Corporate reporting quality and corporate sustainability: Evidence from the early adopters of IFRS sustainability reporting framework

Abstract

This novel study explores the corporate reporting quality (CRQ) under the newly developed Contemporary Corporate Reporting (CCR) regime that advocates for uniformly structured sustainability reporting disclosures through the release of IFRS Sustainability-focused Disclosure Standards (IFRS Ss) in 2023, and the integration of these sustainability standards into the existing IFRS Financial Reporting Standards (IFRSs) to deliver Enhanced Corporate Reporting (ECR, 2023). The study evaluates Sustainability Reporting Quality (SRQ) using the new Conceptual Framework for Sustainability Reporting (CFSR), and Financial Reporting Quality (FRQ) using the Conceptual Framework for Financial Reporting (CFFR). Under these both conceptual frameworks for corporate reporting (CR), the essential information attributes titled as Qualitative Characteristics (QCs) are prescribed, and these separate yet complementary QCs are employed to provide quantitative metrics to assess SRQ and FRQ. Henceforth, CRQ is a hybrid form of SRQ and FRQ, the study also examines how enhanced CRQ assists stakeholders in evaluating corporate performance and foreseeing corporate sustainability (CS), particularly within an EESG-led milieu.

A mixed-methods approach was adopted for this study. Data was extracted from annual corporate reports, including financial, sustainability, integrated, and IFRS S-compliant reports. Two purpose-focused indexes were developed using the standardised QCs of both CR conceptual frameworks. The FRQ index comprises 42 items, whereas the SRQ index encompasses 37 items, together forming an index of 79 items for measuring CRQ. Content analysis was performed, and the data disclosures were operationalised using a uniform quantitative scale (0–3). The data was then processed by means of MS Excel, and later, it was analysed using the SPSS (version 30).

This study covers six countries such as Türkiye declared the mandatory adoption of IFRS Ss for its corporate sector, while early voluntary adopter companies of IFRS Ss came from countries of Bangladesh, Brazil, Costa Rica, Kenya, and Nigeria. The findings indicate that the adoption of IFRS Ss and their integration into financial reporting enhance consistency, reliability, coherence, and scrutinisation of corporate disclosures within a broader EESG context, enabling stakeholders and regulators make informed decisions, assess overall corporate performance, and foresee corporate value creation capability over time. Comparative analysis between 2023 (pre-integration) and 2024 (post-integration) demonstrates meaningful refinements particularly in sustainability-based disclosures alongside gradual improvements in FRQ, jointly reflecting enhancement in the overall CRQ. Corporate sustainability (CS) was particularly emphasised in this study due to its linkage with ECR through EESG considerations, representing quadruple bottom line (QBL). Under this study, CS represents a blend of both financial or economic sustainability (E) and ESG sustainability, and stakeholders are believed to assess and anticipate EESG-led CS through ECR, which simultaneously reveals financial and sustainability-grounded performance.

This research makes conceptual, methodological, practical, and academic contributions. Conceptually, it integrates both CR streams to elevate CRQ through FRQ and SRQ taken together, validating dual materiality and extending the theoretical breadth of ECR. Methodologically, it operationalises standardised QCs of both CR conceptual frameworks of the IFRS Foundation to construct structured FRQ and SRQ indexes, which translate qualitative disclosures into measurable quantitative datasets. Practically, it calls for collaborative efforts among standard-setters, professional bodies, regulators, and other stakeholders to strengthen and promote the ECR frameworks on a global scale. Academically, it contributes by bringing in new research literature as it will be one of the first studies that explores the impact of the new sustainability-based standards (IFRS Ss) on overall CRQ. This study also provides a comprehensive insight into sustainability reporting and its adaptation into CR from historical developments to the contemporary ECR regime.

Despite certain challenges, this study is distinctive in topic, context, methodology, and contribution. Its implications encourage the global corporate sector to adopt and apply IFRS Ss together with IFRSs to enhance the consistency, transparency, standardisation, and reliability of CR disclosures. This pragmatic integration of both CR streams is targeted to realise the perceived benefits of ECR, particularly in making informed decisions, assessing the overall corporate performance, and ensuring CS across firms and the broader corporate sector worldwide.