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This paper aims to assess the disclosure of the materiality process in the preparation of sustainability reports of state-owned enterprises (SOEs). This paper also explores the effects of regulation mandating that SOEs prepare sustainability reports. In the specific case of port authorities, the study analyses the influence of a sector guideline that determines what should be included and the structure of the report. Another aim of this paper is to delve into SOE's motivations for disclosing information on materiality assessments, using the assumptions of the different theories to explain their reporting practices.

Using a sample of SOEs sustainability reports, a content analysis is undertaken. The methodology involves the analysis of the information disclosed by SOEs in Spain and the development of a materiality disclosure index. This index enables sampled entities to be classified on a scale of 0–5, based on the extent of their disclosures of the materiality determination process. This study also identifies several variables that explain differences in these disclosures.

A low rate of information disclosed about the materiality process can be attributed to the desire of SOEs to create symbolic legitimacy. In a context where the disclosure of sustainability information is mandatory, only few organisations apply the principle of materiality to define the content of their sustainability reports. These results highlight that institutional isomorphism has only had a limited effect on the materiality process.

Limitations associated with the sample size and composition of the sample by sector apply.

This research shows that generally accepted reporting guidelines constitute a reference framework for sustainability reporting but that the principles underpinning these frameworks are not always implemented.

This study extends the literature on the implementation of the principle of materiality and uses disclosure theories to explain the actual reporting by SOEs of their materiality process.

This paper aims to assess the disclosure on materiality analysis in sustainability and integrated reports through the lenses of legitimacy and stakeholder theory. The following three research questions are addressed: to what extent do companies report on their materiality analysis, what are the methods used for the analysis of the stakeholders and their topics/aspects and is there a higher disclosure of information of materiality assessment because of G4.

The paper uses an archival research approach and deploys content analysis. Thus, a binary disclosure index was developed that indicates whether materiality related information are mentioned and explained in detail. The sample contains 132 reports from 33 companies of the German 110 HDAX stock market index between 2014 and 2017.

The paper reveals that materiality analysis is a growing phenomenon. Nevertheless, companies disclose only a small amount of related information and fail to explain the methods for the stakeholder and topics/aspects identification. Thus, the underlying processes to define the report content remains unclear. Through the lenses of legitimacy theory, the study indicates that materiality analysis can strategically be misused to define report content without considering the interests of legitimized stakeholder groups and thus, does not improve the reports to those groups.

Managers are urged to regard the importance of reporting about ongoing materiality assessments, as otherwise, concerns about the overall reliability of the information presented may arise.

Poor reporting about materiality assessments might lead to potential conflicts with stakeholders that do see their important topics not sufficiently reflected in the sustainability or integrated report.

This study contributes to the literature regarding materiality in sustainability and integrated reporting and uses the assumptions of disclosure theories to evaluate the disclosure of a specific disclosure item.

This paper aims to propose a measurement of the materiality of environmental, social and governance information (ESG) reported by listed companies belonging to sensitive industries in Colombia, Mexico, Brazil, Chile and Argentina. This analysis is carried out from the insights of stakeholder theory, legitimacy theory and institutional theory. The research questions addressed are: What type of information is considered as material by Latin American companies? Does this information respond to the environmental and social issues within the context of Latin American companies and the needs of their stakeholders?

A materiality index is developed from principal component analysis and factor analysis, which are multivariate analysis statistical techniques used in various fields to develop indices. The designed index examines materiality in the sustainability reports of 65 companies for 2017 and 67 companies for 2018. These firms belong to the energy, mining, chemical, construction, construction materials and public services industries in Colombia, Mexico, Chile, Argentina and Brazil.

The results show medium-high materiality indices, mostly in Chilean, Mexican and Colombian companies. In addition, issues such as water management, climate change and occupational health and safety are particularly interesting for companies. For the two years studied and from the perspective of material aspects for the company and its stakeholders, energy, mining and utilities (drinking water and sewage) sectors obtained the highest scores. This shows that the disclosure of ESG information is higher in industries related to the exploitation of natural resources that cause adverse effects on the environment such as extractive industries. Both the analysis presented in this paper and the materiality measurement developed, allow social responsibility managers to have a standard on the level of importance allotted to the different topics disclosed in sustainability reports. Additionally, this study provides a perspective of the material issues recognized by sensitive industries with great environmental impact. Similarly, an analysis of the issues considered material by stakeholders is provided. This allows such issues to be compared, identifying similarities and differences among the issues regarded as material by a company and its stakeholders.

The paper opens the debate is open as to whether the information disclosed response to the needs of stakeholders or whether, on the contrary, the materiality analysis is a process that emerges simply from the interests of the company. These demands for qualitative and field research to complement quantitative studies such as this one to research the stakeholders’ engagement processes in context.

The paper’s purpose a challenge for future research is to strengthen the use of various methodologies that allow knowing the participation processes in the definition of materiality in the ESG information and the companies’ engagement with stakeholders. This stimulates research in the region, which is still in its infancy.

The international literature contains few studies related to the assessment of materiality for sustainability reporting. So this paper contributes proposes measurement of materiality for ESG information.

Part IV provides readers with the extant requirements for the application of materiality to recognition, measurement, presentation, and disclosure in the financial statements. This part also includes a detailed critical review of the recent Practice Statement on materiality, the FASB’s proposed ASU on the notes and the amendments to the Conceptual Framework proposed by the IASB and the FASB.

The part expands to issues that are typical of Management Commentary, including the SEC guidance on materiality in Management Discussion and Analysis.

It informs about the complexities and subtle differences between financial statements and bookkeeping and the different standards of reasonableness versus materiality.

A section moves from materiality to material misstatements and covers the application of materiality in auditing.

Another section goes in depth on internal control over financial reporting, showing the linkages between materiality and risk appetite and risk tolerance and the related application guidance.

Recent research finds that the effect of corporate social responsibility (CSR) information, especially when CSR is not related to core business activities (immaterial CSR issues), on investment decisions will be eliminated when it is explicitly assessed. As CSR expectations from investors appear to be different across specific cultures and countries (Van der Laan Smith et al., 2010), we aim to investigate (1) the effect of CSR materiality on investors' willingness to invest and (2) how the explicit assessment of CSR information moderates the effect of explicit assessment and CSR materiality on investment judgment by professional investors in Thailand.

A 2 × 2 between-subject experiment was conducted based on 136 professional investors.

Overall, the results suggest that an investor's willingness to invest is greater when CSR is material than when CSR is immaterial. In addition, the assessment of willingness to invest in a firm's stock is not affected by the presence or absence of explicit assessment of the material CSR. However, the results suggest that when CSR issues are immaterial, explicit assessment significantly removes the effect of CSR performance on the investor's investment judgment. Consistent with the findings from Guiral et al. (2019), professional investors seem to process CSR information in a similar way as nonprofessional investors.

The findings suggest that material CSR information has a significant impact on the investment decisions of professional investors. This is consistent with the materiality guidance provided by the Sustainability Accounting Standard Board (SASB) as helpful in improving the value of CSR information for investors. These results should be of interest to both business people and regulators because, despite differences in the cultural and audit environment, the results confirm that professional investors in Thailand use CSR information in an experimental setting, thereby providing some evidence of value creation from CSR activities and nonfinancial disclosures.

While recent experimental research has primarily examined how nonprofessional investors evaluate CSR information in Western countries, this study extends the literature by focusing on professional investors in emerging capital markets and how they use CSR information in their investment decisions (Coram et al., 2009). The study also addresses the call for research on differences in CSR reporting and practices in different cultures and countries (Van der Laan Smith et al., 2010; Coram et al., 2009) to provide insights into how professional investors in Thailand use CSR information to formulate investment judgments.

This study aims to analyse the consistency between what companies say (talk) and what they do (walk) regarding the application of double materiality in their sustainability reports.

Sustainability reports of 76 European companies that reported the application of double materiality and are listed in the Dow Jones Sustainability Index were studied through content analysis.

In total, 67% of the companies studied claim to apply double materiality but do not comply with the guidelines in this respect proposed by the European Financial Reporting Advisory Group. Therefore, these companies should be considered label adopters.

This study presents evidence of the existence of label adopters when double materiality is adopted at an early stage, meaning that regulators should seek to control compliance with the minimum requirements established for double materiality. This finding also has implications for assurers, who should consider the degree of real compliance with double materiality requirements when expressing their opinion.

The existence of label adopters in the application of double materiality endangers the sustainable development pursued through agreements such as the Green Deal and through the Sustainable Finance policy proposed in Europe.

This work contributes to the emerging literature on double materiality. Unlike previous works, empirical evidence is provided on the changes that companies present in their material issues with the application of double materiality. Moreover, it confirms the existence of label adopters in the application of double materiality.

Part III reviews the uses and effects of materiality as an accounting, legal, audit, and managerial concept. After mentioning several uses of materiality as a legal concept and explaining the FASB’s proposed direction to avoid an accounting definition, it goes in depth to the differences in the respective definitions, applications, practical interactions, and different nature of the legal and accounting views. It then draws on the differences between audit and accounting uses of materiality.

It counterbalances the interests and positions of the various stakeholders involved, such as investors, preparers, standard-setters, auditors, regulators, financial analysts, and other users of the financial statements. It shows that those who regulate, use, decide, and assess materiality are different subjects.

Finally, the part capitalizes on the author’s vast experience in industry to theorize a plethora of alternative and complementary models of materiality with their pros and cons.

The dangers of management bias and the resulting increased need for auditors to be cognizant of environmental characteristics may be particularly acute in the area of accounting estimates. Accounting estimates pose relatively unique auditing problems because it is an area where management has significant discretion (to set estimates) and there is limited ability to apply traditional accounting controls. Thus auditors have difficulty obtaining conclusive evidence to challenge management′s estimates. Research examining auditors′ accounting estimate judgments, however, has been scant, especially with regard to the relationship of auditors′ assessment of materiality and risks of fraudulent financial reporting. Reports the results of an empirical study examining the reporting decisions of audit seniors and audit managers related to a client′s decision to change four accounting estimates relative to the prior year. The auditor′s task was to review the changes and to indicate whether audit adjustments proposed by the audit staff were necessary to preserve an unqualified opinion. Three environmental red flags related to management lifestyle, bonus compensation programme and internal audit department strength were manipulated between subjects. The results indicated that the direct effect of the red flags on reporting decisions was limited. The findings provided greater support for an indirect model. In the indirect model, red flags affected auditors′ assessments of management intent, which, in turn, influenced auditors′ reporting decisions in combination with assessed materiality and level of auditor experience.

This paper aims to critically examine the conceptualisation of the principle of materiality, which is one of the most divisive concepts in current regulatory work on standard setting for sustainability reporting. This paper pays particular attention to the current agenda for standard setting for sustainability reporting and the related discourse, including the International Sustainability Standard Board (ISSB) Exposure Draft IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information. A new conceptualisation of materiality is proposed based on the critique.

The academic and grey literature relating to current regulatory work on sustainability reporting, responses to the ISSB General Requirement Exposure Draft and sustainability reporting frameworks and standards are reviewed. This review also includes the papers in this journal’s special issue on standard setting for sustainability reporting. This review is used to develop original views on how materiality could be conceptualised and interpreted for sustainability reporting. This paper’s viewpoint is built on the criticisms of various definitions of materiality found in the literature and the author’s original critique of the materiality definitions provided in various reports and standards/frameworks on sustainability reporting.

Both financial materiality and double materiality approaches have drawbacks. A single materiality approach underpinned by accountability for financial and non-financial capitals instead of decision usefulness for any stakeholder is proposed. The proposed conceptualisation is also underpinned by the need to recognise dependencies between the environment, society and organisations when creating long-term enterprise value. The proposed approach is expected to trigger real changes in organisational practices to pursue a purpose beyond profit.

The proposed approach to defining materiality for sustainability reporting bridges the divide between financial materiality and social and environmental materiality concepts underpinning different standards and regulations.

The approach to materiality proposed in this paper is aimed at enabling organisations to pursue United Nations Sustainable Development Goals to make the planet and societies more sustainable.

This paper proposes a new conceptualisation of and approach to materiality determination for sustainability reporting.