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We have been noticing a remarkable growth in corporate reporting today as well as efforts to harmonize reporting standards. Corporate reports have become a real mean for disseminating sensitive information to various stakeholders in order to enhance corporate transparency. This paper aim is to enlighten the corporate reporting status in the limited liability joint stock companies in the Republic of Croatia as well as to underline future trends in corporate reporting. The analysis based on the field research conducted in the first half of 2010, showed that Croatian corporations in corporate reporting are lagging behind their counterparts from the developed nations, but have started to recognize the importance of social and environmental disclosure.
Danas zamjeÄ‡ujemo sve veÄ‡i znaÄaj korporativnog izvjeÅ¡tavanja kao i napore u harmonizaciji standardizacije izvjeÅ¡taja. Korporativni su izvjeÅ¡taji postali i izvor prijenosa senzibilnih informacija razliÄitim interesnim dionicima kako bi se ojaÄala transparentnost poslovanja. Cilj je rada pojasniti stanje korporativnog izvjeÅ¡tavanja u dioniÄkim druÅ¡tvima Republike Hrvatske ali i naglasiti buduÄ‡e trendove korporativnog izvjeÅ¡tavanja. Analiza je obavljena prema istraÅ¾ivanju koje je provedeno u prvoj polovici 2010. godine. IstraÅ¾ivanje je pokazalo da Hrvatska poduzeÄ‡a zaostaju u korporativnom izvjeÅ¡tavanju za poduzeÄ‡ima u razvijenim zemljama, ali zapoÄinju prepoznavati znaÄaj izvjeÅ¡taja o odrÅ¾ivom razvoju i okoliÅ¡u.
KljuÄne rijeÄi: korporativno izvjeÅ¡tavanje, buduÄ‡i trendovi, Republika Hrvatska
Keywords: corporate reporting, future trends, the Republic of Croatia
JEL: A13, M14, M21, M48, D21
Everything significant what is happening in organisations involves communication, but communication is often interrupted by hierarchical structures, power and status differences, rules etc. Furthermore, communication in organisation is not a natural process but it is constructed from a perspective which represents management interests- especially in corporate reporting. (Buchanan, Huczynski, 2010, 228) Except financial reports, companies are nowadays obligated, if not by law, than by stakeholders to provide non- financial reports which cover intellectual property, human capital, environment, customers, corporate reputation, human rights and anti-corruption practices. Corporate reporting is the most important part of corporate communication which can consolidate and enhance the sense of confidence among all stakeholders, and which is used by companies as a platform for showcasing their achievements against promises as well as for clarifying the model for success and key relationships (internal and external) that enable success. (Roberts, 1992) Corporate reporting in the future should give a credible, realistic and coherent picture of company's performance.
The field research was carried out in the first half of 2010 on the sample of 100 randomly selected joint-stock limited liability corporations, using the questionnaire, which was sent by e-mail according to the database of Croatian Chamber of Commerce. Return rate was 30% and, from the surveyed corporations - 15, 4% were small, 38, 5% medium-sized and 46, 2% big corporations (Official Gazette 109/07). From examined corporations, 52, 2% are listed on Zagreb Stock Exchange. The aim of this paper is to view corporate reporting status in these corporations as well as to underline the future trends in corporate reporting. Despite of improvements (worldwide) in the scope of information reported, our research showed that Croatian corporations have not achieved the reporting level of developed countries, primarily because of country development and culture, as well as obliged regulation which has a great influence on corporate reporting.
2. ABOUT CORPORATE REPORTING
Corporate reporting is the primary means by which corporate entities provide details of corporate performance to their various stakeholders, not least the investment community. (Everingham, Kana, 2008) It is a vital ingredient in their ability to motivate ongoing stakeholder support for and commitment to the organisation. But, corporate reporting communication is one-way process and has great influence on decision-making process, so huge attention must be given on filtering - distort information; corporate status; time; value judgements - which is made by receiver; source credibility which should be developed through years and refers to the trust and ethics.
Corporate reporting (PriceWaterHouseCoopers, 2010): relates to the presentation and disclosure aspects of the following areas of reporting: (1) financial reporting, (2) corporate governance, (3) executive remuneration, (4) corporate responsibility and (5) narrative reporting. Accordingly, financial reports consist of financial statements and accompanying notes, corporate governance relates to the communication of processes by which companies are directed and controlled (i.e. Information on board composition and development, accountability and audit, relations with stakeholders), executive remuneration is the communication of how executives are remunerated, both in the short and longer-term, corporate responsibility includes the communication about how companies are understanding and managing their impact on people, clients, suppliers, society, and the environment in order to deliver increased value to all the stakeholders. On other side, companies have different purpose for these reports , including enhanced public relations, internal measurements and support for strategic goals and thought-leadership within their industries.(Presidio Graduate School, 2010) Many companies have determined that the brand-building and promotional benefits to declaring these activities and accomplishments outweigh the coasts associated with tracking, generating and disclosing them. For this purpose corporations publish reports. Financial reports (McShan, Von Glinow, 2005, 332) and other impersonal documents represent the leanest media because they allow only one form of data transmission (e.g.) written, and the sender does not receive timely feedback from the receiver, and the information exchange is standardized for everyone. Publicized informations to all stakeholders are usually available through annual, sustainability, integrated reports and the so-called One report. Annual reports are the main basis for disseminating real information to various stakeholders, particularly to shareholders and investors. They have recently been supplemented with several social and environmental issues or 'stand-alone' full coverage sustainability reports covering social and environmental corporate concerns containing data on rather sensitive issues, such as enterprise-employees relations, human rights, respect for environment, consumer protection issues, community involvement and similar. Investors and other stakeholders are increasingly being interested in how corporation performs in environmental, social and governance issues, apart from solely focusing on economic elements. This is to say that stakeholders (Adams, 2004, 732) are demanding the "giving of an ethical, social and environmental account" as well as a financial account. Sustainability reports build thriving relationship and represent corporate investment in trust, transparency, honesty and respect for stakeholders. This has also led to the emergence of integrated reports today. Integrated reports contain both annual and sustainability report, but the scope of those report is: market context (industry, economic, political, regulatory); strategy, governance; remuneration; business model and supply chain (customers, suppliers and communities); risk and risk managing; human recourses (diversity, well being, retention, absenteeism, etc.); physical resources (energy, water, scarce resources); emissions; government payments/receipts; other community impacts and contributions and the key performance indicators covering all above. (PriceWaterHouseCoopers, 2010, 39) On the other side, there are pleaders of one report method (Eccles, Krzus, 2010, 14) as one strategy of integrated reporting. Integrating reporting in One Report means to describe, simply and clearly, management's view of the relationships between financial and non-financial metrics. They are giving four key benefits of integrated reporting: greater clarity about the relationship between financial and non-financial key performance indicators; better management decisions, deeper engagement with the broad stakeholder community; and lower reputation risk. But it has to be mention that KPMG (2010, 5) points out that integrated reporting is different from one report (annual) which assume that all relevant stakeholders can fulfil their information need with this single report.
However, in practice companies started to use narrative reporting as shorthand for the critical contextual and non-financial information that is reported alongside financial information to provide a broader understanding of a company's business, its market position, strategy, and performance and future prospects - including quantified metrics. An effective corporate reporting framework should include: a market overview; a detailed explanation of how the company intends to compete in the marketplace; a report on financial performance benchmarked against competitors and peers; and an assessment of the company's management of its tangible and intangible assets. (Chambers, 2003) Today, corporate reports are used to enhance corporate transparency and enable managers and investors to make sensitive economic decisions. Every decision brought has a social consequence because corporation makes part of the society and has extreme power. So, corporate reporting is an important communication channel through which corporation is disseminating valuable information to many stakeholders, thus building trust between the management and other stakeholders. Social disclosure is a strategic plan by corporation to show a firm's social performance to the stakeholders. (Roberts, 1992) Furthermore, good corporate governance requires that reporting of CSR activities should not only comply with accepted business accounting principles, but it must be objectively monitored and be transparently available to the public. (Urip, 2010, 69)
3. THE DEVELOPMENTS IN CORPORATE REPORTING - HISTORICAL NOTE AND THE ON-GOING TRENDS
Corporations traditionally report about financial information. But, due to the changes happening in the surrounding environment and under influence of different factors such as regulations, technological change supported by globalization and further with demographic changes which have had an enormous impact on the organization causing changes in the organisational structures, corporate reporting evolved. Corporate reporting has undergone a rapid evolution since the first environmental reports appeared. Environmental issues have been joined on the agenda by social considerations in the last decade. The first part of the decade was marred with corporate scandals (i.e. Enron and WorldCom) and companies came under scrutiny for dubious accounting practices as well as corporate governance approaches. Thus regulators, financial analysts, consumers, employees and other relevant stakeholders contributed to the creation of milestone in corporate reporting - demanding better ways of tracking the real value of the corporation. The trend of sustainability reporting has been witnessing an extreme growth in the recent years. Basically, because of corporate endeavour, global reporting leaders worked hard in order to identify and communicate performance on material issues and to demonstrate how sustainability is being integrated into the corporate strategy to deliver environmental, social and economic expectations. KPMG's triennial surveys of international corporate responsibility reporting practice revealed that in 2002 approximately one third of their top 100 companies sample had incorporated social (and economic) issues into what had been previously a purely environmental report, and by 2005 the proportion had grown to almost half. (Owen, O'Dwyer, 2009, 394) In 2008, the KPGM (2008) survey revealed that amongst 250 global corporations 79% of them do published stand-alone corporate responsibility reports and this is a dramatic rise in reporting since 2005 when 52% of corporations published stand-alone corporate responsibility reports.
The next stage of reporting development moves towards integrated reporting a single report but also is about an ongoing reporting. It is much about listening as talking and emphasizes the creation of a collective conversation among the company and its stakeholders. There have been initiatives on developing integrated reports and more than 160 corporations in the world published integrated reports in 2009 (Corporate Register, 2010), but this is still and on going process. Thus, some of responsible investing's best known names such as APG, the UN Principles for Responsible Investment, Railpen and the International Corporate Governance Network, are involved in a new group looking at how to integrate ESG (environmental, social and governance) factors into corporate reporting. The International Integrated Reporting Committee (IIRC) composed of Working and Steering Group was launched on August, the 2nd 2010 by the Global Reporting Initiative and Prince Charles' Accounting for Sustainability Project and it is the latest initiative to grapple with the topic of how to integrate sustainability and financial reporting. (Responsible Investor, 2010) It is suggested that an integrated report should contain (PriceWaterHouseCoopers, 2010): : (1) annual financial statements, (2) directors report, (3) directors statement of responsibility, (4) management and directors commentary, (5) report of the audit committee, (6) sustainability report, (7) risk disclosures, (8) IT reporting, (9) remuneration report, (10) Statement by the Company Secretary, (11) Terms of reference of committees and (12) ethics statement. Definitely, the structure and adoption of these reports will vary from country to country as it is a matter of cultural diversity, and are, of course, subject of board of directors' main responsibility. KPMG (2010, 5) after meeting of 20 leading organisations in December 2009 announced the following conclusion "integrated reporting is the way forward in corporate reporting", so it only the step in developing globally harmonized corporate reports.
Although, Europe was always a leader in corporate reporting (the first region that produced environmental reports about 20 years ago) followed by North America (despite the legislative initiatives (i.e. Liability Act) focused on mandatory environmental and pollution disclosures) and Asia. (Corporate Register, 2010, 4) Corporations in Japan have topped the tables in rates of corporate responsibility reporting. In 2008, 88% of corporations in Japan published 'stand-alone' corporate responsibility reports, followed by United Kingdom with 84%, United States with 73% Canada with 60% and Sweden 59% of corporations. In the same year, 22% of Brazilian corporations published integrated reports (corporate responsibility reports within annual reports), followed by 21% of corporations in Switzerland, 19% in South Africa, 12% in Norway and France published integrated reports, 8% in Australia, 7% in UK, and 5% in Japan. (KPMG, 2008, 16) A study of The European Communication Monitor (2010) also showed that in 2011 the main expected field of development will be corporate communication (for 88 % of companies). Today only 17% of companies give importance to social media which is expected to be changed in 2011 - 58% of companies will give attention to that media.
Corporate reporting is still in evolution and companies management must consider asking themselves the following questions (Everingham, Kana, 2008) : (1) Who are we reporting to?, (2) Why do they need information?, (3) What information they need?, (4) When do they need it? and (5) How do they wish to receive it?.
Changes in managers' structures which are encouraged by new approach in corporate governance convert also corporate reporting. We can distinguish three different strands(Coombes, Wong, 2004, 4): (1) need to increase the transparency of corporate performance; (2) common global standard of accounting and (3) to extent to which corporate reporting is actually measuring , even in principle, the full dimension of corporate performance, particularly as developed economies increasingly move away from assets-intensive industries. One review must consider the corporate reporting supply chain (DiPiazza, Eccles, 2002) which always begins with company executives - responsible for building and developing ethical business and government. First challenge for companies, after scandals - Parmalat (Italy); Podravka (Croatia) etc., is to build trust of society, stakeholders to believe in corporations goal, principles and governance. But, new approach in reporting is not focused only on corporate reputation - it influences the corporate value; society culture; corporate culture and inside-stakeholders prior employees which will assure strategy fulfilment. Trends in corporate reporting will surely go through: building trust - transparency; narrative reporting; take advantage in new technology for information distribution - online media; market regulations; industry specialised reports and in development of internal communication to assure better external communication.
4. WHAT'S GOING ON IN CROATIA?
Not so many researches aiming to discover reporting practices were conducted in the Republic of Croatia. Nevertheless, the existing studies cover either only publicly listed corporation's attitudes towards reporting (KoriÄan, Ä†oriÄ‡, 2009) or are focused solely on financial reporting (Pervan, 2010).
For joint-stock limited liability corporations listed on Zagreb Stock Exchange (2010) in Croatia corporate reporting is critical source of information which influences share price, reputation, environmental acceptance etc., usually done through web page of the Company on the Internet and most information which can be found are the annual, semi-annual and quarterly financial reports. Accordingly, annual report shall contain: (1) audited annual financial statements -made by using the appropriate standards of financial reporting, give a complete and truthful statement of assets and liabilities, losses and profits, financial condition and business performance and any companies included in the consolidation; (2) management report - which contains a truthful statement of business developments and results, as well as the condition of the Issuer and any companies included in the consolidation; (3) statement - description of the most significant risks and uncertainties to which the companies is exposed by the persons responsible for compiling the annual report- listing their first and family name, position and duties, saying that to the best of their knowledge. Semi-annual report shall contain: (1) abridged set of semi-annual financial statements; (2) management interim report; (3) statement by the persons responsible for compiling the semi-annual report, listing their first and family name, position and duty saying that do the best of their knowledge. Quarterly report should disclose it to the public as soon as possible but no later than thirty days from the last day of the quarter to which it refers, and shall ensure that it is available to the public for at least five years from the day of its publication. (Zagreb stock Exchange, 2010) Basically, there are missing information about planned results, realized strategic objectives, possible risks, etc. although, according to regulations, "all information which might have some influence on decision making on investment in securities of the company have to be announced immediately and simultaneously to all persons who might be interested therein, including to the equal extent both positive and negative information, with the objective to enable the information receiver to acquire complete understanding and correct assessment of the company's situation" (Zagreb stock Exchange, 2010) . This enlightens the fact that also the regulation imposed by the state doesn't go in line with the trends in reporting (especially integrated reporting where the information presented should be wider with more constructive elements). Corporations are obliged to prepare and publish financial statements in compliance with the International Financial Reporting Standards (IFRS) taking into the account the contemporary international tendencies in financial reporting and the market requirements. Moreover, every entrepreneur incorporated in Croatia is obliged to conduct accounting records and prepare financial statements according to accounting principles, so that they provide information about his operations and position of his assets. Ever since January 2008, according to the Accounting Law (Official Gazette, 109/2007) the very detailed conditions for external reporting have been defined. Accordingly, all large and medium large entrepreneurs organized as joint stock companies are obliged to publicly disclose financial statements. Financial statements are disclosed according to content of Balance Sheet and Income Statement prescribed as for small entrepreneurs.
Once a year financial reports of all large entrepreneurs and medium large entrepreneurs, if organized as joint stock companies, must be audited. Small entrepreneurs organized as joint stock companies are obliged for shortened audit every third year. Short audit is review into operations. Other medium large and small entrepreneurs are obliged to audit financial reports according to own regulation or Statute. But, what happens in practice?
When focusing on the corporate reporting we are entering into the field of corporate communication. According to conducted research, majority of the respondents highlighted the preference of written communication often constructed from a perspective which represents management interests, so ethical dimension of management is influencing presented reports. Results showed that neutral factors in their work are transparency of information and improvisation although evaluate that generally in Croatian business environment is missing principally: responsibility (2, 66); honesty (2, 77) and transparency (2, 88). In the light of this, there is a question how to comprehend corporate reports? In Croatian corporations the majority 91, 7% of the corporations do publicly disclose financial reports; 25% of corporations environmental reports and only 16, 7% of them sustainability reports (only half of them do use Global Reporting Initiatives (GRI) guidelines while others do not know whether they do follow these guidelines or not). Only 8, 3% of examined corporations have a publicly available code of ethics. There are also other ways of communicating with stakeholders about the socially responsible activities corporations perform, although in 33,3% of corporations there is no external communication with the stakeholders, 26,7% use informal presentations of their corporation, in other 26,6% web site has been used as the facilitator of communication, in 20% of the cases corporations do allow external rating agencies to rate their sustainability performance, whilst 13,3% communicate with socially responsible investors. From the survey, it is evident that 85% of corporations don't provide public information about executive remuneration - which is standard in integrated reports in developed countries. Hence, this arises many questions of the harmonization of reporting standards with those of developed countries to start catching up the counterparts.
The overall results have shown that with regards to corporate reporting (especially sustainability reporting), Croatian corporations are lagging behind their counterparts from developed countries in European Union and USA, but nevertheless it should not be forgotten that the Republic of Croatia has been passing through the dynamic process and it is still adjusting to the so-called free market economy rules. Thus, it is good to know that among the surveyed corporations there are those who do publish environmental and sustainability reports as well as that there are those which have been evaluated by different external evaluators. Web site of the corporation is a good media of delivering information among internal and external stakeholders and it is extremely important that this has been recognized among Croatian corporations.
The challenges corporations have been facing today have an important influence on the corporate governance. The trends are changing due to the new demands imposed by various stakeholders and dramatic changes imposed by globalisation process, technological change, demographic shift, climate change, etc. Those changes have created an atmosphere in which corporations that want to succeed and be accepted by different stakeholder do need to change their usual way of reporting thus not focus any more solely on financial disclosure (annual financial reports). Probably, integrated reporting is a step in developing corporate reporting. First time published in 2009 (focus to be a standard in 2012) in developed nations but developing countries and transition countries are still very much lagging behind and focusing mostly on financial disclosure. Nevertheless, the survey conducted in the Republic of Croatia revealed some very interesting points. Croatian corporations are mostly disclosing solely financial information but are starting to recognize that sustainability reports and environmental reports are very decent way of communicating with internal and external stakeholders if they are to be accepted by them. What is even more interesting is the fact that amongst the surveyed corporations 20% of them have been evaluated by external rating agencies (in terms of their sustainability performance). As there were no previous studies focused on this particular aspect of corporate communication, it is not possible to compare the results with an earlier period. Hence, it would be good to focus future analysis on these particular issues so to gather information which could be comparable with these results and thus would reveal the evolving trends.