Evolutionary Trends of Intangibles Disclosure Within Non-financial Reporting

The constant evolution of socioeconomic scenarios, global competition, and internationalization processes has led business scholars to recognize the importance of intangible resources. Knowledge, innovation capacity, intellectual property, human resources, and organizational competencies represent intangible value drivers that bring about future benefits (Abeysekera, 2006). These are essential resources to compete in the market, and their effective management is a prerequisite for companies to obtain or preserve their long-term competitive edge. In fact, a successful business strategy is increasingly dependent upon the management’s ability to focus on new factors, such as relationships with customers/users, staff, and partners, and the ability to learn and innovate. These variables can be traced back to the concept of intellectual capital (IC), which “is the sum of everything everybody in a company knows that gives it a competitive edge” (Stewart, 1997, p. IX). The resource-based view (RBV) theory considers the company’s “intangible” resources a fundamental distinctive feature and the basis for creating a competitive advantage (Hamel & Prahalad, 1990). Thus, the terms IC, intangibles, and intangible resources are often used interchangeably in business and management literature (Petty & Guthrie, 2000). IC is knowledge-based capital that supports a company’s knowledge-based activities and, therefore, cannot be reported by traditional financial accounts. The inadequacy of traditional reporting systems in identifying the elements that explain a company’s overall performance has motivated academic studies on the possibility of identifying, representing, and measuring the IC dimension by using specific reports (Mouritsen, 1998; Edvinsson et al., 2000). These assets contribute to the success of firms through value-creation processes that improve corporate routines and practices (Stivers et al., 1997). In this context, IC theory stands alongside value-creation theories in considering intangibles key tools in the value-creation process (Rappaport, 1986). Edvinsson and Malone (1997) proposed a scheme to identify the single component of a firm’s market value, focusing on the concept of IC in its main declinations of human capital and structural capital. These considerations show the importance of intellectual capital disclosure (ICD) to provide accounting information regarding companies’ value-creation processes realized by intangible assets (Petty & Guthrie, 2000). Increasing attention has been paid to improving the methods and instruments used to represent a company’s intangible assets, both in the context of mandatory and voluntary disclosure. Reporting models have been proposed whereby, through physical-technical indicators and economic-financial indicators, it is possible to offer investors and lenders a complete view of the company’s knowledge, capabilities, and relationships to reduce the existing information asymmetry. Initially, numerous scholars and analysts promoted an “Intellectual Capital Model.” A Swedish financial services company, Skandia AFS, developed the first such model (Edvinsson, 1997). Many scholars have subsequently proposed several tools to facilitate the measuring of each category of intangibles (human, customer, and structural/organizational capitals; Abhayawansa, 2014; Choong, 2008; Mouritsen et al., 2001). To date, the most well-known methods are probably the Intangible Assets Monitor (Sveiby, 1997), the Balanced Scorecard (Kaplan & Norton, 1992), the Value Chain Scoreboard (Lev, 2001), the Strategic Resources and Consequences Report (Lev & Gu, 2016), and the Value-Added Intellectual Capital Coefficient (Pulic, 2000). Despite the numerous proposals for the management and visualization of IC, some of these methods have met with considerable popularity, yet no successful experiences have emerged in the field of disclosure; on the contrary, the proposals for IC reporting that have developed in the literature and in practice have been progressively abandoned (Dumay, 2016). The emerging trend in recent years has been to evaluate the most appropriate ways to incorporate non-financial information within the annual report, through forms of sustainability reporting (as proposed by the Global Reporting Initiative [GRI]) or integrated reporting (as issued by the International Integrated Reporting Council [IIRC]). The topic of IC disclosure, in particular, has also returned to the agenda because the IIRC has included the concept of “intellectual capital” in its framework, although with a different denomination than the traditional one. This chapter intends to review the role of ICD in reducing information asymmetry, increasing the level of transparency and accountability toward stakeholders, and positively influencing corporate performance. Furthermore, this chapter provides an overview of how the IIRC and the GRI deal with the topic of intangibles disclosure within non-financial reporting. Therefore, the research method is based on a document analysis through reading, synthesizing, and interpreting data contained in the frameworks/standards (Bowen, 2009). This qualitative approach, combined with the literature review, makes it possible to assess whether the disclosure of intangibles in the two frameworks/standards is treated uniformly or unevenly. Despite the centrality of issues related to the development of intangible resources, the existing literature does not present specific studies that analyze from a critical perspective how the IIRC and the GRI deal with the growing and central role of intangible resources in the current business context. This work aims to fill this gap, producing new insights that could prove prolific in generating innovative research in the field of intangible asset management and reporting. The chapter is structured as follows: Sect. 2 focuses on the debate in the literature concerning intangibles; Sect. 3 analyzes their role in the value-creation process according to the IIRC framework and the GRI standards. Finally, Sect. 4 contains the work’s discussion and conclusions.