What is Corporate Reporting - Term Paper Example

Table of Contents Corporate Reporting 2 Need for New Approaches of Corporate Reporting 2 Problems Faced In Producing Such a Framework 5 References 9 Corporate Reporting The term corporate reporting means presenting and disclosing different aspects that are different from financial measurement or accounting. The report might be on various areas such as corporate governance, corporate responsibility, executive remuneration, narrative or integrated reporting, etc. Corporate reporting can be regarded as the primary means through which the corporate entities can provide the details of their corporate performances to the stakeholders of the company (PwC, 2012). It has the ability to motivate the stakeholders to committee for their organization. Traditionally the focus was solely on the financial information for investment, but scenario has changed now. Corporate reporting does not only mean focusing on the value drivers in terms of financials, but on the non-financial aspects too (Mallin, 2009, p. 17). Corporate reporting process will keep evolving and improving according to the market condition and requirements. Companies have started getting the pressure from the regulatory bodies for developing meaningful disclosure and reports in order to present a transparent image before the stakeholders (Everingham, 2008, p. 1). This study is regarding the need for new approaches of corporate reporting and the problems that have been faced by the regulatory body in developing and producing such a framework. Need for New Approaches of Corporate Reporting The new approaches were proposed to reflect the wider and long-term outcomes of decisions that are taken by the organization. Integrated reporting mainly focuses on the strategically significant requirements that would assist the firm in developing a strong competitive advantage. It will also assist in securing the credit and capital, build good business relationships, and help to develop strategies for competition. The stakeholders would be receiving an enhanced information source regarding the sustainability and quality of the performances of the company (Hopwood, Unerman, and Fries, 2012, p. 36-39). The integrated reporting has moved beyond the traditional silo approach of gathering and reporting information. In integrated reporting comprehensive assessment approach is followed, in which the company’s performance and values are presented in an inclusive manner, so that the investors has information other than only the financials of the company (Loska, 2011, p. 9). The comprehensive approach requires understanding the strategy drivers of the company, identification of the key stakeholders and their explicit expectations, and implementation of different processes for obtaining the necessary information in order to manage the business based on the integrated approach of reporting (Palmer, R. Meek, Parkinson, and H. Meek, 2012, p. 326-327). The maturity standards of report in the company would also play a major role in moving towards integrated reporting approach. Most companies will not have to start the process from scratch because nowadays companies already issue a yearly annual or sustainability report which contains detailed information regarding the financial as well as the non-financial information of the company (Aras, and David, 2010, p. 427-428). There are companies which follow a three-tiered approach or a sustainability approach. The first-tier is the annual report, the second-tier is the GRI reports, and the third-tier is the sustainability report of the company. This three tier approach helps in revealing how the company measures, manages, and incorporate the sustainability priorities in their business process and include them as a significant part of their annual reporting process (Schaltegger, Bennett, and Burritt, 2006, p. 15-17). Another approach that can be considered in the framework of the integrated reporting is the stakeholder- oriented approach. The company’s primary focus for preparing and publishing comprehensive reports is to present a transparent image before the stakeholders. So the focus should be setting the strategic objectives, measuring the performance and setting clear goal in case of stakeholder-oriented approach (Gossy, 2008, p. 65-66). Connected Reporting, which is also called Integrated Reporting, is the new approach to address the increasing dissatisfaction of the users and preparers, which they faced while studying and preparing the increased complexity and the incompleteness of the accounts and the annual reports. The motive of the connected reporting is to focus on the requirements of the executive management and the investors which aim to invest for long period of time (Witt, 2012). The information available in the reports should be able to evaluate and explain the relation between the strategic objectives of the organisation, the market, social context and the industry. It should also involve the risk associations of the organisation, opportunities and the operational functions followed by the business (Lugt, and Malan, 2012, p. 17). The need or requirement for connected reporting is to reveal a more concise, balanced picture of the firm or the organisation and present the overall performance of the firm in such a manner that it not only reveals the revenue, but also the business strategies of the firm and the way the firm is managed by the board (The Prince’s Charity, n. d.). The important reason for which new approaches were introduced were to include the non-financial performance drivers or indicators in the corporate reporting, so that the investors who do not understand the financial analysis of the company’s performances can evaluate the company and its business activities through its sustainability report (Lungu, Caraiani, and Dascãlu, n. d., p. 37-39). The traditional approaches in corporate reporting involved simply recoding and analysing the financial data and based on those data the performance of the company was ascertained. However it was seen that the major performance drivers which were not financial in nature were not considered in corporate reporting. The highly knowledgeable investors could derive valuable information, but majority of the investors or rather the external stakeholders had no clue regarding the actual performance or performance indicators (International Integrated Reporting Council, 2012). So various new approaches were incorporated for integrated reporting, which were more comprehensive than the traditional corporate reporting. The integrated reporting approaches, sustainability approach, stakeholders approach, and comprehensive approach are few of the approaches that were developed in the new framework of corporate reporting or integrated reporting (Hudson, Jeaneau, and Zlotnicka, 2012, p. 7). Integrated reporting offers the necessary information for all the internal purposes, which provides information regarding the stakeholders and the shareholders of the company. The company selects relevant information from a pool of data for various purposes such as financial reporting, non-financial reporting or external reporting. It is a holistic discipline which is based on several interlinked data. When the integrated reporting is implemented, it will reflect the internal processes, stakeholders’ engagement, and materiality discussions (ACCA, 2012, p. 12). Problems Faced In Producing Such a Framework PwC has defined corporate reporting as a comprehensive way to present and disclose the different aspects within an organisation such as the corporate governance, financial reporting, remuneration, and sustainability report. However, problems persists because previously corporate reporting was all about revealing the financial data but now the case is different as discussed above. The pressure from the internal as well as external stakeholders has been increasing day by day to reveal and measure the social and the environmental performances of the company. Apart from this, just increasing the shareholders value does bring success for the company in the short run, but in order to succeed in the long-run the company has to pay attention to meet the other expectations of the business too (Schaltegger, Bennett, and Burritt, 2006, p. 572-573). The increase in the level of intangible assets and their importance in the corporate reports have also increased the complexities of the reports and the items presented in it (Lugt, and Malan, 2012, p. 17). It has been noticed that the focus nowadays is only sustainable development, which should not be the case because corporate reporting cannot be considered as a panacea. Another aspect is that, transparency would be very helpful in assessing the performance of the organisation for the shareholders, but it might hurt the company’s goodwill (Ray, and Das, 2009, p. 123). The sustainability reporting and the financial performances should not be analysed separately because these creates confusion in the minds of the investors. The managers too have to understand that the requirement of transforming the corporate reporting approaches is due to the emerging critical factors that are required for the success in the changing economic scenario (Watson, 2012). The Companies generally think many times before revealing all their information because none of them would want to reveal any negative information about their business. Moreover, they also would not reveal their strategies and innovations in the markets for their competitors to follow or copy them. The Companies generally fail or do not want to present the true picture and beat round the bush to present a colourful picture of the company through their reports (Ray, and Das, 2009, p. 123). This is also another problem due to which changes for better framework is not welcomed. The recent issue is the economic crisis which has shook the foundation of corporate framework. The focus was mainly on short-term profits and remuneration at the expense of the long term stability. So the collapse of many firms and financial institution revealed the loopholes of the old systems and created unfavourable situation to implement the newly designed framework (Cooper, S., 2004, p. 179-180). The problem is that reporting on environmental and social performance also be mentioned in the annual reports which add little to knowledge or innovation. This is converting the sustainability reports into waste data dumps. Though the usage of online reporting has somewhat reduced unnecessary weight of data burden, but yet it is similar to the printed reports. The system of reporting has also become automated and it is driven by fixed guidelines of the management database system. However, though these tools are useful but they function mechanically without intelligence. The increasing level of standardization in the framework of corporate reporting is an opportunity as well as a risk for the firms. Though it provides opportunity to influence many more companies through the advanced, new framework and approaches, but on the other hand lowers the frequency of innovation. Most of the companies are yet not clear regarding the new framework apart from just the traditional approaches. Besides that, after having knowledgeable workforce, large companies and their business leaders do not take the emerging issues and the changes in reporting framework seriously. They stick to the old methods of reporting. According to the new approach of corporate reporting, the growth strategy of the business should have to be included, so as to share with the stakeholders the way, the firm generated profit or revenue. However, it has been observed that many firms do not have the knowledge or skill to understand the key drivers and the business strategies that helped in generating revenue. These sections in the corporate reporting are not given importance and only stating the financial statements are of primary importance for the company. The advocates of environmental and social responsibility within the company rarely have knowledge regarding formulating strategic cases. The external stakeholders of the company are only focused towards compliance, which the major investors are not at all interested in these issues. They are only interested in financials. In short the management fail to explain to its stakeholders as to why the business succeeded and what business strategies were used for such success (LRQA, 2006, p. 11-12). The challenges or problems also exist at the level of the individual companies. The company implementing the strategy must first have an existing sustainable strategy, not just in papers but also functional. The process utilised for producing the integrated report should be multifunctional and collaborative, which is not the case in most of the firms. The internal control or the measurement systems in case of non-financial information is not sophisticated as in the case of the financial data. So hurdles understanding them are obvious. The internal sceptics should be persuaded. The executive have to learn to accept greater responsibilities and accountability, which they fail to do. Most importantly, it is not only the company but the shareholders and the other stakeholders who have the responsibility to be more educated to understand the nuances of technical terms and implications in reports. This is another hurdle in case of implementation (Watson, 2012). References ACCA, 2012. Re-Assessing the Value of Corporate Reporting. [Online] Available at: < http://www.pearlinitiative.org/tl_files/pearl/data/ACCA-corporate-reporting-012012.pdf> [Accessed 26 October 2012]. Aras, G., and David, C., 2010. Gower Handbook of Corporate Governance and Social Responsibility. Surrey: Gower Publishing, Ltd. Cooper, S., 2004. Corporate Social Performance: A Stakeholder Approach. Burlington: Ashgate Publishing, Ltd Everingham, G, 2008. Corporate Reporting. 8th ed. Cape Town: Juta and Company Ltd. Gossy, G., 2008. A Stakeholder Rationale for Risk Management: Implications for Corporate Finance Decisions. Vienna: Univ.-Prof. Dr. Paul Wentges. Hopwood, A., Unerman, J., and Fries, J., 2012. Accounting for Sustainability: Practical Insights. London: Earthscan. Hudson, J., Jeaneau, H., and Zlotnicka, E. T., 2012. What is “Integrated Reporting”? [Online] Available at: < http://www.theiirc.org/wp-content/uploads/2012/06/UBS-What-Is-Integrated-Reporting.pdf> [Accessed 26 October 2012]. 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[Online] Available at: < http://store.ectap.ro/articole/262.pdf> [Accessed 26 October 2012]. Mallin, C. A., 2009. Corporate Social Responsibility: A Case Study Approach. Cheltenham, Glos: Edward Elgar Publishing. Palmer, R., Meek, R., Parkinson, L., and Meek, H., 2012. CIM Coursebook 06/07 Managing Marketing Performance. Burlington, MA: Routledge. PwC, 2012a. What is Corporate Reporting? [Online] Available at: < http://www.pwc.com/gx/en/corporate-reporting/frequently-asked-questions/publications/what-is-corporate-reporting.jhtml> [Accessed 23 November 2012]. Ray, S., and Das, S., 2009. Corporate Reporting Framework (CRF): Benchmarking Tata Motors against AB Volvo and Exploring Future Challenges. [Online] Available at: < http://facultylive.iimcal.ac.in/sites/facultylive.iimcal.ac.in/files/project_doc/Corporate%20Reporting%20Framework%20(CRF)%20Benchmarking.pdf> [Accessed 26 October 2012]. Schaltegger, S., Bennett, M., and Burritt, R., 2006. Sustainability Accounting and Reporting. Netherlands: Springer. The Prince’s Charity, no date. A4s Reporting Guides and Examples. [Online] Available at: < http://www.aicpa.org/interestareas/businessindustryandgovernment/resources/sustainability/pages/integratedreporting-anewmodelforcorporatereporting.aspx> [Accessed 23 November 2012]. Watson, A., 2012. Making Investment Grade: The Future of Corporate Reporting. [Online] Available at: < http://www.governance.usb.ac.za/pdfs/MakingInvestmentGrade.pdf> [Accessed 26 October 2012]. Witt, K. W., 2012. Integrated Reporting - A New Model for Corporate Reporting. [Online] Available at: < http://www.aicpa.org/interestareas/businessindustryandgovernment/resources/sustainability/pages/integratedreporting-anewmodelforcorporatereporting.aspx> [Accessed 23 November 2012]. Read More