You are required to write a 2000 word critical report that discusses the possible benefits of preparing an integrated report as well as its limitations.
The report presents analysis of major benefits associated with preparation of the IR as well as its main limitations. The paper starts with a brief review of IR including its definition and what it is all about. This is followed by a detailed analysis of some of the key benefits related to preparation of the IR. The report later present some of the limitations associated with the IR. In essence, the paper would be conducted following this plan; first, it would present overview of IR, followed by benefits of IR, and later limitations. It would then be concluded with overall findings of the topic issue. To be more specific, the paper presents some of the benefits associated with preparation of integrated reporting as well as the limitations behind the same.
Integrated reporting was mostly developed as a result of increasing concerns that prevailing reporting framework does not enhance creation of long-run value (Yates 2017). Integrated reporting is the procedure that is instituted on value creation. In other words, integrated reporting is considered as concise communication on how a given company’s governance, prospects, strategy and performance results in value creation. According to de Villiers, Rinaldi and Unerman, (2014), integrated reporting was adopted by different firms across the globe. Hence, it is significant to recognize how IR has evolved, obstacles hindering its widespread adoption as well as how they could be overwhelmed. Benefits of the Integrated Reporting
The IR is said to be a relatively beneficial since it is said to serve as the form of discipline for an organization. This assists in ensuring that the firm concisely reports material information indicating how it is performing in the non-financial dimensions (King 2011). According to Brown and Dillard (2014), integrated reporting is beneficial since it enhances the manner in which companies plan, report or think about their business operations. A good number of companies utilize integrated reporting as the opportunity to communicate concise, clear and integrated view explaining value creation within the firms (Yates 2017). Furthermore, integrated reporting is beneficial since it assist different companies think holistically on their plans and strategies, making informed decisions, managing chief risks and opportunities in order to build stakeholders and investors ‘confidence as well as help in managing entity’s performance (Dumitru, Glavan, Gorgan & Dumitru, 2013).
Additionally, integrated reporting could be utilized in building trust and understanding within their firms (Yates 2017). Basically, as manager or business owner, securing clients’ finance providers’ and suppliers’ trust is vital. Application of integrated reporting helps in building trust amongst different stakeholders by highlighting some of the aspects creating value in the business (Flower 2015). To be more specific integrated reporting assist in comprehending value creation which is empowered by the integrated thinking, a key theme of the integrated reporting, which is mostly on the basis of breaking internal silos in between departments and people so as different firms could collectively better comprehend chief components of a business. Such comprises of strategy, risks and opportunities, governance and business model in context of issues and trends affecting an entity (Yates 2017). Besides, integrated thinking comprises of a firm considering numerous resources consumed and relationships it depends on, leaving the firm in better position in making decision which in turn assist in ensuring resilience and viability over time (Stubbs & Higgins 2014).
Additional to improving the internal management practices, integrated reporting could result to other important benefits including maximizing probability of transferring, handing over or selling the business by giving better basis for the valuation (Adams 2015). It is also beneficial since it helps in creation of greater credibility and trust with the clients, society, suppliers as well as other stakeholders. Such is significant in the light of the government agencies and for none profit making firms looking for the commercial or financial partners which could not only supply services and goods but also perform sustainably (Yates 2017). Furthermore, integrated reporting is beneficial since it assist firms in securing financial assistance at reasonable cost. The lenders would wish to understand how the finances have been used previously and future intentions through holistic tactics and well-rounded plan (Flower 2015).
Integrated reporting assists the SME in building better and more concrete comprehension of some of the aspects which determine its capacity to create some value over long, short as well as medium term (Yates 2017). It usually enhances the SME’s business development and planning by taking fully connected as well as holistic view comprising of its effects on and use of all resources and capital which are significant to its future and business model (Higgins, Stubbs & Love 2014). Integrated reporting assists in breaking down inner silos and ensures that any relevant information flows freely and fully in between different sections of the firm in order to endorse more creative functional thinking (Jensen & Berg 2012). Silos could be developed inadvertently, if an only if individuals do not have an opportunity to share information, think or stop in deliberative manner (Yates 2017). Hence, adoption of the integrated reporting could assists in creation opportunities aimed at improving information flow as well as shared understanding of the value creation in the SMEs businesses (Dumitru, Glavan, Gorgan & Dumitru, 2013).
Besides, integrated reporting is said to assist different firms in creating value through deeper and wider comprehension of how numerous capitals are being created as well as preserved (King 2011). SMEs are usually judged based on their current financial position, which could be an impediment and limiting the long-run value creation. Contrary, having some access to the audited financial statements is considered significant to the financial providers (Frías-Aceituno, Rodríguez-Ariza & García-Sánchez 2013). Nonetheless, financiers and other stockholders are much interested in the other sections such as business model and strategy, which would drive entities forward in meeting their chief goals. In order to meet these needs, concise integrated reporting offer relevant information needed in comprehending the firm and their future outlook (Flower 2015).
Integrated reporting is not all about endless detail or reporting but it include adequate context for the reader to comprehend the SME’s strategies, performance, prospects and governance. Additionally, integrated reporting helps businesses in linking financial information such as detailed information on environmental, social and financial performance elsewhere (Dumitru, Glavan, Gorgan & Dumitru, 2013). Therefore, by taking the holistic approach, integrated reporting is said to be relatively beneficial in providing pathway for different firms to suitably consider full range of the aspects like multiple capital which is said to make up SMEs’ value creation. Moreover, integrated reporting is beneficial since it offers significant opportunity in establishing or enhancing systems and processes for measuring, analysing and identifying crucial information in numerous capitals (Flower 2015). This in turn assist in building a significant levels that is said to drive value creation which is built into setting up targets and objectives, managing risks and opportunities, aligning performance to chief objectives as well as undertaking investment and project appraisals (Higgins, Stubbs & Love 2014).
Besides, integrated reporting is considered as single reporting process which combines non-financial and financial information all together (Raisiene 2011). Hence, by issuing integrated report, organization benefits from better or suitable engagement with the shareholders, better risk management as well as better resource allocation. It assists regional utility in driving performance in an entity and improves the relationship with the shareholders (King 2011). Integrated reporting brings about more transparency on the corporate commitments towards sustainability by indicating the link in between sustainable and financial performance within a single report. In addition, integrated reporting conveys financial capital, social capital, governance, environmental capital and intellectual capital onto a shared stand (Adams 2015). Hence, integrated reporting is not all about reporting, but is a component of better organization reporting with relatively or significantly better benefits.
On overall, integrated reporting is beneficial since it improves quality of information offered to the financial providers in ensuring that capital is mostly allocated more productively and efficiently (King 2011). It also helps in promoting more efficient and cohesive technique to organization reporting, ensuring that it draws on numerous reporting components and transmitting a wider range of the aspects which affect significantly on entity’s capacity to create value. Similarly, integrated reporting increases responsibility and accountability in regard to management of different organizations (Higgins, Stubbs & Love 2014).
Some of the major limitations of integrated reporting include lack of clarity and complexity. Although integrated reporting is said to aims at increasing clarity and decreasing complexity, the new range of non-financial information additional to financial info could demonstrate increased length and complexity as well as decrease clarity (Flower 2015). Furthermore, integrated reporting lacks satisfactory direction in creating balance in between profitable understanding and transparency and exposure to the risks. Integrated reporting also lack tested sets of the standards. There is also a limitation of probable duplication of the information as well as inadequate guidance in balancing in between commercial and transparency sensitivity. Additionally, integrated reporting has a limitation of implementation barrier (Higgins, Stubbs & Love 2014). This means that obtaining relevant information in the integrated report become a bit hectic. This is based on the fact that non-financial reporting are less mature in comparison to the financial reporting; hence, acquiring information in the integrated report is not that easy since the information is not captured in the system which is all correct (King 2011). Another important limitation of integrated report is possible difficulties in assurance on some data which could in turn leads to damaged reliability. Integrated reporting takes a lot of time since it require a lot of workings; hence, the process is time-consuming. Another limitation of the integrated report is the principle of the materiality and being totally apparent (Haller & van Staden 2014). Such issues are inconsistent with one another; hence, it is a bit hectic for a business to determine the type of information to be unveiled as they wish to expose only the material aspect and also wish to be apparent.
Conclusion
In conclusion, integrated reporting is considered as a prominent approach for businesses. This is based on the fact that benefits outweigh its limitations. In addition, integrated reporting not only comprises of reporting but goes beyond reporting. From practical view, execution of the integrated reporting could be at times complex. Besides, from the above discussion, it is evident that integrated reporting is one of the most efficient means to communicate with the stakeholders that would in turn indicate holistic view of the firms’ future targets and the links in between the financial performance as well as reporting on environmental and corporate social responsibilities. Integrated reporting is also beneficial to stakeholders since it signals to them how non-financial and financial are closely linked within an organization. Use of integrated reporting makes it better to place information in a proper perspective, hence, enabling users of such information to view bigger picture regarding organization’s performance. In essence, integrated reporting results in clear and strong message to different stakeholders and also provides holistic view, by combining both non-financial and financial information. This enables creation of shared business language. It can also be indicated that integrated reporting enhances the manner in which companies plan, report or think about their business operations. It assists different companies think holistically on their plans and strategies, making informed decisions, managing chief risks and opportunities in order to build stakeholders and investors ‘confidence as well as help in managing entity’s performance. Additionally, it can also be stated that integrated reporting is beneficial since it could be utilized in building trust and understanding within their firms. To be more specific, it assists in comprehending value creation which is empowered by integrated thinking, a key theme of the integrated reporting, which is mostly based on flouting the internal silos in between departments and people so as different firms could collectively better comprehend chief components of a business. It improves quality of information offered to the financial providers in ensuring that capital is mostly allocated more productively and efficiently as well as helps in promoting more efficient and cohesive technique to organization reporting, ensuring that it draws on numerous reporting components and transmitting a wider range of the aspects which affect significantly on entity’s capacity to create value.
References
Adams, CA 2015, ‘The International Integrated Reporting Council: A call to action,’ Critical Perspectives on Accounting, Vol. 27 No. 1, pp. 23-28.
Brown, J & Dillard, J 2014, ‘Integrated reporting: On the need for broadening out and opening up,’ Accounting, Auditing & Accountability Journal, 27(7), 1120-1156.
de Villiers, C, Rinaldi, L & Unerman, J 2014, ‘Integrated Reporting: Insights, gaps and an agenda for future research,’ Accounting, Auditing & Accountability Journal, 27(7), 1042-1067.
Dumitru, M, Glavan, ME, Gorgan, C & Dumitru, VF 2013, ‘International integrated reporting framework: a case study in the software industry,’ Annales Universitatis Apulensis: Series Oeconomica, 15(1), 24.
Flower, J 2015, ‘The International Integrated Reporting Council: A story of Failure,’ Critical Perspectives on Accounting, Vol. 27 No. 1, pp. 1-17
Frías-Aceituno, JV, Rodríguez-Ariza, L & García-Sánchez, IM 2013, ‘Is integrated reporting determined by a country’s legal system? An exploratory study,’ Journal of cleaner production, 44, 45-55.
Haller, A & van Staden, C 2014, ‘The value added statement–an appropriate instrument for Integrated Reporting,’ Accounting, Auditing & Accountability Journal, 27(7), 1190-1216.
Higgins, C, Stubbs, W & Love, T 2014, ‘Walking the talk (s): Organisational narratives of integrated reporting,’ Accounting, Auditing & Accountability Journal, 27(7), 1090-1119.
Jensen, JC & Berg, N 2012, ‘Determinants of traditional sustainability reporting versus integrated reporting. An institutionalist approach,’ Business Strategy and the Environment, 21(5), 299-316.
King, M 2011, Foreword to: IRCSA integrated reporting and the integrated report. Discussion paper, www. sustainabilitysa. org.
Raisiene, AG 2011, ‘Advantages and limitations of integrated management system: the theoretical viewpoint,’ Socialines Technologijos, 1(1).
Stubbs, W & Higgins, C 2014, ‘Integrated reporting and internal mechanisms of change,’ Accounting, Auditing & Accountability Journal, 27(7), 1068-1089.
Yates, A. 2017, Corporate Reporting. A significant shift towards adoption of the principles of integrated reporting. KPMG.
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