Spheres of Financial Reporting and Sustainability Reporting - Case Study Example

Advanced Accounting ‘Integrated Reporting and Corporate Accountability’ College: Name: Students ID: Date: Course Name: Unit Code: Time: Instructor: Introduction The element of ‘reporting’ is crucial in the corporate world. The traditional financial reporting has evolved over the past century. However, the system is still disputed for not being able to present a clear depiction of the present performance of a firm and the future performances. Over the past few decades, focus has been on sustainability reporting, which presents a different depiction of business impacts. Financial along with sustainability reporting have, until lately, been established along comparable paths as companies endeavour to expound their schemes for creating value in two varying languages, layouts, and reports. In 2011, the International Integrated Reporting Committee (IIRC) was formed taking in agents from both spheres of financial reporting and sustainability reporting. The IIRC was mandated to explore ways in which financial reporting and sustainability reporting can be merged. As a result, the third and most recent form of reporting ‘integrated reporting’ was formed (Busco et al, 2013). The IIRC has put in effort to develop an integrated reporting framework to guide the preparation of integrated reports starting with the preparation of a consultation draft in 2011, followed by an exposure draft and in 2013, the IIRC released the integrated reporting framework. Apparently, integrated reporting has gained much support from different parties. In this paper I look at what integrated reporting entails. Specific attention is focused on the manner in which integrated reporting improves corporate accountability to stakeholders. Integrated Reporting and Corporate Accountability to Stakeholders The main reason as to why the IIRC was formed is to craft a reporting framework that supports “the needs of long-term investors,” amid the fundamental agreement regarding the glitches with traditional financial reporting. For instance, the traditional financial reporting has been accused of tending to concentrate on incorrect stuff over the incorrect time frame. This also comes at a time when temporary market gravities make it hard for managers to evaluate the long standing costs of their resolutions. Given that managers habitually ignore important information that can influence the performance and value of the firm, external environmental aspects ought to be incorporated in organisational reporting. Integrated reporting is intended to surface beforehand indiscernible external environmental elements that would distress the financial value of the firm (PricewaterhouseCoopers, 2012). The IIRC (2013) describes integrated reporting as the process resulting in communicating, by means of an annual integrated report, value creation over time. It is expected to endorse a more unified and effective slant to corporate reporting. It is intended to improve the quality of information presented to those who provide financial capital to facilitate extra proficiency and high-volume provision of capital. The integrated report briefly communicates the manner in which an organization’s strategy, governance, performance and visions, within an external environment perspective result in creating value over the short, medium and long term (IIRC, 2013) The IIRC (2013) publicised the guiding principles along which the integrated report ought to be prepared and presented. The guiding principles inform what the integrated report should contain and the manner in which information should be presented. The guiding principles are: connectivity of information, materiality, strategic focus and future orientation, stakeholder relationships, consistency and comparability, conciseness, and reliability and completeness. The body states that the guiding principles are supposed to be applied ‘individually and collectively’; therefore, managers should decide how to apply them, mainly once they tend to stain each other, for instance, tension between comparability and reliability. The IIRC (2013) also outlines eight content elements that are basically interrelated and are not mutually-exclusive. These are: governance, performance, basis of presentation, business model, outlook, organisational overview and external environment, strategy and resource allocation, and risks and opportunities. The concept behind integrated reporting is to reinforce the current model of financial reporting by making available more information regarding a firm’s policy, governance, and performance (KPMG, 2012b). The IIRC expects that, in the long-term, IR will facilitate the embedment of integrated thinking within conventional business practices in the public as well as private sectors. According to the IIRC (2013) framework, integrated thinking presents an organisation’s dynamic reflection of the association stuck between its several operational and functional units as well as the capitals used or affected by the organisation. The IIRC is confident that corporate reporting need to grow to communicate the whole sort of the factors that distress the capacity of an organisation to generate value over the short, medium and long term. An integrated report is duty-bound to be a chosen, discernible communication based on Guiding Principles which support the preparation of the report dealing with Content Elements which are vital sorts of information to be contained within an integrated report, offered as a chain of questions as opposed to a narrow list of exposes. In addition, the integrated report ought to contain a declaration from those mandated with governance that satisfies specific requirements, together with a nod of accountability for the report and an opinion on whether the integrated report is prepared according to the IIRC framework (Busco et al, 2013). Stakeholders are part of organisations. In reality, it would be hard for a company to trade if it did not function with the wellbeing of its stakeholders, which include shareholders, customers, contractors, workers, legal authorities, governments, and neighbouring communities. Just the once an entity engages with its stakeholders, it is important to admit that it is a mutually dependent entity, which is compressed by and has a bearing on several diverse groups. However, a lot of companies lack the right approach along which to engage the stakeholders and tap the extensive assistance they offers to their business (Rossouw, 2006). In 2011, the IIRC set up a pilot program to aid companies and stakeholders to share their capabilities and place the ground work for pervasive acceptance of integrated reporting. The pilot program included just about 100 firms from all over the world, with this number projected to be close to 125 in 2014. Firms that took part in the pilot program provide evidence for voluminous gains of trying out integrated reporting such as better-quality internal information that enable the executives to make healthier resource distribution decisions that lead to prospective reductions in cost, as well as more succinct and less multipart reporting (KPMG, 2012b). The integrated reporting has boosted the organisations’ effort to communicate non-financial information that gives stakeholders key leading indicators for imminent financial performance. In particular, outlining the company’s business model comes across as one of the supreme elements of an integrated report seeing as it aids investors to comprehend performance. A number of companies reported that integrated thinking has predisposed to changes in management as well as governance structures (Busco et al, 2013). Many companies communicate with their stakeholders by giving them information regarding the company, its products and services, operations, customers, business associates, staff, and suppliers. But this is a limited process of communicating with the stakeholders. The strategic significance of communicating with stakeholders is directly obvious. There are lots of respectable strategic and operative whys and wherefores to communicate with stakeholders broadly (KPMG, 2012a). The stakeholder-conscious governance model, proposed by the integrated reporting framework offers an expansive input and current stakeholder engagement, which is a key characteristic of corporate accountability. Integrated reporting partly emerges from the observation that the current model of financial reporting may well not satisfy the growing informational desires of interested parties in the international capital markets. There has been a considerable change in the manner in which companies conduct their business and create value. The contemporary operating environment has also changed considerably (Solomon, 2007). A number of interested parties are requesting business firms to avail flawless information as regards emergent external drivers that influence their business operations, the manner in which they handle governance, risk management strategies, and the functioning of their business models. The IIRC responded to the bulging quest for a wider provision of information by developing an integrated reporting framework, which shall guide business entities in relaying the information expected by the parties to assess long-term projections. Given that an integrated report is principally intended to give details to the providers of financial capital regarding the manner in which a firm creates value over time, an integrated report profits each and every one party concerned by the capacity of the firm to create value over time. The IIRC (2013) integrated reporting Framework symbolises a momentous phase on the process in the direction of more clear and meaningful communication by firms to their stakeholders. Conclusion Stakeholder trust in a company can be realised through clear actions and is a key success aspect for the business to run, transform and develop. Integrated reporting stimulates the desire to answer vital queries around long-term value creation and in the present day where economic variability and long-term sustainability impend the well-being of the public. Moreover, integrated reporting pushes towards enriched corporate transparency. Stakeholders will benefit from improved understanding of the quality and sustainability of performance over and done with awareness into external effects, strategic precedence and the underlying forces of the selected business model (Busco et al, 2013). References Busco, C., Frigo, M.L., Quattrone, P and Riccaboni, A. (2013). Redefining Corporate Accountability through Integrated Reporting: What Happens When Values and Value Creation Meet? Strategic Finance, 33-41. Gallos, J.V. (2011). Leadership: Essential for Success in a Complex World. San Francisco: Jossey-Bass. IIRC (2013). The International Framework. Retrieved 29 September 2014, . KPMG (2012a). Integrated Reporting: Performance Insight through Better Business Reporting. Retrieved 30 September 2014, . KPMG (2012b). The Future of Corporate Reporting. Retrieved 30 September 2014, . Porter, M.E and Kramer, M.R. (2011). Creating Shared Value: How to Reinvent Capitalism and Unleash a Wave of Innovation and Growth. Harvard Business Review, 62-77. PricewaterhouseCoopers, (2012). Integrated Reporting – The Future of Corporate Reporting. Retrieved 30 September 2014, Read More