Thesis Accountancy & Control
The Legitimation of Integrated Reporting Practices by Big Four Auditors
Name: Vince Lowijs Student number: 11140976 Thesis supervisor: E. Gjata Date: 26 June 2017
Word count: 15.741
MSc Accountancy & Control, specialization accountancy Faculty of Economics and Business, University of Amsterdam
Statement of Originality
This document is written by student Vince Lowijs who declares to take full responsibility for the contents of this document. I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it. The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
Acknowledgement
I would like to thank my thesis supervisor, Ejona Gjata, for her supporting feedback and guidance throughout the process of writing my thesis. Specifically, I am very thankful for her tips and insights during the interview process, which has greatly increased the quality of my interview skills and therefore contributed significantly to the overall quality of my findings.
I would furthermore like to thank all people who have participated in this study, specifically the interviewees. Their sharing of knowledge, expertise and passions of the audit profession has positively influenced this research and made the overall research incredibly enjoyable. I would also like to thank the assurance providers with whom I have had the pleasure to experience the practical side of the audit profession up close.
Lastly, I would like to express my gratefulness to my family, friends and loved ones. Their unconditional encouragement throughout the entire thesis period was incredibly supportive and is valued incredibly.
Abstract
This study explores the processes through which auditors of a professional big four audit firm seek to legitimise integrated reporting and the assurance of these reports. The evidence found during the research implies that auditors employ specific types of strategies and address different processes according to the targeted audiences. Three audiences are distinguished with which legitimacy is sought by auditors; existing clients of the audit firm, potential users and other influential organizations, and the financial auditors who work for the audit firm. The analysis indicates that pragmatic legitimacy is sought with the client audience, while more durable support is sought from the external audience through moral reasoning. In order to optimize legitimation with the client and external audience, pragmatic legitimacy is also sought among financial auditors of the audit firm. Interestingly, auditors focus on the benefits of the integrated assurance process when engaging with the client audience, but focus primarily on the reporting practice when engaging with the external non-client audience. While the findings imply that the audit firm exerts influence in the field of integrated reporting, the precise extent to which the efforts of auditors are effective in isolation remain ambiguous. This is specifically the case because the audit firm does not try to legitimise integrated reporting in isolation; other professional service firms, governmental bodies, NGO’s, business organizations and stakeholder groups also exert influence during the legitimation process. This research concludes that legitimation strategies employed by the audit firm are partly effective for all audiences, although various challenges did reveal themselves during the legitimation process.
Table of Contents
1. INTRODUCTION ... 6
2. BACKGROUND LITERATURE ... 9
2.1. SUSTAINABILITY REPORTING AS PREDECESSOR OF INTEGRATED REPORTING ... 9
2.2. INTEGRATED REPORTING ... 11
2.3. INTEGRATED REPORTING AND ASSURANCE CHALLENGES ... 13
3. THEORY ... 16 3.1. LEGITIMACY THEORY ... 16 3.2. PERSPECTIVES OF LEGITIMACY ... 17 3.3. AUDIENCES OF LEGITIMACY ... 19 3.4. USE OF THEORY ... 20 4. RESEARCH METHODS ... 21 4.1. RESEARCH SETTING ... 21 4.2. DATA COLLECTION ... 22 4.3. DATA ANALYSIS ... 23 5. CASE ANALYSIS ... 24 5.1. CONTEXT ... 24 5.2. CLIENT AUDIENCE ... 25 5.3. EXTERNAL AUDIENCE ... 30 5.4. INTERNAL AUDIENCE ... 34 5.5. ANALYSIS SUMMARY ... 38
6. DISCUSSION AND CONCLUSION ... 39
REFERENCES ... 42
APPENDIX I. GENERAL INTERVIEW GUIDE ... 46
1. Introduction
Over the last two decades it has become apparent that audit practices are not only suitable for financial statements. New audit spaces such as efficiency auditing, salary cap auditing, assurance of rankings and league tables and sustainability reporting assurance show the changing nature and the redrawing of boundaries of the traditional audit profession (Andon, Free & O’Dwyer, 2015). The audit profession is considered to act in the public interest and obtains their legitimacy from the quality of their work. The scope of the work performed by auditors has broadened, as stakeholders have become increasingly more interested in non-financial information (Deegan & Blomquist, 2006). In more recent years, stakeholders have been demanding integrated reports of organizations, which require financial and non-financial information to be presented in a single holistic report (de Villiers, Rinaldi & Unerman, 2014).
The concept of integrated reporting has gained much attention by the King III corporate governance principles in South Africa, which has led to the creation of the International Integrated Reporting Committee in 2010. The committee transformed into a counsel a year later, thus creating the International Integrated Reporting Counsel (IIRC) in 2011. The IIRC was formed by members of Accounting for Sustainability, a project that aims at a more sustainable economy, and the Global Reporting Initiative, an entity that offers guidelines to communicate the social impact of businesses. The IIRC signed memoranda of understanding with other reporting bodies to set integrated reporting apart as a new corporate reporting practice and to ensure that its aim did not overlap with the aim of other reporting bodies (Humphrey, O’Dwyer & Unerman, 2017). The primary goal of integrated reporting is the standardizing of social, environmental, financial and governance information in a single report in order to enhance credibility and comparability (de Villiers, 2014).
Although integrated reporting is a relatively new reporting method, it has already shown to provide benefits. Churet and Eccles (2014) found a significant positive relationship between integrated reporting adaption and economic performance in the healthcare and the technology sector. Other studies found that implementation of integrated reporting is beneficial for firms who are willing to attract more long-term investors (Serafeim, 2015) and that integrated reporting can enhance the communication of strategic information compared to traditional reporting methods (Cheng, Green & Ko, 2015).
A recent study by Atkins and Maroun (2014) emphasised the importance of mechanisms and frameworks that ensure the reliability of integrated reporting. This finding illustrates the important role of the auditor within the current integrated reporting field, as auditors ensure the reliability of the information within the report (ICAEW, 2013). Adams (2015) states that the assurance on integrated reports is an important aspect that still needs to be examined in-depth in further research, due to the limited scope in existing research. Simnett and Huggins (2015) call for more research on several key aspect
of integrated reporting, such as materiality, connectivity, the assurance of qualitative data, the assurance of forward looking information and the combination of financial and non-financial data.
Van Bommel (2014) states that the current dialogue within the field of integrated reporting seems to be strongly influenced by accountants. There have been few studies that have looked specifically at the role of the accountant within the field of integrated reporting. The main aspect that is fruitful for further research is the assurance on integrated reporting (Atkins & Maroun, 2014; Adams, 2015; Simnett & Huggins, 2015; Burrit, 2012). Even though the current assurance model does not necessarily provide a fit with new types of corporate reporting, which is transitioning into a more broad, integrated and forward looking model, the experience and professional judgement of auditors and accountants can be applied in more supportive ways in the early stages of the development of an integrated report (PwC, 2013). With previous information in mind, the following research question can be defined:
“Through which processes do auditors try to legitimise integrated reporting practices with key audiences?”
This study attempts to answer the research question by looking at the processes that auditors of a big four audit firm use during business practices. The data is gathered through qualitative research methods, more specifically through interviews with auditors of a big four audit firm located in the Netherlands and through document analysis. The aim of this research is to further develop our understanding of new audit practices and the processes through which auditors try to legitimise this new audit space. Specific focus is placed on three key audiences; (possible) clients of the audit firm who might issue integrated reports; users of integrated reports and other external influential organizations; and auditors that work for the audit firm.
This paper responds directly to the call of Power (2003), O’Dwyer, Owen and Unerman (2011) and Andon et al. (2015), who state that more research regarding the extension of audit-type practices is necessary. The activities through which an actor tries to legitimise a certain process is key to the success of a legitimacy strategy (Power, 1994, 2003). As the audit profession continuously evolves and tries to legitimise new types of audit practices, it is useful to understand the processes through which auditors try to legitimise this new practice. It is thus relevant and important that more insight in the legitimation processes of new audit spaces used by auditors is gained, as accounting professionals continuously extend their current audit space into new, unfamiliar audit spaces.
This research extends prior literature in three ways. First, this research is, to the best knowledge of the researcher, the first study that examines in an in-depth case-based setting the emergence of integrated reporting and the processes through which auditors try to obtain legitimacy. Van Bommel (2014) notices
that, in his research, the field-level scope is quite exploratory and broad due to his use of the sociology of worth framework, which looks at the dynamics and the dialogue between various groups of actors in a setting. The current research paper focusses solely on the perspective of auditors and the processes through which auditors legitimise integrated reporting, thus offering a perspective that has not yet been subjected to research. The second contribution is the detailed use of the legitimacy theory and accompanying strategies to obtain legitimacy. The notion of legitimacy is often perceived in a unidimensional manner in research until recently, and therefore offers only limited insight in the concept of legitimacy. O’Dwyer et al. (2011) refine the legitimacy theory in their setting, the emergence of sustainability assurance, by employing Suchman’s (1995) detailed framework of legitimacy. The current research further builds upon the work of O’Dwyer et al. (2011) by deploying the legitimacy framework of Suchman (1995) in a new setting, thus increasing theoretical generalizability by applying an existing theory in a new setting. The third contribution is that the findings of this research show that the audit firm focusses on the benefits of the assurance practice with the client audience and on the benefits of the reporting practice when engaging with the non-client external audience. This adds to the existing knowledge that auditors do not only address different types of legitimacy and strategies with different audiences, but that auditors focus on the assurance process when engaging with clients and focus on the reporting practice when engaging with the external audience.
The remainder of this work is organised as follows. The next section revises the prior literature on sustainability accounting and sustainability reporting, describes the concept of integrated reporting and outlines the relationship between integrated reporting and accounting. In the third section, the concept and perspectives on legitimacy theory are discussed, the selected audiences are portrayed and the use of theory is further specified. Section four describes the research methods. Hereafter, the analysis of the case findings is illustrated and a connection with legitimacy theory is made. Section six discusses the case findings and suggests several directions for future research.
2. Background literature
This chapter provides a literature overview with regard to integrated reporting and assurance. First, background literature on sustainability accounting and reporting will be provided to obtain a better understanding of the voluntary disclosure of non-financial information and the effect of this disclosure. Second, a description of integrated reporting and the development of integrated reporting since its emergence are outlined. Lastly, the literature related to the audit practices of integrated reporting is shown.
2.1. Sustainability reporting as predecessor of integrated reporting
As calls for sustainability increase and sustainable business practices become increasingly more important for organizations, it becomes apparent that the notion of sustainability can be defined and interpreted in multiple ways. Bebbington (2001) describes sustainability, and sustainable development, to be “oriented towards seeking to understand what kind of development should be sought by society and outlining the most appropriate mechanism for doing this” (p. 145). This description indicates that sustainability is driven by the needs and wishes of society and that sustainable development of organizations should seek the mechanisms that are best suited to accommodate these needs and wishes. The publication of the
Brundtland Report in 1987 is often cited as the origin of recent sustainable developments. The Brundtland
Report has brought the concept of sustainable development to a broader audience than previous reports (Bebbington and Gray, 2001). The first separate environmental reports were published in 1989, after which the number of organizations that reported information on environmental, social, governmental (ESG) or sustainability issues increased significantly (Kolk, 2004). Recent developments within the European Union1 have led to the introduction of mandatory publication of non-financial information
from the first of January 2017 for organizations with more than 500 employees.
In existing literature, a variety of terms such as sustainability reporting, social and environmental accounting and reporting, corporate social responsibility reporting and environmental social and governance reporting is used to describe the practice of reporting non-financial or sustainable information. Sustainability reporting can be defined as a reporting method that firstly deals with environmental and social induced financial impacts, secondly deals with ecological and social impacts of an economic system like a company, production site or nation and thirdly deals with the measurement, analysis and communication of interactions between environmental, economic and social issues (Jasch & Lavicka, 2006). The focus of sustainability accounting and reporting has extended the range from the traditional financial reporting manner, which mainly focusses on investors and shareholders, to a broader audience (Jasch & Lavicka, 2006). Sustainability accounting and reporting is based on a stakeholder
1 For further information see The Directive 2014/95/EU, which can be found online at
approach, meaning that the external effects of the organization and the products of the organization are considered.
The existing legislation on corporate reporting only mandates organizations to issue an annual financial performance report, which is typically based on IFRS or US GAAP. For the most part, reporting on any other kind of (non-financial) information, and third-party assurance on this information, is voluntary. As sustainability reporting practices are largely voluntary in nature, there is no specific legislation regarding the content of sustainability reports. There are, however, various guidelines regarding the reporting of non-financial information, which are issued by non-profit organizations. Examples of such guidelines are the G4 sustainability reporting guideline of the Global Reporting Initiative and AA1000 Standards of AccountAbility.
The voluntary disclosure of corporate social responsibility information provides benefits organizational performance in the long term and improves the firm’s reputation in the market. (Ramanna, 2013). Lee and Sweeney (2013) researched the effect of publicly available environmental discretionary disclosures on websites in an experimental setting. They find that, in the case of a court-case involving corporate environmental malfeasance, jurors assess lower punitive damage awards against firms that provide discretionary disclosures on its website regarding future environmental abatement and control narratives (Lee & Sweeney, 2013). This indicates that voluntary disclosure of environmental issues regarding the business’ environmental position positively influences the perception of external parties. Eccles, Ioannou and Serafeim (2014) conclude that companies with high sustainability characteristics are more likely to think in a long-term horizon and therefore built mutual respect and commitment by demonstrating to balance various stakeholders’ interests than low sustainability companies. Moreover, the researchers state that high sustainability companies significantly outperform low sustainability companies, thus proving the relevance of the disclosure of sustainability characteristics.
The growth of sustainability reporting practices has resulted in an increase of assurance statements accompanied within sustainability reports (Edgley, Jones & Salomon, 2010). Although the assurance on non-financial sustainability encompasses the same purpose as the auditing of financial reporting – to express an opinion on the truth and fairness of information – the assurance of sustainability reporting operates in a setting that has not yet been regulated (Edgley et al., 2010). This lack of legislation results in complexities regarding the process of sustainability assurance and the level of assurance provided (Deegan & Blomquist, 2006). Having assurance on non-financial sustainable information has proven to benefit firms in the forms of lower interest costs, the possibility to address concerns regarding to greenwashing and communicating strategic information that was not possible in the financial report (Lyon & Maxwell, 2011; Ballou, Heitger & Landes, 2006). Investors have shown increased interest in investing in firms when
assurance has been provided on ESG information due to the signalling role of the assurance statement (Cheng et al., 2015).
Even though there is an increasing awareness regarding sustainability reporting, this reporting form also contains limitations. These include the many different definitions and operationalisations of the term ‘sustainability’, which results in a divergence of sustainability reporting practices and reduces comparability among sustainability reports (Aras & Crowther, 2009). Other issues regarding sustainability reporting are the failure to account for all sources of value creation, not being able to link sustainable non-financial performance to non-financial performance and the inability to completely communicate the business model of a firm (Eccles & Krzus, 2010).
2.2. Integrated reporting
Due to the previously mentioned issues regarding sustainability reporting, there was a need for a new corporate reporting method. Eccles and Krzus (2010) state that integrated reporting has the possibility to deal with the drawbacks of sustainability reporting and become a major corporate reporting manner. Flower (2015) also mentions that the current sustainability reporting practices do not satisfy the information need of stakeholders for the assessment of firm performance and considers integrated reporting to be a more complete form of corporate reporting (Milne & Gray, 2013). Integrated reporting shifts its focus from a stakeholder perspective toward a purely business and investor focus (IIRC, 2013).
The IIRC was founded in 2011 to develop a framework for integrated reporting. According to the IIRC, the purpose of integrated reporting is to explain how an organization creates value over time to providers of financial capital. However, an integrated report does not only benefit the providers of financial capital, it benefits all stakeholders who are interested to obtain insight in the ability of an organization to create value over time. These stakeholders include employees, customers, suppliers, business partners, communities, regulators, standard setters, legislators and local communities (IIRC, 2013). Eccles and Serafeim (2014) confirm that stakeholders share the opinion that integrated reporting is the best way to communicate ESG information with external parties.
Even though the concept of integrated reporting, combining and connecting financial and non-financial information in a single report, was not new, the global ambitions and the reach of the IIRC were (Humphrey et al., 2017). The IIRC published the integrated reporting framework in 2013. The integrated reporting framework consists of six capitals: financial, manufactured, intellectual, human, social and natural capital. These capitals are defined as “stocks of value that are increased, decreased or transformed through the activities and outputs of the organization” (IIRC, 2013, p. 11). Besides the capitals, which partly determines the content of the report, the IIRC also issued seven guiding principles which “are applied individually and collectively for the purpose of preparing and presenting an integrated report”. The guiding principles include: strategic focus and future orientation, connectivity of information,
stakeholder relationships, materiality, conciseness, reliability/completeness and consistency/comparability (IIRC, 2013, p. 16)
Even with the integrated reporting framework of the IIRC, multiple definitions of an integrated report still exist. Eccles et al. (2014) consider that a report may be called an integrated report if it includes key performance indicators to monitor the six capitals, considers the relationship between financial and non-financial performance and considers the materiality of ESG issues. According to Mio, Marco and Pauluzzo (2016) an integrated report is deemed to be a connected story between inter-organizational information, emphasising on the narrative perspective of the report. Another definition of integrated reporting is provided by Unerman, Bebbington and O’Dwyer (2014), who define an integrated report as a concise report that shows a holistic picture of the financial, economic, environmental, social and governmental performance and impacts. The IIRC itself defines integrated reporting as “concise communication about how an organization’s strategy, governance, performance and prospects, in the context of its external environment, lead to the creation of value over the short, medium and long term” (IIRC, 2013, p. 7). Embedded at the core of all definitions of integrated reporting is the concept of integrated thinking, which is the process through which an integrated report can be constructed. An organization that has implemented integrated thinking actively considers the relationship between its operating and functional units and the capitals that the organization uses or affects (IIRC, 2013). Integrated reporting is more frequently found in large firms, competitive market conditions and in situations when organizations previously complied with existing GRI sustainability standards (Frias‐ Aceituno, Rodríguez‐Ariza & Garcia‐Sánchez, 2014).
Despite the fact that integrated reporting is still in its infancy stage, several benefits can already be identified. According to PwC (2013), the integrated reporting framework may be a useful framework to consider how to best disclose ESG information. Also, integrated reporting may result in internal and strategic business benefits due to the process of integrated thinking (PwC, 2013). Eccles and Krzus (2010) state that integrated reporting provides internal benefits, including improved allocation of resources, improved engagement with stakeholders and reduced reputational risks. External benefits can also be identified, these include addressing the needs of mainstream investors, appearance on sustainability indices and ensuring accurate non-financial data from suppliers. A third benefit of integrated reporting is the management of regulatory risks; preparing for possible development in regulation (Eccles & Krzus, 2010; Mio et al., 2016). The IIRC states that organizations that implement integrated reporting will better identify business opportunities, better align information with the needs of investors and improve strategic risk management (IIRC, 2011). Another benefit is an increased transparency of costs and benefits to stakeholders, which results in an improved exposure of the actual sustainability performance in relation to the achieved goals (Jensen & Berg, 2012). The information used in integrated reports is also more closely
related to information used by the organization’s management compared to other reports, which results in increased transparency in the reporting practices of an organization (Mio et al., 2016). Other studies found evidence that integrated reporting is positively related with firm performance and the trust of long-term investors (Churet & Ecless, 2014; Serafeim, 2015). Adams and Simnett (2011) mention that integrated reporting has the potential to connect the most material elements of financial and sustainability reporting practices, reduce the burden of compliance practices across multiple jurisdictions and reduce overall costs compared to traditional reporting practices, which the authors describe as possibly lengthy, complex, very detailed and costly.
However, Adams and Simnett (2011) also state that the information required to produce an integrated report has a certain threshold. The development of the required information may represent too large of a cost for some organizations compared to the benefits. This threshold can be seen as a barrier for many organizations that do not have the information readily available in their current business practices. Other challenges that companies experience while implementing integrated reporting practices are the lack of a globally accepted framework that specifies the content of integrated report, the fact that there is no globally accepted measurement standard for the measurement of non-financial information is available and the lack of existing comparable integrated reports (Eccles & Krzus, 2010; Eccels & Salzman, 2011). Also, in the South African setting where integrated reporting is mandated, listed companies are found to have implemented a very prescriptive draft of the integrated reporting framework and mainly implement the integrated reporting process to enhance organizational reputation, to comply with the need of investors and stakeholders and to engage in relationships (Steyn, 2014). The reconsidering of a business model, encouragement of a sustainable product development, improvement of resource allocation decisions, reductions of cost and the assessment of economic value creation and strategy were not considered to be the main motivation for companies to implement integrated reporting (Steyn, 2014).
2.3. Integrated reporting and assurance challenges
As previously mentioned, since only annual financial performance reports are mandatory to be assured, the assurance on sustainable non-financial information is voluntary. Even if assurance is provided on this information, it is not provided with the same degree of rigor as the assurance of financial information (Eccles & Salzman, 2011). Nevertheless, investors are increasingly interested in non-financial information and the non-financial information is improving its quality (KPMG, 2011).
There is a growth in the amount of organizations within the G250, the top 250 of fortune 500 companies, that publish an assured corporate social responsibility report from 36% in 2011 to 63% in 2015 (KPMG, 2015). The same survey shows that the largest growth of assurance on non-financial information was within the annual report rather than in standalone reports, thus showing evidence of integration of non-financial information in annual reports. The survey also displays the growth of
integrated reporting itself. Besides South Africa, where issuing an integrated report is mandated, the most advanced countries regarding integrated reporting are the Netherlands and Spain, both of which 27% the top 100 national firms issue integrated reports2 (KPMG, 2015).
Due to the relatively new developments in the field of integrated reporting, the accounting profession has had, and seized, the opportunity to become a significant actor. The dialogue in the integrated reporting field currently seems to be strongly influenced by financial professionals, especially accountants. The accounting profession mainly draws upon their professional expertise, planning capabilities and adherence to procedures to secure legitimacy in the integrated reporting field (van Bommel, 2014). Adams and Simnett (2011) state that existing audit and assurance methods are being challenged by the emergence of new audit spaces such as integrated reporting. One such challenge is the concept of materiality, which is well-established in quantitative elements of corporate financial reports, but not as well-established for the qualitative elements of a corporate report, which are more profound in environmental and social contexts (Adams & Simnett, 2011).
As assurance practices are increasingly more common and are extending their range past the traditional financial audit, the accounting profession is no longer the only party that is able to provide assurance over organizational information (Pflugrath, Roebuck & Simnett, 2011). The accounting profession is, however, generally accepted as a high-quality assurance provider due to the well-developed international standards body, ethical characteristics and firm- and engagement-level quality control mechanisms (Pflugrath et al., 2011). The confidence in the accounting profession as assurance providers is further aided by the existing reputational capital that was created by demonstrating high competence and quality of assurance services (King & Schwartz, 1998). Other assurance providers, in the case of assurance on non-financial information, are sustainability experts. These parties are argued to have a greater level of subject matter than the accounting profession, resulting in a suitable position for assurance of non-financial information (Simnett, Huggins & Green, 2010). The research of Pflugrath et al. (2011) shows that the assurance provided by accounting professionals is perceived to be more credible in terms of trustworthiness, expertise and overall credibility. These results indicate that assurance performed by professional auditors is perceived to be of a higher quality and greater level of independence compared to the assurance provided by sustainability experts.
Reimsbach, Hahn & Gürtürk (2017) have shown in an experimental setting that the overall assurance of financial information in an integrated report has a halo-effect for the non-financial information included in the same report. This indicates that, even though the non-financial aspect was not within the scope of assurance, stakeholders still belief the non-financial information to be credible due to the assured financial information. Moreover, assurance of non-financial information in an integrated
report has not resulted in increased credibility, unlike assurance on standalone reports that depict non-financial information, such as sustainability reports (Reimsbach et al., 2017). The current academic literature has, however, brought forward limited further insight in the relation of assurance and integrated reporting.
Concluding, there is an increasing demand for non-financial information by investors. Firms are willing to address this issue by not only increasing their information disclosure, but also ensuring the quality of this information through assurance. Due to drawbacks of the sustainability reporting, a phenomenon known as integrated reporting emerged. Increasingly more organizations publish integrated reports. The relatively new field of integrated reporting is still developing, and it seems that accountants are significant actors within this field. The current auditing and assurance practices are, however, most likely not sufficient for auditing firms to directly obtain legitimacy. While it is possible for other parties to provide assurance on non-financial information, the auditing profession is believed to be best suited for the assurance of non-financial information and thus the information within an integrated report. The relation between assurance practices on integrated reporting and the effects hereof is still relatively unclear as few research has been performed.
3. Theory
This chapter provides an overview of the relevant theory that is suitable for this research; the legitimacy theory. First the concept of legitimacy theory will be illustrated to create a basic understanding of this theory. Second, since the legitimacy theory knows various aspects, a few perspectives on legitimacy theory will be described. Hereafter, the audiences on which the process of acquiring legitimacy focusses are described and the operationalization of legitimacy used in this research is shown.
3.1. Legitimacy theory
The past two decades have successfully shown how professional audit firms have translated their expertise of financial audits to new audit spaces, such as e-commerce assurance and environmental auditing (Gendron & Barrett, 2004; Power, 2003). Audit firms attach their existing symbolic characteristics, like independence, ethics and integrity, to new audit spaces in order to gain legitimacy. However, because new audit spaces such as sustainability audit differ from traditional audit spaces in various ways, such as subject matter, criteria, auditor relationship, reporting value and reporting outcome, using only their existing symbolic characteristics is often insufficient to obtain legitimacy. The fact that a practice differs from an existing legitimate practice complicates the way that organizations obtain legitimacy of the new practice (Andon et al., 2015).
The primary concern of the legitimacy theory is to obtain legitimacy through strategic alignment of organizational values and objectives with societal values. Through the lens of the legitimacy theory, organizations are considered to have a social contract with the broader society and should seek a strategic ‘fit’ between the firm’s values and the values of the wider society. A related concept to legitimacy theory is the stakeholder theory. Stakeholder theory, contrary to legitimacy theory, only focusses on key stakeholders of an organization instead of the broader society (Deegan, 2002). Embedded in the core of both theories lies the notion that firms should manage demands of third parties, such as stakeholders or the broader society, to legitimise the firm, its practices and its products.
The legitimacy theory has not only been applied in management literature, but also in other disciplines such as political science, philosophy, psychology and sociology (Suddaby, Bitektine & Haack, 2017). Legitimacy can broadly be defined as “the perception or assumption that the actions of an entity are desirable, proper or appropriate within a systems of norms, values, beliefs and definitions” (Suchman, 1995, p. 574). Other definitions of legitimacy include embeddedness of organizations in taken-for-granted assumptions and the absence of doubt on actions of an actor as being a natural way to affect some kind of collective action (Zucker, 1991; Hannan & Carrol, 1992). Deephouse and Suchman (2008) state that organizational legitimacy is fundamentally dichotomous; an organization is either legitimate or it is illegitimate. The authors state that illegitimacy occurs when an organization fails to conform to societal standards and beliefs. Legitimacy can also be seen as an asset, something that an organization owns, or as
a judgement, either formed by a single individual or by collective actors (Betektine and Haack, 2015). Legitimation is considered to be a key element in the creation and survival of new organizational forms (Greenwood, Suddaby & Hinings, 2002).
3.2. Perspectives of legitimacy
The operationalization of the legitimacy theory can take a variety of forms. Van Bommel (2014) states that reaching a legitimate agreement on the meaning of a practise is often seen as a passive compliance, instead of a purposeful active strategic process. The author diverges from this presumption and argues that legitimacy can be seen as a proactive concept of societal involvement. Van Bommel (2014) observes legitimacy through a sociology of worth perspective, looking at various orders of worth through which multiple actors actively try to obtain legitimacy. This framework “not only presupposes the complexity and plurality ..., it also assumes that different actors coexist in a shared world, and it pays particular attention to the understanding of how those actors can reach an agreement” (van Bommel, 2014, p. 1159). A different perspective on legitimacy theory is to observe it through a bourdeuasian lens, in which legitimacy is seen as “an institution, action or usage which is dominant, but not recognised as such, that is to say, which is tacitly accepted” (Bourdieu, 1993, p. 70). This form of legitimacy integrates a theory of social structure, which is called the field, a theory of power relations, which is referred to as forms of capital, and a theory of the individual, which is referred to as habitus. Andon, Free and Sivabalan (2014) state that accounting, through a bourdeuasian lens, is considered to be legitimate in a particular domain when it is implicitly acknowledged as valid and is thus in line with accepted norms, values and beliefs of that domain.
O´Dwyer et al. (2011) state that the concept of legitimacy in existing audit literature is often rather broadly defined, leading to limited insight into the specific types of legitimacy sought by organizations. To obtain extensive insight into types of legitimacy, O’Dwyer et al. (2011) use the framework of Suchman (1995) to define the concept of legitimacy in detail. Three categories of legitimacy can be distinguished; pragmatic, moral and cognitive legitimacy. While these categories of legitimacy normally coincide with each other, they can also collide when legitimacy needs to be gained (Suchman, 1995).
Pragmatic legitimacy can be gained by supporting a practice based on the direct benefits (Suchman, 1995; O’Dwyer et al., 2011). Three types of legitimacy can be defined within the pragmatic concept of legitimacy. The first type is exchange legitimacy, which concerns the support of a practice based on the future outlook of direct benefits. The second type is influence legitimacy, which concerns the support of a new practice based on expected improvements for the entire practice. The third type is dispositional legitimacy, which states that support of a practice is based upon the belief that the practice takes the best interest of all existing parties into account (Suchman, 1995).
Moral legitimacy represents a normative assessment of a practice. Unlike pragmatic legitimacy, judgement of moral legitimation does not rest on the direct benefits of an activity, but on whether the activity is deemed to be ’the right thing to do’ in the eyes of society (Suchman, 1995; O’Dwyer et al., 2011). Moral legitimacy can be refined into four types, the first being consequential legitimacy, which involves the judgement of a practice by its accomplishments. The second type is procedural legitimacy, which concerns the gaining of legitimacy through socially accepted techniques and procedures. This type of legitimacy is most valued if outcome measures are unclear, since a practice can then demonstrate that it has used socially accepted procedures. The third type is personal legitimacy, which involves gaining legitimacy from the reputation, charisma and personal status of individual organizational leaders. The last type is structural legitimacy, which relates to the social construct of certain tasks or practices that an organization should perform (Suchman, 1995; O’Dwyer et al., 2011).
Cognitive legitimacy can be defined as the appearance of activities or objectives as proper, appropriate or desirable. A practice that has obtained cognitive legitimacy is believed to be the most appropriate or the only acceptable and natural approach to effect a kind of collective action (O’Dwyer et al., 2011). Cognitive legitimacy is difficult to directly influence as it mainly operates at a subconscious level (Palazzo & Scherer, 2006). Cognitive legitimacy can be distinguished in comprehensibility, the establishment of cultural accounts that produces explanations for existing practices and the way they are performed, and taken-for-grantedness, which perceives a practice as natural given and the removal of this practice as unthinkable (Suchman, 1995; O’Dwyer et al., 2011). As legitimacy moves from pragmatic legitimacy to the moral or the cognitive, legitimacy becomes more difficult to manipulate and more elusive to acquire. However, once cognitive legitimacy is established it also becomes more durable, self-sustaining, profound and subtle (Suchman, 1995, p. 585).
Other types of legitimacy, which are closely related to the three types of legitimacy as discussed by Suchman (1995), can be found in the concept of legitimacy as stated by Scott (1995). Scott’s (1995) concept of ‘bases’ of legitimacy consist of regulative, normative and cognitive categories. While the normative and cognitive bases closely relate to the previously discussed moral and cognitive aspects of legitimation, regulatory legitimation provides another look into legitimation of an organization and its practices. Regulatory legitimation is present when an organization and practices are conformed to existing laws and regulations (Scott, 1995).
Suchman (1995) also refers to three strategies to attain and maintain legitimacy; a conforming, selecting and manipulating strategy. The conforming strategy, which is the easiest strategy to perform, relates to the conforming of a practice to the requirements of existing institutional regimes. The selection strategy, a more proactive strategy, refers to the pitching of a practice at new audiences who will likely support the practice. The manipulation strategy, the most proactive strategy, states that new audiences and
new legitimating beliefs are used in order to obtain legitimation. In this situation, organizations must actively promulgate new expectations of social reality (Suchman, 1995; O’Dwyer et al., 2011). Obtaining legitimacy through a manipulation strategy is “less a matter of management than of evangelism” (Suchman, 1995, p. 591). Other strategies to obtain legitimacy according to Betekine and Haack (2015) are by increasing creditability of speakers, ’staging’” consensus among organizations and by means of rhetoric. Hyndman and Liguori (2016) mention authorisation, rationalisation, normalisation, moralisation and narrativisation as strategies to obtain legitimacy. The authorisation strategy refers to the acceptance of a practice by an institutional authority. The rationalization strategy focusses on the benefits and the outcome of a practice and assumes that society accepts the activity because of the positive effect. The normalization strategy uses examples to illustrate that the practice is regarded to as ‘normal’. The moralisation is related the legitimation of a practice by referencing to specific value systems. The last strategy, the narrativisation strategy, refers to obtaining legitimacy through the use of narrative, thus providing a story to illustrate the practice as acceptable, appropriate or preferential.
3.3. Audiences of legitimacy
Upon reviewing prior literature, three main audiences of the legitimation of new audit practices can be distinguished. These are the existing and potential clients, the users of audit reports and influential organizations in the external audience and the internal audience, which consists of employees of the firm that seeks legitimation (O’Dwyer et al., 2011). All types of legitimacy can both be affirmed and contested by all audiences involved (Brown & Toyoki, 2013).
The clients of assurance practices are an important audience, since they directly evaluate the usefulness of the new practice. In order to secure legitimacy of new assurance practices, demonstrating added economic value of a practice is important (Swift, Humphrey & Gore, 2000). A key factor to securing legitimacy from the client audience is ensuring the presence of auditable environments for new assurance practices. This process is often accompanied by negotiations between auditors and clients, resulting in audits that are coproduced (Power, 1994, 2003).
In order to legitimise a new assurance practice with the non-client external audience, careful management of the user’s expectation is required (O’Dwyer et al., 2011). Power (1994) states that a crucial aspect of gaining overall legitimacy for new audit practices is the education of users of the nature of this practice, since the new form of assurance has different capabilities and expectations than traditional forms of assurance. The nature of communication with the key users of an assurance report is seen as a crucial aspect in securing legitimacy. Audit reports are recognised as significant in establishing external legitimacy for both the reports themselves and the assurance practice (Elsbach, 1994). Another key aspect of gaining legitimacy with the external audience is the presence of goal congruence between organizations. In the
absence of goal congruence, individual organizations may undermine the overall effectiveness of a new practice (Ju & Tang, 2009).
The internal audience, consisting of employees within the firm that tries to obtain legitimation, is most often not taken into account, resulting in a limited scope of legitimacy (Brown & Toyoki, 2013; Hyndman & Liguori, 2016). This audience is, however, highly relevant in the pursuit of legitimation of a new practice, since internal issues might complicate legitimation attempts with the other audiences (O’Dwyer et al., 2011). The internal audience can be subject to demotivation if they perceive that managers confine a new practice purely for symbolic marketing purposes, which complicates the internal legitimation process (Frandsen, Morsing & Vallentin, 2013).
3.4. Use of theory
This research operationalizes legitimacy based on the legitimacy framework of Suchman (1995). Although Scott (1995) provides similar aspects in his definition of legitimacy, the regulatory aspect does not apply for integrated reporting since disclosing non-financial information, and especially the assurance of this information, is voluntary. The sociology of worth framework also indicates to be a useful theoretical framework through which the legitimation of integrated reporting can be analysed (see van Bommel, 2014), but this theory focusses on the different actors and the connections between these actors. The current research primarily focusses on one actor in the field of integrated reporting, namely the auditor. Suchman’s (1995) operationalization of legitimacy, pragmatic, moral and cognitive, and the accompanied strategies provide a broad lens through which the legitimation processes of integrated reporting practices by auditors can be analysed.
In summary, the broad scope of legitimacy theory allows it to be used not only in managerial studies, but in a variety of contexts. A plethora of operationalisations of legitimacy exist in the current literature, accompanied by strategies to achieve legitimacy and audiences related to gaining and maintaining legitimacy. In order to answer the research question, this study uses Suchman’s operationalization of legitimacy, which distinguishes pragmatic, moral and cognitive legitimacy, and the associated strategies to obtain legitimacy; conforming, selection and manipulation strategies (1995). Multiple audiences of legitimacy can also be identified. This study focusses on the client audience, the non-client external audience and the internal audience of legitimacy practices, as used by O’Dwyer et al. (2011).
4. Research methods
This chapter presents an overview of the research methods used. First, the research setting will be described to provide an understanding of the context of the research setting. Second, the data collection process will be described, where an overview of the data used is provided. Hereafter the data analysis process will be described.
4.1. Research setting
While integrated reporting is still in its infancy stage, increasing research is carried out to better understand the effects of integrated reporting for organizations (see Serafeim, 2015; Mio et al., 2016). However, little research has yet been performed that focusses on the role of the accountant or auditor. An exception is the research of Van Bommel (2014), who includes the role of the accountant within the dialogue surrounding the field of integrated reporting. Given the fact that integrated reporting, and especially integrated reporting assurance, has not yet been studied in-depth, a lack of in-depth understanding on the processes of integrated reporting exists (Van Bommel, 2014). A qualitative approach is best suited to answer the research question and the aim of this research, as it helps to understand the practices and the complexities related to these practices (O’Dwyer et al., 2011). To my best knowledge, no research has focussed solely on the processes through which auditors try to legitimise integrated reporting practices.
The qualitative nature of this research allows for a more in-depth understanding about the processes and complexities surrounding the integrated reporting field from the perspective of auditors of a big four audit firm. In accordance with the qualitative research method, semi-structured interviews have been performed with assurance and advisory practitioners who focus on integrated reporting within a big four audit firm located in the Netherlands. Access to the big four audit firm was obtained through a thesis internship, which primarily focussed on constructing the thesis at the office location. Big four audit firms are recognized as leaders in corporate reporting practices for many years (Eccles & Krzus, 2010), which makes this research location suitable to analyse the processes through which audit practitioners legitimise the assurance on integrated reporting. The Dutch context of this research is appropriate because of the local characteristics of sustainability practices and has been proven relevant due to the leading participation in the pilot programme of the IIRC (van Bommel, 2014).
Additional information regarding integrated reporting has been gathered from existing documents within the big four audit firm, such as background papers, press releases and organizational reports. Bowen (2009) states that advantages of documentary analysis are: availability, stability, exactness, coverage and the level of detail. The rationale that not only interviews are used as a means of gathering information, but also an analysis of existing documents is used, is because of possible inaccuracies within the gathered information. Moreover, performing documentary analysis provides the researcher with background information about the subject studied, a context from which questions could be asked, supplementary
data and means of tracking change and development. Moreover, documentary data functions as a means of verification of findings from other data sources, such as interviews (Bowen, 2009). Patton (1990) states that triangulation of information safeguards the researcher against incorrect findings and findings of artificial nature that arise due to the use of a single measure, the use of a single source or the researcher’s biased view.
4.2. Data collection
As previously stated, the data was collected from several sources, including in-depth interviews and existing documents. The interviewees selected for the interviews are regarded as ‘key informants’ of integrated reporting within the audit firm, meaning that these individuals have knowledge of, and experience with, integrated reporting and assurance. The selection of the interviewees was aimed at selecting auditors of various positions in the organization and with various years of experience to gain insights from multiple perspectives. The majority of the interviewees has had training as a financial auditor. A summary of the descriptive details of the interviewees can be found in Table 1.
A general interview guide (see appendix I) was drafted to ensure that all semi-structured interviews initially covered the same subjects.The interview guide was used as a framework throughout the interview process. The general interview guide was more specifically adjusted to the interviewee prior to each interview, taking into account their experience and professional background. All individual interviews were conducted between 24 February and 4 May 2017 and lasted between 30 minutes and 50 minutes, averaging around 40 minutes.
During the start of each interview, extensive efforts were made to create rapport with the interviewee, discussing the academic background of both the interviewee and the researcher and the professional background of the interviewee. The interview broadly focussed on the opinions of the interviewees regarding their perspective on integrated reporting, the assurance on integrated reporting and further complexities regarding integrated reporting and the recent developments within this field. The
Code Function Experience Department Function Date Duration
A1 Senior Manager 7 years Sustainability Advisory February, 24 35 minutes A2 Senior Staff 5 years Sustainability Assurance March, 16 40 minutes A3 Senior Staff 6 years Core finance Assurance March, 21 45 minutes A4 Senior Staff 5 years Sustainability Advisory March, 28 50 minutes A5 Senior Manager 8 years Sustainability Assurance March, 29 50 minutes
A6 Director 15 years Core finance Assurance April, 10 35 minutes
A7 Senior Manager 11 years Sustainability Assurance April, 12 45 minutes
A8 Manager 8 years Sustainability Assurance April, 14 30 minutes
A9 Manager 9 years Sustainability Assurance April, 24/25 45 minutes A10 Senior Manager 10 years Risk management Assurance May, 4 45 minutes
themes of the interview guide were reflected upon and updated if necessary following each interview. This functioned as a means to enhance the completeness and quality of succeeding interviews.
All interviews performed were tape-recorded and transcribed subsequently as soon as possible, all within the first 24-48 hours after the interview. All documents that the professional audit firm published regarding integrated reporting and assurance were also analysed and were used as secondary evidence that supported the interview data. These documents include background papers, press releases and organizational reports.
4.3. Data analysis
The analysis of interview and documentary data involved a superficial examination of the data, a thorough examination and a process of interpretation to understand the data completely. This iterative process was used to correctly understand the data, assess the connection between and assess the completeness of the data. The analysis of documentary data was carried out by organizing emerging themes in the documents and coding them accordingly to create an overview of the key themes present in the documents. During the evaluation of the documentary data, taking into consideration the target audience of the documents was imperative document, as this helped to analyse the information in a correct manner.
The transcribed interviews were analysed using a process of data-reduction, data display and data interpretation (O’Dwyer, 2004). The process of data reduction focussed primarily on the identification of key themes in the transcripts of the interview. During a second analysis, the key themes that were already identified were further specified into subthemes. The data display process consisted of developing ‘core’ themes from the initially identified themes, whichemerged from merging themes that seemed to overlap. An overview of the ‘core’ themes and subthemes can be found in appendix II. The data interpretation process then followed, which consisted of formulating a rough outline using the analysed data, formulating and contextualizing a thick description and analysing the data by using the legitimacy theory as an analytical lens.
5. Case Analysis
In this chapter, the case analysis is presented. The context of the research setting is displayed first, describing the experience of the audit firm with integrated reporting and providing a view of how integrated reporting is integrated within the audit function. An analysis of the data gathered from the interviews will be presented hereafter. The analysis is structured in a way that distinguishes the attempts of audit professionals to obtain and sustain legitimacy for integrated reporting assurance with the three key audiences; the client audience, the (potential) users of integrated reports within the external audience and the internal audience, which consists of employees of the audit firm. Suchman’s (1995) types of legitimacy and strategies are used to interpret the data, which narrows the wide-ranging character of legitimacy and focusses purely on processes that legitimise integrated reporting.
5.1. Context
The professional audit firm studied is seen as an organization that is leading in non-financial assurance and assurance in general. Besides financial and sustainability audit and assurance services, the audit firm also provides other services such as forensic, legal, consulting and tax services. The audit firm is part of a large global network and has a broad range of multinational clients for both the financial and non-financial audit services. The audit firm performs sustainability related audits since the early 1990’s. In order to perform these sustainability audits, a separate department that focussed solely on these non-financial audit engagements was created. The employees that work within this department do not necessarily have an audit background, as specialist knowledge is imperative to audit certain subjects like CO2 emissions.
Besides the assurance of sustainability reports, the separate sustainability department also provides advisory services related to non-financial information and provides assurance on special purpose reports. Also, as a response to the increasing amount of integrated reports published and publicity surrounding integrated reporting, a separate workgroup for the advisory and assurance on integrated reports has emerged within the sustainability department which focusses on issues surrounding this relatively new form of reporting and assurance. The audit firm publishes ‘thought leadership’ publications about integrated reporting and is affiliated with key organizations that focus on this type of reporting, such as the IIRC and the GRI, both in the national and global context. As financial and non-financial information come together in an integrated report, the financial audit department and the sustainability department join each other in the integrated assurance process. During the integrated audits, the financial department and the sustainability department focus on financial and sustainability information respectively. Even though both the financial and the non-financial part of the integrated assurance engagement is being led by the financial audit partner, as is policy within the audit firm, partners and directors or senior managers of the sustainability department are also involved with these engagements at top level.
5.2. Client audience
In order to obtain legitimacy with the client audience, mainly pragmatic (exchange and influence) legitimacy is sought. Pragmatic legitimacy is acquired through a combination of conforming, selection and manipulation strategies, in which the professional audit firm conforms to the instrumental needs of existing clients, discusses the direct benefits of integrated reporting and assurance during formal meetings and workshops with existing and potential clients and publically speaks at conferences and issues articles respectively.
Shaping an evolving reporting environment
Existing audit clients shape the main base for the integrated reporting practices of the audit firm. “So it [integrated reporting audit] emerges rather often from contacts that already exist within our network, that we are approached [by client for an integrated assurance engagement]” (INT1). Existing clients who seek assurance on their integrated reports are mainly interested in the added instrumental value that the audit firm provides. Besides the fact that these organizations have legislative responsibilities for assurance on the financial part of the integrated report, they also value the critical view of the accountants and embrace their feedback to improve reporting practices in the future. “During the assurance process, a lot of effort is put on providing feedback on the extent of connectivity [of information] within the report … this is also seen as a large benefit of assurance” (INT5). From this point of view, the audit firm conforms to the existing requirements and instrumental needs of the client, thus focussing on obtaining exchange legitimacy.
Although some existing clients actively seek assurance on their integrated reports, other clients are not involved with integrated reporting or even with sustainability reporting. To increase the number of clients that issue integrated reports, and therefore require integrated assurance, the audit firm deploys a variety of strategies. The first strategy is a selection strategy; seeking clients that issue both financial reports and sustainability reports and proactively discussing the added value of integrated reporting.
Well a short time ago [I was] at one of my clients where assurance on their financial report was already provided and I saw online that they also issued a sustainability report. ... Because it [the sustainability report] was a quite good and large report I thought we should initiate a conversation with the client regarding integrated reporting. So we sat down with the sustainability director and spoke with her to see how advanced they were with regard to sustainability reporting and about the added value of integrated reporting (INT3).
The added value of integrated reporting which is discussed during these meetings is both of pragmatic and moral nature; the added instrumental value for the clients internal processes is discussed as well as the increased transparency that integrated reporting practices provides for the users. But while some clients already receive assurance on both reports, other clients are not as advanced in their sustainability reporting practices and have not sought assurance on their non-financial data. To address this group of potential assurance clients, the audit firm also provides advisory services with regard to non-financial and integrated reporting. “We perform various advisory services relating to integrated reporting. These services are purely focused on aiding the client during the construction of an integrated report” (INT4). These advisory services are prohibited by law to be performed for assurance clients of the audit firm. Thus, although this selection strategy might expand the reputation of the audit firm as being an expert in the integrated reporting field, it does not directly generate increased assurance engagements.
Another selection strategy used by the audit firm is the use of workshops and presentations about integrated reporting. Potential integrated assurance and advisory clients are actively approached to participate in these workshops. “Then I recommended [the client] to attend a workshops of our colleagues … to get a clear picture on where to go and how to make a plan [to implement integrated reporting]” (INT10). The workshops and presentations function as a channel through which the expertise of the audit firm is emphasized, integrated reporting is advocated and a demand for assurance on integrated reports is created.
For example, we make presentations in which one of the slides addresses the added value of integrated reporting from the scientific literature, which shows that integrated reporting can really add value. We also use the example that ‘we see more and more of our clients reporting in this manner’ and that it has a positive impact on them. We also see that the society requests this form of reporting and that the general public has the need for transparency. So, these kind of things are used towards the client to increase awareness about integrated reporting (INT3).
The audit firm pursuits exchange legitimacy by addressing the added benefit for the client, but also shows the use of moral arguments by stating the need for more transparency from a societal point of view. These moral arguments have an underlying pragmatic nature as the added instrumental value of an integrated report is emphasized for the client.
The audit firm also issues articles and thought leadership publications which addresses a broad (potential) client audience, thus not merely focussing on the existing client base of the audit firm. This illustrates the use of a manipulation strategy. “On a relatively holistic level we have been busy the last few years with thought leadership on this subject, so really expressing a vision on how we are going to help
organizations go further by writing publications on integrated reporting” (INT7). The publications of the audit firm about this subject appeals to instrumental needs of organizations by illustrating the benefit of integrated reporting and assurance. Furthermore, the position in the market as being expert on corporate reporting practices and assurance in general allows the audit firm to publicly speak about integrated reporting at conferences or events, showing the use of a second manipulation strategy.
Of course we go a lot to conferences and events as well. On the one hand we do this to keep our knowledge up-to-date, … but on the other hand to share our knowledge by providing presentations at certain events. This also leads to new client contacts, people who have seen or heard us and seek a sparring partner (INT4).
While the audit firm tries to legitimise integrated reporting and assurance, it is important to note that they are not the only actor who influences the client audience within the integrated reporting field. Other major forces like investor groups, the government and the boards of directors are described to also play a large part in legitimizing integrated reporting practices with clients. “Eventually the stakeholders have an important role in [integrated reporting]. One of these important stakeholders are regulators, so the regulators are one of the driving forces behind [integrated reporting practices]” (INT9).
Other accounting firms who also provide assurance on integrated reports also influence the audit field. The audit firm engages in discussions with other audit firm to smooth the operationalization of integrated assurance. “We hear from clients that other audit firms approach it [integrated assurance] differently. … We discuss that [with other audit firms] and try to reach a consensus on these approaches because we do not want to frustrate the market” (INT7). The result of these meetings is a uniform view of integrated assurance from potential clients whom seek integrated assurance. The legitimation of integrated reporting practices and assurance are therefore subject to multiple actors in the field, each of which is essential for the success of this new reporting practice and the assurance hereof. “It still remains their report and if they decide not to implement integrated reporting, that choice is theirs to make” (INT8).
Expanding integrated reporting through assurance
As increasingly more organizations issue integrated reports and seek assurance on these reports, it is important to state that these integrated reports mainly consists of preliminary versions of integrated reports. Integrated reporting practices appear as vague and ambiguous to many clients.
