West University of Timişoara

Faculty of Economics and Business Administration

Department of Accounting and Audit

International Conference on
Accounting and Auditing Perspectives
3rd edition, 20-22 October, 2016

Empirical research on identifying main drivers leading to

integrated reporting framework implementation.
The case of European region

Burcă Valentin, PhD Student, West University of Timişoara

Mateş Dorel, PhD Professor, West University of Timisoara
Bunget Ovidiu, PhD Professor, West University of Timisoara
Sandu (Ursachi) Antonela, PhD Student, Universitatea Stefan cel Mare
 Financial Reporting revolution

 increase on financial information demand complexity

 failure of traditional financial reporting model
 implications of financial theories and behavioural theories
 focus on value-based management

 orientation on differential financial and corporate reporting;

 focus on financial information presentation and connectivity;
 balance more towards non-financial information disclosure;
 towards a narrative disclosures framework;
 debate on value-added reporting and intangible assets reporting
 integrated approach of financial reporting
 sustainability reporting and business excellence
 Integration of financial communication process
Corporate reporting models Benefits

 GRI Initiative guidelines  Financial transparency

 ISO Standards;  Investors credibility
 Integrated Reporting framework  Stewardship
 IASB Practice Statement  Financing optimization
Management Commentary  Value added creation
 UNGC Principles  Brand and reputation
enhancement

 Quality assurance
Risks  Materiality concept and reporting complexity
 Narrative disclosures techniques
 Integrated Reporting model
Integrated Report content Integrated Reporting principles
 organizational overview and external environment  strategic focus and future orientation

 governance  connectivity of information

 business model  stakeholder relationship

 risks and opportunities  materiality

 strategy and resource allocation  conciseness

 outlook  reliability and completeness

 basis of presentation  consistency and comparability

Business excellence story

 Sample overview
GRI adoption versus IR adoption
Firms European <IR> implemented <IR> used as reference
Region adopting IR firms
Listing status %
(count) adopting
IR (count)
Asia 103
not listed 25 28.41%
Australasia 19
international listing 29 32.95%
Europe 88
domestic listing 34 38.64%
North America 11
South America 14 Grand Total 385
Africa 150
Grand Total 385
Distribution of firm implementing <IR> framework, on yearly basis
<IR> framework adoption by country
 Main drivers leading to IR framework adoption

 IR -> form of voluntary financial reporting, in most of the countries;

 firm-level drivers more prominent than country-level drivers;

Firm-level factors Country-level factors

 ownership structure;  economic development;

 management motivation;  capital market development;
 risk management model;  investor protection law;
 listing;  enforcement of regulation;
 ranking;
 Statistics overview

Firm level drivers variance Country level drivers variance

Drivers
% of % of
Contribution Eigen % of
Variance
Eigen % of
Variance
(Principle Components Analysis) value Variance value Variance
(cumulated) (cumulated)

1.762 35% 35% 2.355 47% 47%

1.110 22% 57% 1.573 31% 79%
.972 19% 77% .825 17% 95%
.711 14% 91% .153 3% 98%
0.44 9% 100% 0.09 2% 100%

Panel A: firm-level integrated reporting drivers Panel B: country-level integrated reporting drivers

Drivers influence Explanatory

Single factor Multiple factor
Explanatory
Single factor Multiple factor
model model model model
(Logit regression) Variables
Variables Signific Signific B Sig. B Sig.
Impact Impact
ance ance
Constant 5.79 0.40% -7.10 26.78%
Constant 1.41 3.85% 13.13 7.38%
Financial reporting
Shareholdery diversity -0.13 1.32% 0.06 40%
-1.69 6.82% 1.29 65% quality (FRQ )
(SD ) Transparency (FT ) -0.08 42.05% -0.34 6.12%
Foreign listing (FI ) -3.99 1.11%
Market capitalization
Business model (BM) -1.50 6.95% -2.55 2.85%
(MC )
P/E ratio (PER) -0.06 27.32%
Investor protection (IP ) 0.38 47.55%
ROE -15.835 3.20%
Shareholders
.637 58.76%
governance (SG )
 Concluding remarks
 multiple factors determine IR framework adoption;
 country drivers do not significantly influence IR adoption in case of a firm;
 an integrated report is more needed for a non-listed firm, as in case of listed
firms the financial transparency is anyway higher;
 integrated reporting helps firms to consolidate their image in relation with all the
stakeholders;
 positive financial performance influence significantly IR adoption, as those
information, already disclosed through financial statements, are more detailed
and the success factors are revealed within different ways of interpreting the
financial information;
 shareholders structure influence the decision of IR adoption, not through its low
level of heterogeneity, but through its component of strategic investors;
 IR adoption is not influenced by financial reporting quality, as it is not aimed to
replace the financial statement, but just to complete them with additional
analysis and interpretations, especially in the area of forecasting information.
Thank you!