Nowadays, more and more companies start to be interested in the concept of CSR in the area of accounting (Fuente, García-Sanchez, Lozano, 2016, pp.737-750). Investors need more disclosures, connected not only to the traditional financial data but also to nonfinancial information, such as environmental issues, working conditions, research and development strategy (Villiers, Van Staden, 2011, pp. 504-525). Non-financial information disclosures are a response to those needs. The Directive 95/2014/UE, implemented to Polish law (Act of Accounting), imposed on the largest Polish companies the obligation to disclose non-financial data. This includes:
a) description of business model,
b) key non-financial performance indicators,
c) description of policy applied by company in the area of social, employee and environmental relations, as well as human rights issues and counteracting corruption and bribery,
d) description of significant risks.
As it was mentioned above, one of the areas of non-financial information cover a human rights issues. The Act of Accounting does not directly mention the scope of information that has to be disclosed (Papaj-Wlisłocka, Strojek-Filus, 2019). As a result, the amount of presented data fully depends on the company’s decision. Examples of human rights-related information are shown in Figure 2.
Figure 2: Scope of non-financial information in the area of human rights
Source: Own elaboration
Obligation to disclose information related to human rights turned out to be a great challenge for companies. Before the implementation of European Union’s Directive (Directive 95/2014/UE) in 2017,such data was rarely presented in the financial statements. The obligation covers the biggest Polish companies which in a financial year and in the previous year, exceeded the following amounts:
• 500 employees - in terms of annual average employment expressed in full time equivalents and
• 85,000,000 PLN - in the total balance sheet assets at the end of the accounting year or 17,000,000 PLN - in the net revenue from the sale of goods and materials in the financial year.
2. METHODS
In March 2019, Polish Ministry of Finance has organized a conference devoted to assessing the first year of non-financial information disclosure obligation among Polish companies. The conference was an opportunity to exchange ideas, identify examples of good practices as well as to highlight areas that need improvement. It also featured a presentation of a preliminary research carried out by the experts of the Ministry of Finance and La Strada Organisation. In the report “Reporting of extended non-financial information in 2017 - first experiences and good practices” experts pointed out that undoubtedly, human rights information was the weakest among all non-financial information disclosures. This result was particularly interesting for La Strada Organisation.
Along with Foundation of Reporting Standards (FSR) they conducted a separate research dedicated to human rights-related disclosures. The subject of the research was 149 non-financial information reports published by Polish companies in 2018.
3. RESULTS AND DISCUSSION
In the research, selected experts checked the extent to which companies disclose information about human rights in their reports. It should be underlined that such a research method is biased with a certain degree of subjectivism. In general, subjectivism is a common limitation of research related to non-financial information (Healy, Palepu, 2001,pp.405-440), (Elshandidy, Shrives, Bamber, Abraham, 2018, pp.54-82). What is important, it does not reduce the quality of research, because it is related to the specificity of non-financial data. During the research, companies were divided into sectors of operation: chemistry, consumer goods, finance and banking, trade and service, healthcare, fuel and energy and new technologies. Summary of the results regarding the non-financial information disclosures in the area of human rights are presented in the figure 3.
Figure 3: Disclosure of non-financial information in the area of human rights
Source: Own elaboration according to “Reporting of extended non-financial information in 2017- first experiences and good practices”.
As it has been presented in figure 3, the most information in the area of human rights was disclosed by companies from the industries of fuel and energy(61,10%) and new technologies(50,10%). In these industries, market success is heavily dependent on the human capital. As a result, companies are aware that disclosures in this area may have a positive impact on their image While also attracting at the same time highly qualified employees to the company. Financial issues are another explanation for the obtained results. Wide range of disclosures is associated with the involvement of non-financial disclosures specialists, which generates high costs of remuneration. Fuel and energy and new technologies sectors are examples of very profitable industries with appropriate funds for extended reporting. It is also worth noticing that financial issues may be responsible for low level of disclosures seen among healthcare companies (only 20,50%). The next stage of research was extracting information with the largest and smallest percentage of disclosures.
The obtained results indicate that most commonly disclosed information was related to description of legal regulations in the area of human rights introduced by company. The results are presented in figure 4.
Figure 4: Description of legal regulations in the area of human rights introduced by company
Source: Own elaboration according to “Reporting of extended non-financial information in 2017- first experiences and good practices”.
As it has been presented in figure 4, the most extended scope of disclosures was observed in companies from fuel and energy industry (64%). Subsequently companies from chemistry industry, consumer goods industry and trade and services companies (however in these industries the scope of disclosures was only around 30%). Among the most frequently mentioned legal regulations are:
• code of ethics,
• policy of respecting human rights,
• policy of reporting violations (whistleblowing), • anti-mobbing policy,
• Universal Declaration of Human Rights, • International human rights charter, • ISO 26000.
Research proved that companies also created their own corporate documents regarding human rights. What is more, the concept of human rights as a part of non-financial information did not apply only to employees of a given company, but had a wide reference to local and international community. In turn, the least information was disclosed by companies in the area of ethical audits. The results are presented in figure 5.
Figure 5: Description of the procedures of ethical audits
Source: Own elaboration according to “Reporting of extended non-financial information in 2017- first experiences and good practices”.
Results in this category indicate that description of the procedures of ethical audits is clearly an area for improvement. Interestingly, one should pay attention to the high result observed in healthcare companies. This phenomenon may be due to the fact that the majority of companies in this sector represent national enterprises with highly developed procedures. Private companies in Poland have significantly less developed procedures, which may affect the low amount of disclosures. Neither sector’s disclosure rate exceeded 20%.
4. CONSLUSION
The last few years show a very high awareness of financial statements’ recipients not only in the area of financial information but also in terms of non-financial information. Nowadays, besides the classic financial statements, non-financial reports are constantly gaining popularity. Among non-financial information disclosures a significant role is played by information related to human rights. As it was mentioned in the article, disclosures related to human rights in accounting have not been published frequently before 2017. The implementation of Directive 95/2014/UE has changed the situation in this area. However, according to the research conducted by experts from Foundation of Reporting Standards (FSR) and La Strada Organisation, disclosures in this area certainly need improvement. The research results show that in the majority of industries, the scope of human rights disclosures did not exceeded 40%. Only in fuel and energy and new technologies industries the disclosure rate exceeded 50%. A more detailed analysis allowed to notice that companies disclose a lot of information concerning implemented legal regulations in the area of human rights. At the same time insufficient information related to the auditing processes is presented. There is no doubt that information connected to human rights in accounting are in the early stages of development in Poland. This reflections can form a basis for further scientific work.
LITERATURE:
1. Dhaliwal D.S., Zhen Li O., Tsang A., Yang Y. G., (2011), Voluntary Nonfinancial Disclosure and the Cost of Equity Capital: The Initiation of Corporate Social Responsibility Reporting, The Accounting Review, Vol. 86, No. 1.
2. Directive 2014/95/EU of the European Parliament and of the Council of 22 October 2014 amending Directive 2013/34/EU as regards disclosure of non-financial and diversity information by certain large undertakings and groups, OJ.EU from 15 November 2014 3. Elkington J. (1994). Towards the Sustainable Corporation: Win- Win –Win Business
Strategies for Sustainable Development, California Management Review, Volume 36, Issue 2.
4. Elshandidy T., Shrives P., Bamber M., Abraham S. (2018), Risk reporting: A review of the literature and implications for future research, Journal of Accounting Literature, Vol. 40. 5. Fuente, J. A., García-Sanchez, I.M. and Lozano, M.B. (2016). The role of the board of
directors in the adoption of GRI guidelines for the disclosure of CSR information. Journal
of Cleaner Production, Vol. 141.
6. Healy P. M., Palepu G. (2001), Information asymmetry, corporate disclosure and capital
markets: a review of the empirical disclosure literature, Journal of Accounting and
Economics, Vol. 31, No. 1/3.
7. Mair J., Marti I., (2005). Social Entrepreneurship Research: A source of Explanation, Prediction and Delight, Journal of World Business, Volume 41, Issue 41.
8. Papaj-Wlisłocka, E., Strojek-Filus, M., (2019),Forward-looking information disclosure as a risk factor in accounting – the case of Poland , Multiple perspectives in risk and risk
management. ERRN 8th European Risk Conference 2018, red. Philip Linsley, Philip
Shrives, Monika Wieczorek-Kosmala, Springer Proceedings in Business and Economics. 9. Reporting of extended non-financial information in 2017- first experiences and good
practices.Available:https://www.gov.pl/documents/1079560/1080340/Raport_MF.PDF/1b 41abe7-a7db-60a8-4641-cbbb0fb35764
10. Sudoł S.,(2006). Przedsiębiorstwo, Polskie Wydawnictwo Ekonomiczne, Warszawa. 11. Vanstraelen A., Zarzeski M., Robb S. (2003). Corporate nonfinancial disclosure practices
and financial analyst behavior across three European Countries, Journal of International
Financial Management and Accounting, Vol. 14.
12. Villers C., Van Staden, C.J. (2011). Where firms choose to disclose voluntary environmental information, Journal of Accounting and Public Policy, Volume 30, Issue 6.