Differences between Integrated Reporting and the Current Reporting Practices - Assignment Example

Integrated Reporting Name Institution Date QUESTION1 Differences between Integrated Reporting and the Current Reporting Practices The way businesses are being carried out has continued to change over the years due to changes in technology, consumption, population growth, climatic changes as well as diminishing resources among other changes. These changes have also led to a change in the way businesses are preparing their reports to accommodate these changes. Various international reporting bodies such as the international integrated reporting council realized the need to change the reporting frameworks for the various businesses and have developed a new accounting reporting framework that ensures to capture an integrated and holistic picture of the business or organization. The new reporting guidelines are found in the consultation draft of the international integrated reporting framework (CIMA, 2013). Integrated reporting is a new framework in reporting that allows organizations and businesses to share more on its strategies, the ways of governing the organization and its performance in the financial, social as well as environmental sectors in their reports. The integrated report also demonstrates how the organization or business creates its value in the short, medium as well as in the long run (CIMA, 2013). The type of information that is capture in the integrated report includes their financial performance as well as the impact of the organization or business on the economy, the society as well as the environment. This information available in the integrated report will enhance more effective decision making, ensure that their investors are well informed in all aspects of the organization as well as promote integrated business practices and thinking amongst organizations (CIMA, 2013). The integrated report differs from the traditional reporting practice because it does not focus on just the financial profitability of the organization but it also looks at other aspects of the organization such as the society, the environment as well as their impact on the economy (CIMA, 2013). QUESTION 2 Interaction of the Integrated Report with other Reports and Communications I agree with how the consultation draft of the international integrated reporting framework characterizes its interaction with other reports and communication. The integrated reports is developed in such a way that it caters for sectors of an organization and therefore there is no need for the report to be combined with the other reports such as financial statements and sustainability reports instead the report can provide links to these reports. The other reports that is the financial statements and the sustainability reports among others will be provided by the organizations for purposes of showing compliance to the reporting bodies but the integrated reports are expected to be prepared annually in accordance with the financial reporting cycle (IIRC, 2013). The integrated reporting framework intends to complement the content provided by established reporting standard setters and not duplicate the content or material provided. This is because these bodies have been in existence and have established standards in reporting however, the integrated reporting framework seeks to improve the reporting standards so as to cater for the changing business environment and the integrated reporting framework could even use these established standards set by others to make references for indicators and measurement methods (IIRC, 2013). The integrated reporting framework does not seek to duplicate established reporting standards by other bodies; in fact it differs from these standards in various numbers of ways. These differences are evident in the way the reports are executed such as emphasis on the strategic focus and the future orientation, conciseness, the connectivity of the information, the capitals, the ability to create value in the short, medium as well as the long run and also the investors in the organizations (IIRC, 2013). QUESTION 3 The Capitals Framework Capitals refers to resources that help in the running of an organization and they could be in form of finances, manufactured products, the intellectual, human resources, the society as well as the natural resources. Capitals are inputs required by an organization to become the outputs or resulting products. The capital for an organization is not dormant; it can be increased, decreased or even transformed through the activities of the organization. These transformation activities that capital goes through include; the capital being consumed, enhancement, being modified or even destroyed by the final output (IIRC, 2013). The capital of a firm can be increased in various ways, for instant the financial capital of a firm is increased when the organization makes profits while the capital is reduced when the organization plunges into debt that has to be paid. A combination of increase and decrease of the organization’s capital can occur simultaneously like when the company chooses to improve its human capital through training and development programs it incurs costs thus reducing its financial capital, however, with regards to the human capital it is increased when the human resources gains more skill and experience. This means that capital might be subjected to an increase, decrease or transformation in order for the organization to meet it set goals and objectives (IIRC, 2013). QUESTION 4 Classification of Capital According to the International Integrated Reporting Frameworks Financial Capital: financial capital refers to the monetary assets such as funds that are available to the organization for the purposes of production of goods and services. The financial capital can be obtained by the organization through debt, equity, grants as well as revenue that was generated from the operations of the organization among other means (IIRC, 2013). Manufactured Capital: these are physical resources that are made for the organization to use in the production process of goods and services and these may include; buildings, roads, water treatment plants, vehicles, equipment, ports as well as bridges among others. Manufactured capital can be made by the organization for its own use in the production process or it can be made by other organizations or companies for the production of the goods and services (IIRC, 2013). Intellectual Capital: intellectual capital refers to knowledge the organization possesses on its goods and services or the production process. These include; procedures, systems as well as tacit knowledge. This knowledge is then transformed into the organization’s assets as copyrights, software, rights, patents as well as licenses. Other intellectual or intangible capitals useful for the organization in their production process or operations include the brand and the reputation of the organization (IIRC, 2013). Human Capital: the human capital includes the people’s experiences, competencies, motivation as well as motivations useful in the production of goods and services. For the human capital to be useful in an organization it has to be in support and alignment with the strategies and objectives of the organization, their risk and management approaches as well. Their ethical values should also be in alignment with the organization’s strategic framework. The human capital should be able to understand, develop as well as implement the organization’s strategies. For the human capital to be more efficient and effective, it should be motivated by the organization so as to improve the quality of the processes of [production of goods and services, the goods and services as well as their capabilities to lead, manage and also collaborate with one another (IIRC, 2013). Social and Relationship Capital: the social and relationship capitals refer to the ways the organization interacts with people within and outside the organization. These groups include their employees, the community around it, suppliers as well as other stakeholders. The relationships between the organization and the various stakeholders within and outside the organization arise as a result of shared norms, values and behaviors. There must be trust and willingness to relate with each other for the relationships of the organization and the stakeholders to be successful (IIRC, 2013). Natural Capital: the natural capital includes all the renewable and non-renewable resources and processes derived from the environment and are useful in the production process of goods and services. These natural resources are useful in the production process as well as the future prosperity of the organization. The natural resources include; water, the land, air and the forest as well as minerals among others (IIRC, 2013). Although capitals are inputs that are important to the production process of the organization, some of them do not share equal relevance in the organization. Capitals may be used directly or indirectly in the production process of the goods and services. The integrated reporting framework does not require that all capitals should be adopted by the organizations; the capitals are instead used for benchmarking so as to ensure that the organizations put into consideration all the forms of capital that are used or affect the organization (IIRC, 2013). I agree with the approach used by the international integrated reporting framework in reports for organizations because some of the capitals used in the production process may be considered as separate capitals and not as integrated capitals by the integrated framework as per the standards set by the international integrated reporting council. The capitals categorized above are to be used as a bench mark to ensure that organizations do not overlook the various capitals when preparing their integrated reports (IIRC, 2013). QUESTION 5 Initiatives Undertaken at Various Levels by different Stakeholders to Achieve Integrated Reporting Although the integrated reporting techniques enjoy massive support from eighty five large organizations such as Microsoft Corporation, the Coca Cola Company as well as Novo Nordick among others there are challenges being faced in terms of the levels of integration. These challenges have forced various stakeholders to take initiatives such as giving the required skills and capabilities to accountants in the preparation and presentation of integrated reports according to standards set by the International Integrated Reporting Council. The management of various organizations has to ensure that the investors avail enough funds to collect and assure the non-financial data presented within the same time frame as the financial reports of the organizations (IIRC, 2013). Reasons as to why Integrated Reporting may not be Achievable Although integrated has been proven to be efficient than traditional reporting many organizations may lacks funds to initiate and prepare integrated reports. The process of integrated reporting can be very costly to an organization as it will be required to train its accountants to prepare and present the integrated reports. Therefore financial abilities may cause integrated reporting not to be achievable. Organizations that are comfortable with using the traditional reporting techniques may be apprehensive about changing the way they prepare and present their annual reports. It may be challenging to convince all organizations to change their reporting techniques and adapt to the integrated reporting according to the standards set by the international integrated reporting council. Another reason that could lead to the possible failure of the integrated reporting approach is complexity of the approach used in the integrated reporting framework. Some of the things included in the reporting framework may not be applicable to some organization such as the categorization of capitals. The preparation of an integrated report requires the skills of trained accountant in integrated reporting which means not all accountants can do it because of its complexity. Integrated reporting is a good technique to report the annual achievements of an organization as it caters for the economic, environmental as well as the social performance of the organization instead of just looking at the financial aspects of an organization as traditional reporting techniques would. It also looks at how the organization impacts the society around it among other stakeholders that contribute to the success of the organization. The ability of the organization to be sustainable in terms of the environments as well as other resources is a factor that is considered when preparing the reports. Such information available in integrated reports is useful as it helps the organization in decision making and establishing strategies that will help develop the organization. References IIRC. (2013). Consultation Draft of the International Framework: Integrated Reporting. Retrieved on 30th April, 2014 from . CIMA, PwC and Tomorrow’s Company (2011). Tomorrow’s Corporate Reporting: A critical system atrisk. Retrieved on 30th April, 2014 from Read More