Assessing the Disclosure of Materiality Analysis in Integrated Reports: Evidence from Sri Lanka

Abstract

The disclosure of materiality analysis in integrated reports demonstrates the genuine intention of business organisations to fulfil stakeholders' information requirements through stakeholder needs and expectations analysis. This study assesses whether the Sri Lankan companies have taken the required initiatives to disclose the materiality analysis in their integrated reports. This research will assess the above concerns with the support of stakeholder and legitimacy theories. Integrated reporting (IR) has opened avenues for increasing the content validity and quality of reports published by companies by providing required guidelines and reporting Standards. Reporting on the materiality analysis is required by the Global Reporting Initiative (GRI) 3 Standard and the International Integrated Reporting Council (IIRC) Framework but remains voluntary. The revised Standard provides guidance on what information the companies are required to disclose, how they have prioritised material topics, and how they have decided the extent of related disclosures. Accordingly, this study will provide insights into the aspect of disclosure of materiality analysis in the annual reports of companies listed in the Colombo Stock Exchange (CSE) by analysing the annual reports of the selected listed companies in the years 2016/17, 2017/18, 2018/19, and 2019/20. A binary disclosure index has been developed to indicate whether the materiality-related disclosures have been mentioned and explained as required. The disclosure index will be quantified and statistically tested to arrive at conclusions regarding the analysis. The study has revealed that there is a growing trend in the disclosure of materiality analysis in the annual reports of the Sri Lankan listed companies. The companies have dedicated a few pages in their annual reports to discuss their materiality analysis process and the key stakeholders. Meanwhile, there is a lack of information on the methods used by the companies to identify their stakeholders. However, they have revealed information on the methods used to identify their material topics to some extent.