Integrated Reporting Analysis - Assignment Example

INTEGRATED REPORTING ANALYSIS By (Student’s Name) Professor’s Name Course Name + City Date of Submission Integrated Reporting Analysis Question 1 Integrated reporting marks a slight departure from traditional reporting in that it will require organizations to make certain disclosures that are over and above what has normally been the norm.Some of this disclosure relates to information that has always been pushed to the bachburner,meanng that more information will be available to users than before. Even when touching on the information that has always been given, organizations may find that there may be a shift in focus that may be required of them. This, therefore, makes the process a bit new. For example, whereas firms have traditionally reported about past performance only (relating to the financial year that is ending or has ended) integrated reporting demands that they also give a future performance outlook , an issue that avails to consumers of information more insights about the year ending performance (Deloitte, 2012). On the other hand, there is a departure from just reporting quantifiable activities only. Thus, reporting will be required to also include intangibles such as future outlook and likely impact on governance, among other things (CIMA, PwC & Tomorrow’s Company, 2011.).These are areas that were hitherto neglected in reports even though they played a key role in organizations’ performance. It therefore brings a more holistic approach to reporting and users of information can now dissect the organization from different perspectives. Some of these pieces of information to be included are the Organization’s overview and external environment whereby the firm gives information about factors that are both internal to the organization and those that are outside its control both of which have an impact of its performance.Again,the organization should show how its governance affects value creation. Hereby, an issue such as remuneration that has long remained to be a secret in organizations will have to be disclosed. Subsequently, the organization should also explore opportunity and risk likely to affect its performance and specify the manner in which it will handle the situation at hand. Most organizations only reported the risks.Deloitte (2012) observes that reporting opportunities will help users of information understand the business better. The organization should also discuss its strategies and resources that mean where it wants to be and how it will employ its resources to this end. For instance, most organization did concentrate on reporting financial capital. Now integrated reporting has broken capital into six key areas;financial,manufactures,intellectual,social,human and natural (IIRC,2013).All this might not be important to readers but, at least, will disclose an idea of the manner in which resources of a business are applied. The organization should also put forward its business model and discuss the resilience of the entire model. Consequently, the organization should discuss its performance; the extent to which strategies have been achieved. It should also give its future outlook where it will discuss its likely threats that it faces and how such may impact its business model and future performance. Question 2 Personally, I do agree with how integrated report should relate with other types of communications within organizations. This is partly informed by the need for various industries to self-regulate. Different markets have their own standards which are in order and which do conduct their own analysis and appraisal to keep abreast with market changes.The importance of these is that any loopholes brought about by changes in technology,legislation, demand and other parameters are considered accordingly and necessary adjustment made.If the IIRC were to give themselves the onus of pointing out everything organizations should report then I do agree that there will be duplication of effort in many areas. Therefore, it is wise for the IIRC to play an oversight role, pointing out areas of weaknesses and suggesting improvements so that reports emanating from organizations are as accurate as possible, and of value to their users with less clutter. Having said that, it is noteworthy to indicate that whenever standards are left within the players, compositions of the national and international boards that are mandated with regulating reporting standards, may all aim to make their operations as transparent as possible. Such organizations, in conjunction with auditing firms that do audit these organizations’ reports should ensure that reporting is in line with the key foundations of integrated reporting. Another point to note is that IIRC is still developing the integrated reporting system and therefore, the whole process is still in its infancy.It therefore makes sense to utilize already established structures in a way that achieves the overall reporting need of this century. Besides, it should be noted that people should not lose sight of the fact that changing the current situation may not be a straight forward affair.Some of the established reporting standards are still needed to meet various regulatory requirements and it is only reasonable that movement towards making integrated report a primary organization document will not happen overnight. Question 3 Capital is a number of resources and relationships utilized by the organization to produce value. Basically, they store value in various forms and organizations realize this value through utilization or being affected by it. An Integrated report classifies capital into six groups. These includes the financial capital which comprises funds the organization has raised through various means,Human capital which comprises employees and their attributes such as talent and loyalty, Intellectual capital,manufactured capital such as road and equipment,social and relationship capital and natural capital such as climate. Therefore, a capital framework is the identification and analysis made by the organization of all its capital and determining the value of the said capital in its operations. The reason for this categorization is to identify and analyze all capitals that the organization affects or requires. Another point to remember, in this categorization, is that there is no single firm categories for each and every item making up capital.It is therefore the responsibility of the organization to come up with whatever falls within their capital structure as mentioned above. Therefore, it will be no surprise that the same item may appear under different categories across different organizations’ reports. For instance, while intangibles such as a strong brand may be identified as intellectual capital by one organization,another organization may see the same as part of its human capital while still another may see it as cutting across different capital groups. Therefore, identifying a firms capital in the above categories should only serve those making the integrated report to identify as exhaustively as possible all capital a company uses or affect and therefore decide how best to report the same. Subsequently, I do agree with the above treatment of capital. First, given that capital is one of the key drivers of value, it is important that all segments or groups of capital are identified exhaustively and accurately reported.This will give interested users of a company’s report an easy way or tracking a firm’s performance and making informed investment decisions. This approach will also open up the organization from the traditional capital definitions which is normally financial and manufactured capital.Other capital groups are never reported even though they contribute a lot to organization’s performance. Interpreting such reports, with the absence of such material information may be misleading. Besides identification of such capital that have long been neglected in organizations reports will help place a focus on them so that they are better handled in terms of maintenance and sustainability. Reporting also may make company disclose key information regarding their use of resources.For example,most mining companies today only report how profitable they are, yet they are in constant conflict with civil society movements over a range of issues such as environmental degradation and absence of sound corporate social responsibility activities in areas they carry out their activities.If such a company were to include in its report such information, perhaps it will be depicted as being irresponsible. Question 4 Some of the efforts put in place to actualize the integrated reporting era include creation of awareness about the issue by several actors. Various organizations, especially those that offer audit and consultancy services to firms have been propagating the idea through dissemination of information. This has been done through a number of means such as releasing publications which is distributed in several forms. Some of these firms include Deloitte, KPMG and PwC .In these publications there are concise information regarding integrated reporting, potential benefits and how firms can go about establishing integrated reporting practice. Their contribution cannot be gained said as they are an authority in matters of corporate governance and are in position to influence opinions and lead organizations in challenging status the quo. Another contribution that came from the IIRC is when it gathered stakeholders from a variety of sectors to develop the integrated reporting system. Through the contributions of the various stakeholders, publication of the international Reporting Framework was done December 2013 (IIRC, 2013). It further launched a pilot programme expected to run till September 2014(CIMA, PwC & Tomorrow’s Company, 2011).The purpose of the programme is to have businesses trying, testing and further developing the integrated reporting. Participation of businesses takes various forms such as webinars, conferences, individual meetings and networks.The pilot programme also includes investors who participate in investor networks.They bring up their perspectives on shortfalls of current reporting standards and engage with their peers within the investor community in discussing integrated reporting (IIRC,2011). Regulatory authorities have also been at the forefront to entrench integrated reporting practices.In South Africa for example,companies listed on the Johannesburg Securities Exchange (JSE) were required to adopt integrated reporting for years starting 1st march,2010(Deloitte ,2012). This was made necessary through the King Code of Governance Principles for South Africa 2009.As a result, many companies are taking up the initiative even though there are facing teething problems which is expected. Question 5 Integrated reporting may not be achievable due to a number of factors.First, integrated reporting requires firms to disclose a lot more information.This is premised on a good intention since information is going to be easily accessible to consumers of such information and improve corporate governance. However, the process itself may open up firms to their competitors.The fear of harm from competition will undoubtedly make realization of corporate reporting unachievable in the end. Over the years, firms have been wary of the competition and this fear has made even getting the slightest of information from organizations a challenging task. Ostensibly, this proposal is likely to face resistance from managers. Besides, firms may also not be willing to disclose future targets because of the fear of raising expectations, which they may fail to meet and the same reports may thus, be used against the management (Deloitte, 2012). Another issue likely to impede the realization of integrated reporting is availability of reliable data.Many issues that need to be reported must be represented accurately by various organizations’ reports. First, collection of such information may not be possible.For example, if intellectual property is making a company profitable, how would a person cost such a resource or what value in form of a percentage profit or loss? Or with that person attribute to such a subjective concept.The end result is that reporting of such data may end up misleading users or simply making it difficult for an organization to report it.And this applies to other similar resources. Another factor that may not be encouraged by those advocating for integrated reporting is the presence of various legal prohibitions. Various countries require accounting and other corporate information to be reported in certain formats. Therefore, such reporting affects issues such as taxation, subsidies to be received and so forth. This lack of uniformity across the board means that the kind of information to be reported is likely to vary from one country to another. This will make comparisons across industries or across countries on the same issue problematic. For instance, whatever is considered material in one situation may be immaterial in another situation and therefore, overlooked even in cases where laws tend to be uniform. CIMA, PwC & Tomorrow’s Company (2011) observes that the anticipation by IIRC that an integrated report will become a company’s primary reporting document is not realistic given the numerous existing legal reporting requirements .This means that the idea that the integrated report can replace other current reports is far from being realistic. Organizations, which want to prepare integrated reports, may end up with several primary documents, increasing clutter in the process and defeating the principle idea that all important primary information of an organization will be found within a single aspect. Reference List CIMA, PwC &Tomorrow’s Company, 2011.Tomorrow’s Corporate Reporting: A critical system at risk. Last accessed 3rd Sept 2013: http://www.cimaglobal.com/Documents/Thought_leadership_docs/Tomorrow's-Corporate-Reporting.pdf Deloitte, 2012.Integrated Reporting: Navigating your way to a truly Integrated Report. Last accessed3rd Sept 2013: http://www.deloitte.com/assets/DcomSouthAfrica/Local%20Assets/Documents/integrated_reporting_2.pdf. IIRC, 2011.Towards Integrated Reporting: Communicating Value in the 21st Century. Last accessed 3rd Sept 2013: http://www.theiirc.org/wp-content/uploads/2011/09/IR-Discussion-Paper-2011_spreads.pdf IIRC.2013. Consultation Draft of the International Framework: Integrated Reporting. Last accessed 3rd sept 2013. http://www.theiirc.org. Read More