EFFECT OF INTEGRATED REPORTING ON CORPORATE TRANSPARENCY IN NIGERIA
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CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
This study comes as a result of studying the effect of integrated reporting on corporate transparency in Nigeria. The research is principally aimed at determining the nexus between integrated reporting and corporate transparency in the 21st century. This chapter covers the background to the study, statement of the problem, the aims and objectives of the study as well as the significance of the study, scope and limitations of the study, research questions and statement of hypotheses and definition of terms.Before the late 1990s, most firms offered a limited variety of goods or services and did not require special designs, thus organizations adopted the standard reporting approach for informing their stakeholders about their performances. According to Onyali, Akamelu, and Egbunike (2017), the system’s primary focus was on cost reporting and fixed-asset utilization in order to replicate the fundamental characteristics of traditional firms, such as incremental labor and machine usage.The reports (conventional reports) serve several objectives and are often only made public to shareholders and fund providers (Simnett& Huggins, 2015).
Organizations no longer serve as the only tool of their shareholders, given the current state of globalization; instead, they now exist and have duties to the greater good of society. Therefore, it has become evident that, in the long run, “corporations cannot succeed in a world that lacks information, collapsing, and where trust in organizations is seriously in doubt,” according to Eccles and Krzus (2011) and Drevensek (2012). Consequently, it is essential to move toward increased accountability to all interest groups.
According to Simnet, Vanstraelen, and China (2009), there is a persistent worry that traditional annual accounts and reports do not fairly depict the various facets of company value that exist today.According to Iyoha, Ojeka, and Ogundana (2017), traditional annual financial reports are typically insufficient to satisfy the information needs of a range of stakeholders, including the government, local community, employees, suppliers, and customers, all of whom would like to have a comprehensive understanding of the companies’ performance. Blowfield and Murray (2008) went on to say that typical financial reporting assesses performance that ignores non-financial outcomes of economic activity that are paid for by others, like emissions and pollution.
Transparency is sharing information and acting in an open manner as it allows stakeholders to gather information that may be critical in detecting and defending their interests (Burch-Adiloglu, 2012). Transparency is going above and beyond the standards to provide users with all information needed in making rational investment decisions. The presentation of both financial and non-financial performance in a single document is known as integrated reporting, or IR.
This report offers a wealth of information about the company’s non-financial data, including its social, environmental, and corporate governance, and it symbolizes the sustainability ingrained in the company’s strategy (Barin& Ansari, 2016).Consequently, a growing number of stakeholders are calling for an organization to integrate not just its financial effects but also its social, environmental, and governance effects (Sihotang& Effendi, 2010).
According to the above perspective, organizations should be encouraged to evaluate their performance in a comprehensive manner by taking into account a range of factors that are critical to their success. These elements consist of the following: evaluating the company’s financial performance; applying efficient risk management procedures; adopting successful strategies; putting good corporate governance practices into practice; and promoting sustainability, which involves addressing social, economic, and environmental issues (IOD, 2009; SAICA, 2011).
Consequently, a growing number of stakeholders are calling for an organization to integrate not just its financial effects but also its social, environmental, and governance effects (Sihotang and Effendi, 2010).This will integrate the strategy, governance, performance, and prospects of an organization in a way that reflects its commercial, social, and environmental context (IIRC, 2011).According to International Integrated Reporting Council (IIRC) (2013), most largest firms in the world reveal little to no financial information regarding their operations outside of their home countries, according to Transparency International (TI), which claims that the world’s top companies fall short on transparency.
The accounting industry has contested the conventional financial business reporting model, claiming that it is insufficient to meet stakeholders’ information needs for evaluating the success of a firm both now and in the future (Flower, 2015). Numerous research on integrated reporting have been carried out globally, owing to the apparent advantages of this approach for both corporate entities and other stakeholders.
In developed nations, especially the US, UK, Germany, Sweden, France, and China, the majority of the studies were conducted (Kristúna, 2015; Kaya, Erguden&Sayar, 2016; Renato & Alex, 2017). Several developing nations have also carried out studies on integrated reporting, including Malawi (Lipunga, 2015); Ghana (Gatimbu, &Wabwire, 2016); South Africa (Andrea & Pasquale, 2016); Libya (Bayoud, Kavanagh, & Slaughter, 2012); and Nigeria (Oyewo, Obigbemi&Uwuigbe, 2015).
To the best of the researcher’s knowledge, the majority of integrated reporting-related published literature focuses on evaluating the practice’s adoption, history, degree of compliance, and anticipated future (Wild & Van Staden, 2013). Others take the shape of technical reports that are created by accounting professional associations or the International Integrated Reporting Council (IIRC) on commission (Ernst & Young, 2012).Thus, it is essential to conduct research on the connection between integrated reporting and a company’s corporate transparency, particularly in a developing nation like Nigeria.
1.2 Statement of the Problem
Corporate fraud has increased significantly in recent years, and as a result, social and environmental performance are taken into account (Kolk and Pinkse, 2006). Corporate fraud, earnings management, and creative accounting have been hot topics for researchers, legislators, and business experts during the past 20 years.Researchers are now more concerned about corporate affairs as a result of public scrutiny surrounding corporate scandals in the majority of companies.Most of their research findings shows that the implementation of integrated reporting has a temporary solution to solve the apparent shortcomings in the current reporting system.
Consequently, integrated reporting has remained a topic of debate and is currently a developing corporate disclosure trend.There have been calls for greater research in these areas due to the lack of understanding and awareness of this new reporting trend.To the best of researchers’ knowledge, very few studies on integrated reporting have been conducted in Nigeria. And these few previous research have generally concentrated on the shortcomings of the framework or the anticipated benefits of the integrated report (Gorgan&Dumitru, 2013).
For instance, Barin and Ansari’s (2016) study on the two firm performance variables Return on Assets (ROA) and Return on Equity (ROE), Appiagyei, Djajadikerta and Xiang’s (2017) study on integrated reporting and firm performance proxy by Sales Growth and Earning Per Share (EPS), and Huda, Gagan, and Allam’s (2018) study on integrated reporting and firm performance surrogated by Return on Assets (ROA) were among the few studies that focused on integrated reporting and firm performance.
No doubt, that the findings of these previously mentioned studies require more thorough research.Consequently this study intends to fill existing gap by investigating some vital variables like (Governance Reporting, Business Model Reporting, Risk and Opportunities Reporting, Strategy and Resource Allocation Reporting, and Performance Reportingthat would enhance better understanding of the relationship between integrated reporting and corporate transparency in Nigeria. A study that will expand the knowledge of integrating reporting and fill these obvious gaps is necessary. This study examined the impact of integrated reporting on corporate transparency in Nigeria, arising from identified information gaps.
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