Integrated Reporting: A Theoretical Perspective on This Critical Issue

Elisabetta Magnaghi^1,2, Roberto Aprile^3
(1. Franco-Chinese Institute, Renmin University of China; 2. Economy and Management Department, University of Pisa, Italy;
3. Management Department, University of Bologna, Italy)

Abstract: Changes in accounting are the consequence of its social dimension (Hopwood, 1978) that leads to reflect the context in which it is adopted and the needs of the users of information, needs that evolves with the evolution of the society. “Accounting derives its social significance only indirectly through its ability to reflect and communicate underlying economic variables vital to effective decision making” (Zambon, 2002, p. 24). Since a multidimensional approach is becoming increasingly relevant both for the management of the entity and for its users, traditional accounting reporting is in some ways not sufficient to give a response to all the issues in which investors and other stakeholders are interesting in, in particular with reference to the value generation process. A possible response could be the Integrated Reporting, a recent innovation that is developing on an International level, based in particular on the idea of Global Reporting Initiative, Prince’s Accounting for Sustainability Project (A4S), International Integrated Reporting Committee and the IRC of South Africa. These latest Organizations have issued a draft Framework for Integrated Reporting and other documents useful to understand the report and the reporting process. One of the main problems of the issue is that nowadays Integrated Reporting is more similar to an “aggregated reporting” than an Integrated Reporting. This is probably caused by the absence of a clear theoretical framework. Many theories could supply a support to Integrated Reporting, each one with its specific approach. In particular we will analyze the contribution of the following theories: Agency theory (Jensen & Meckling, 1976); Stakeholder theory (Freeman, 1984); Legitimacy theory (Suchman, 1995); EconomiaAziendale (Zappa, 1927; 1950); Stewardship Theory (Donaldson, 1990; Donaldson & Davis, 1991). Some of these theories arise from the strategic management approach and other from the corporate governance literature, whereas EconomiaAziendale could be considered as a theory of the firm to compare with the more adopted one that considers the entity as a nexus of contracts. In some ways all those theories can contribute to explain why you can adopt Integrated Reporting. We find that EconomiaAziendale could be the theory of the firm that best fits with this kind of report and that the Stewardship Theory can supply the basis for an approach that can integrate and balance the need and requirements of investors, of other stakeholders, but, most of all, of the entity itself, in particular considering its needs of define a sustainable way to ensure its “going concern”.

Key words: integrated reporting; agency theory; stewardship theory; sustainability accounting; EconomiaAziendale

JEL codes: M48