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Introduction
Materiality is a multifaceted concept that permeates the entire field of accounting; it generally refers to the need to provide relevant information to users of corporate reporting (Bernstein, 1967). Previous research offers a variety of definitions of the principle of materiality (Brennan and Gray, 2005; Messier et al., 2005), which shift over time (Edgley, 2014) and across various corporate reporting contexts (e.g. financial vs non-financial) (Eccles and Krzus, 2014). The presence of these multiple definitions reflects materiality’s “malleable nature” (Edgley, 2014, p. 255), such that the way the principle ultimately is implemented cannot be defined ex ante. As highlighted in both academic and professional literature, the practical implementation of materiality principles entails a process in which the report preparers mobilize their expertise and apply their judgments to distinguish between useful information that must be disclosed and irrelevant, insignificant information (Bernstein, 1967; Dohr, 1950; Reininga, 1968).
Although the implementation of materiality is demanding even in a traditional corporate financial reporting context, judgements appear even more critical in non-financial reporting settings (e.g. sustainability), in which the amount of discretion is greater, due to the lack of detailed guidance and the shortage of actual implementation experience (Guthrie and Parker, 1990). For example, in the integrated reporting (IR) context, the guidance offered by the International Integrated Reporting Council (IIRC) is based in principle, such that it allows for significant variation in the way companies may apply the materiality principle and develop their “materiality determination process” (IIRC, 2013). Furthermore, IR is an emerging practice, marked by uncertainty about whether and how it will become institutionalized (Rowbottom and Locke, 2016; Humphrey et al., 2017). In turn, the IIRC, accounting professionals, and standard setters have highlighted challenges associated with implementing materiality in an IR context (AICPA and IIRC, 2013; EY, 2013; IIRC, 2015; CDP et al., 2016; IAAER et al., 2016). As addressed in more detail in Section 2, these challenges include aligning the company’s materiality process with regulatory frameworks, offering a concise explanation of the business models of companies in complex industries and providing a balanced view of the issues that appear to be material to both the company and external stakeholders.
As such, the IR context represents an ideal setting in which to...