and bribery matters, others) to stakeholders (Communication from the Commission, 2017). Additionally, such guidelines are playing a crucial role in the transition to a low-carbon and climate-resilient economy getting benefits from the disclosure of climate-related information (e.g. awareness and understanding of climate-related risks and opportunities, better risk management and more informed decision-making and strategic planning). Lastly, the introduction of the double materiality is relevant in understanding the impact of climate change on a company from a financial point of view, and the company’s impact on climate, also identifying climate change risks (Communication from the Commission, 2019). Other relevant initiatives are by the Climate Disclosure Standards Board (CDSB) and Carbon Disclosure Project (CDP). The first one proposes guiding principles and requirements, recognizing the environmental information (e.g. natural capital dependencies, environmental results and so on) (www.cdsb.org). The guiding principles reported in the environmental information are, for example, the relevance and materiality, information faithfully represented, connection with other information, consistency and comparability. The Climate Disclosure Project (CDP) sustains companies, cities, states and regions in managing climate change, water security and deforestation (www.cdp.net), proposing a database containing the CDP scoring (from A to F score) of more than 9600 companies’ disclosure on climate change, water security and forests. In this perspective, the current section proposes two case studies to search for the going-concern (and/or business continuity) presence or absence in the environment and climate change disclosure (Fig. 3.5).

Fig. 3.5 Connecting the going-concern and the environment and climate change disclosure. Source: Own elaboration

Goingconcern (Business Continuity)

Environment and Climate Change Disclosure

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3 The Going-Concern in Non-financial Information 10 9 8 7 6 5 4 3 2 1 0 CASE 1

CASE 2 Going-concern

Business continuity

Fig. 3.6 Primary results. Source: Own elaboration

Particularly, the selection is based on two representative companies operating in the food and beverage sector in the European scenario, selecting: • The corporate sustainability report 2021 • The CDP Climate Change report 2020 Applying a primary content analysis, the first report (1) has been chosen in the light of the company’s adoption of the CDP principles and guidelines by the EU Directive. The section dedicated to the environment and climate change disclosure is based on several additional sections explaining aims and actions in these fields (e.g. environment, climate change, water). However, in this section the goingconcern and business continuity are absent. The concept of business continuity is included in other section of the report. In the second report, (2) the going-concern is absent; the business continuity is re-called to explain some risks (Fig. 3.6). Even if such results seem not significant with some research limitations, the presence of the business continuity in one report opened the door for the investigation of the going-concern in the non-financial disclosure dedicated to climate change. Strong evidence would be collected after the adoption of main environment and climate change guidelines by companies, collecting a significant sample.

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Chapter 4

Primary Conclusions Towards Concepts and Challenges to Come

Abstract This book analysed the going-concern principle in the non-financial reporting and disclosure by companies, presenting the primary state of the art, concepts and challenges to come. Through the utilization of several mixed approaches and theories, results are directed to support academic and practical communities even if the path towards the going-concern principle in non-financial disclosure is still open and infantile. The evolution of sustainability disclosure could be directed towards the adoption of the going-concern assumption in developing sustainable reports, ensuring transparency and accountability to all stakeholders and fostering the current harmonization process.

4.1

Evidence by the Analysis of the Going-Concern and Non-financial Information and Primary Implications

This book was directed to analyse the going-concern principle in non-financial reporting and disclosure provided by companies presenting the primary state of the art, concepts and challenges to come for academic and practical communities. First of all, this book aimed to investigate the going-concern’s concept in the accounting research, proposing definitions about the going-concern and adopting several sources and perspectives of analysis (e.g. websites, interviews, reports). Thus, many definitions of the going-concern in accounting research are provided using qualitative analysis and adopting some bibliometric investigations. Discussing the going-concern’s concept (as accounting principle) and the business continuity (as a strategical extension of the going-concern) in accounting research and financial disclosure and what are the main mandatory and voluntary frameworks and standards (e.g. European Directive 2014/95/UE on non-financial information, Global Reporting Initiative, International Integrated Reporting Council, Sustainability Accounting Standards Board, Climate Disclosure Standards Board, Carbon Disclosure Project, International Organization for Standardization (26000), AccountAbility1000 Assurance Standard v3, Corporate Water Disclosure, Gruppo © The Author(s), under exclusive license to Springer Nature Switzerland AG 2021 R. Lombardi, The Going-Concern-Principle in Non-Financial Disclosure, SIDREA Series in Accounting and Business Administration, https://doi.org/10.1007/978-3-030-81127-3_4

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4 Primary Conclusions Towards Concepts and Challenges to Come

di studio per il bilancio sociale or GBS standards) in non-financial disclosure, the sustainability accounting landscape is investigated from the perspective of corporate reporting and disclosure. As a double face of one coin, going-concern can be regarded as a “key factor” or “tipping factor” analysing the company’s ongoing and lifecycle (e.g. the born and start-up; the development growth and management and the crisis and decline). Using qualitative analysis and some theoretical lens (e.g. stakeholder theory, disclosure theory, legitimacy theory), this book was also directed toward investigating the presence or absence of the going-concern in the sustainability and non-financial reports and disclosure by companies. Several issues and characteristics of the disclosure provided by companies to stakeholders are highlighted in the analysis. The incidence of the going-concern in non-financial reporting and disclosure and to what content and meaning it is refereed are drafted using several primary samples of analysis showing interesting evidence. The qualitative analysis has been developed using different key indicators by the content analysis approach (e.g. presence versus absence, frequency, sustainability score value). Additionally, data and indicators (e.g. words weights, keywords clusters, co-occurrences) from the Nvivo and VOSviewer software are retrieved. The main evidence from the proposed analysis is based on the non-financial and sustainability disclosure by the corporate reporting as follows: (1) the going-concern and the mandatory non-financial disclosure under the Directive 2014/95/UE lens using a representative sample of Italian Industrial Products and Services listed companies; (2) the going-concern and Sustainable Disclosure Standard (SASB) lens using a sample of software and IT services companies; (3) the going-concern and IIRC and IR Framework using a sample of awarded companies; and (4) the going-concern and environmental and climate change disclosure using some cases in the food and beverage sector. The presence of the going-concern “word” information in the sustainability reports is not much diffused in the sample by points (1) and (2). However, the concept of the going-concern through its meaning is retrieved in the “business continuity” as a strategical extension of the going-concern and connected elements (e.g. the services and operative continuity, stakeholder engagement, supply chain, environment and climate change risks, relationships with providers, human resources (HR), education, other). The sample by point (3) shows the presence of the going-concern and business continuity. The last cases (4) have limited utilization of the business continuity. The type of disclosure in the non-financial and sustainability reports on the goingconcern or business continuity is mainly based on qualitative information without the adoption of quantitative indicators and metrics. Thus, the adoption of metrics and indicators could foster both (1) the transparency, accountability and readiness of the sustainability reports and (2) the comparison among such reports, disclosing rights and reliable information to all stakeholders among which the investors assumed a relevant rule. Additionally, as the jurisdictions and regulations are more and more directed toward regulating non-financial disclosure for companies becoming mandatory (e.g.

4.2 Proposals, Conclusions and Future Research

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European Directive 2014/95/UE on non-financial information; Italian Legislative Decree No. 254/2016 on non-financial information; New Zealand Government’s proposal on climate-related financial disclosures; the recent Corporate Sustainability Reporting Directive (CSRD) by the EU directive proposal 2021/0104), the proposal to adopt and guarantee some accounting principles, among which is the goingconcern, could guarantee stakeholders and performance in the sustainability reports as in the annual financial reports. In this way, transparency and accountability are also fostered.

4.2

Proposals, Conclusions and Future Research

The path towards the going-concern principle in non-financial disclosure is still open and infantile. The evolution of sustainability frameworks, standards and jurisdictions could be directed towards the adoption of the going-concern principle ensuring transparency and accountability to all stakeholders, among which a relevant role is played by investors. The need to harmonize the sustainability and non-financial reporting and disclosure is pushing the emergence of the joint frameworks and standards helping companies to report non-financial information especially through new indicators and metrics. For example, in 2020, the International Financial Reporting Standard (IFRS) Foundation proposes the creation of the Sustainability Standards Board (SSB) composed of five frameworks and standards, GRI, IIRC, SASB, CDSB and CDP, to have a common vision for the realization of a comprehensive corporate reporting system based on financial accounting and sustainability disclosure. In consideration of the previous starting insights and analysis, the corporate systems can renew their business model. Thus, business models become more transparent and sustainable. Reliable and credible sustainability information in corporate reporting and disclosure are also guaranteed. The going-concern and/or business continuity in the sustainability or non-financial reports could be assumed and retreived in to a set of fundamental or key elements. Starting from experiences analysed in this book, it seems that the going-concern is not expressly declared by standards on non-financial information. For example, the GBS standards are widely connected to the quality of information and principles, such as responsibility, identification, transparency, inclusion, coherence, neutrality, third-party independence, temporal competence, homogeneity, significance and periodicity of information collected and provided to stakeholders. The assessment of the utility of the going-concern in the sustainability standards development could be suggested in order to understand the validity of such principle. In the primary proposal of this book, the going-concern and/or business continuity in sustainability or non-financial reports can be recognized in the mutual criteria from the accounting principle and elements supporting the business continuity as a strategic interpretation of the going-concern having the decision-making in the present with effects and results in the future of the company. Such elements could

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Going-concern in the non-financial disclosure 1. Accounting principle

7. Other (from the future research)

6. Services & operative continuity

2. Stakeholder engagement

5. Supply chain management

3. Human capital 4. Environmental & Climate change risks/impacts

Fig. 4.1 The going-concern in non-financial disclosure. Source: Own elaboration

be, for example, retrieved in the previous (primary) analysis, such as the (1) services and operative continuity, (2) stakeholder engagement, (3) supply chain management, (4) environment and climate change risks and impacts and (5) human capital. Additionally, the advent of digital tools could guarantee the going-concern and the business continuity as they become corporate institutional tools in developing non-financial information to diffuse to stakeholders. For example, in the “digitally tag of non-financial information” announced by the EU Corporate Sustainability Reporting Directive (CSRD) (www.ec.europa.eu), the digitalization seems to help companies in achieving such aims. Figure 4.1 provides an overview of some elements to be verified in searching and guaranteeing the going-concern in non-financial disclosure and reporting. The identification of new and specific indicators and metrics seems a prompt way to support this aim fostering several advantages for companies and stakeholders. Other emerging key elements could be proposed after the overcoming of limits by the current analysis (e.g. the dimension of the sample analysed and the comparison along several years of analysis), contributing to the enrichment of the criteria for the assessment of the going-concern and business continuity in non-financial disclosure and reporting and affirming a sustainable and renewed business model.