LEGITIMACY THEORY IN THE FORMATION OF THE INSTITUTIONAL AND LEGAL BASIS OF THE COMPANIES’ NON-FINANCIAL REPORTING SYSTEM

Abstract

Ensuring sustainable development depends on achieving balanced economic efficiency management with a parallel solving the humankind social and environmental problems. This led to the formation of an information request for reporting on the social and environmental aspects of business-doing under the pressure of the world economy development and the civil society formation. Stakeholders’ dissatisfaction with the degree of reliability, relevance and comparability of non-financial reporting voluntarily published by companies prompts the search for new mechanisms for its provision, since the problems of climate change, the fighting inequality and poverty have rapidly acquired a global scale and require urgent solutions. The paper examines the main concepts of the origin of phenomenon of non-financial reporting as a tool for communication between a company and its stakeholders. It has been established that the legitimacy theory plays a key role in stimulating the companies’ voluntary disclosure of non-financial reporting and in the formation of the institutional and legal basis for the transition to a mandatory procedure for its provision both at the national and supranational levels. Based on a critical analysis of the voluntary disclosure practice of information on the economic, environmental and social aspects of business-doing, the authors substantiated the need to legalize the non-financial reporting system as the next stage of its evolution in the interests of all stakeholders. It was found that the relevance of non-financial reporting indicators is influenced by the correct interpretation of the concept of “non-financial information” in the context of the characteristics of the business entities’ activity. Based on this, the authors substantiated their own definition of non-financial reporting and made an assumption about the implementing of the mandatory reporting in a certain order, taking into account the contiguity of the thematic areas to which certain non-financial reports are devoted. It has been proved that the root causes of the unreliability and low information content of non-financial reporting are the insufficient development of standards (or other norms), based of which it is drawn up, and the system of its independent assessment.