Integrated reporting has become a significant aspect in the corporations around the world it has become a source of indirect communication in which companies tries to explain their strategies, governance and performance to their stakeholders. It is concise communication made by the business organization to their customers and stakeholders. Integrated reporting is a voluntary action made by the business companies, it ultimately adds to their goodwill because it helps in making its stakeholders aware about the performance and operation of the company (Robertson, 2015). Integrated reporting is done in financial and non financial ways so as to provide value relevant information. It also helps the company to make long term decisions correctly. In the report various aspects of integrated reporting is covered in order to gain a better understanding. Nowadays several companies have indulged in presenting integrated report. The report analyses various theories which enhances the knowledge about integrated reporting. The companies which are practicing integrated reporting are also discussed in the report. Integrated reporting is a voluntary action made by the business companies, it ultimately adds to their goodwill. Integrated reporting can also be defined as a concise way of communication with the investors and stakeholders. Integrated reporting has received appreciation from all over the world because it has made the task of completing annual reports quite easy. The report has assessed various aspects of integrated reporting. In addition to this, the report has analyzed two approaches separately in order to gain better understanding. Eskom and Wesfarmers are two business firms that have adopted the approach integrated reporting. Integrated reporting has become quite famous in business organization around the globe but still a lot of awareness in this field is required.
Integrated reporting is the latest development in the reporting manner which has significantly increased the importance of corporate reporting. Integrated reporting has been launched has a global framework of reporting the December 2013. Integrated reporting is a kind of association in which every aspect of market that is, regulators, companies, professionals etc are involved. Integrated reporting major function is to provide the holistic approach of reporting and also creates the value for business, by considering the financial and non-financial resource. Immense deliberation is required as how the capitals impact the business and society as a whole (Mio, 2016). All these activities required integrated thinking so as to ensure all the business including financial data involved in identifying and collecting data for these capitals. Apart from this it also identifies how value creation influences the business today and in the upcoming years. Integrated reporting is an approach that aspires to target the long term objective of a business organization. This approach is based on futuristic planning of business corporations. Integrated reporting is based on creating value for the customers as well as the stakeholders. The approach of integrated reporting has made a mark in the European market. In addition to this integrated reporting is also famous in USA.
The aspect of value creation has become quite significant in today’s modern business scenario. The stakeholders, investors and customers are no longer indulging in just wealth making phenomenon. The organizations around the world are required to indulge in deep thinking in order to cater large market base from future perspective. Integrated reporting is a holistic approach which involves various aspects of an organization in order to effectively achieve the organizational goal (Villiers and Maroun, 2017).
Integrated reporting creates the potential to considerably alter the mindset of investors as how companies operate. The report of sustainability is often referred as environmental and social reporting. Integrated reporting involves an organization to report about their performance and strategic policies to their stakeholders in order to create value (Villiers and Maroun, 2017). The International Integrated Reporting Council desires to make integrated reporting as the mainstream thinking in order to change the corporate reporting system. This can help in making integrated thinking a global approach.
IIRC aims to create integrated reporting as the global framework that elicit from organization’s material information about their strategy, performance and governance in a clear, comparable and concise format. Integrated reporting as the name indicates is an integration of various aspects that are present in a business corporation. The integrated reporting considers several aspects such as financial governance, management commentary and sustainability reporting. All these aspects are quite significant in the process of creation of annual reports. (Busco, 2013). The information about various functions and aspects of organization can provide a much clearer view of organization performance to the customers and stakeholders. Integrated reporting has eased out the process of creation of annual reports; it produces a holistic report in which the financial aspects and the sustainable aspects are included into one document. The approach of integrated reporting has become quite popular in South Africa as in the country various organizations are following the approach (Sustainability reporting and integrated reporting, 2017). It has helped the corporations in the country to create goodwill in the market. Integrated reporting has helped the companies in making decisions promptly in addition to this, it has also provided a detailed analysis to the investors about the future prospects of the companies and how companies are planning to divert their funds in resources. For many years corporate were preparing their annual report and sustainability report individually. In South Africa all the listed companies have given guidelines regarding the preparation of one single report consisting of all the areas, now the listed companies are preparing the report based on integrated approach.
Eskom produces electricity and provide the same in South Africa and other African countries. Eskom supplies electricity to various sectors of economy such as primary, secondary and tertiary (Company information overview, 2017). The company has adopted integrated reporting method in presenting their financial and non financial data. Wesfarmers limited is an Australian corporation deals in various sectors such as chemical, coal mining, fertilizers and safety products. The company is an Australian listed company and has adopted integrated reporting approach.
Stakeholder theory emphasized that management of an organization plays an important role in assessing the priorities and integrates stakeholder’s needs and requirements. The management of an organization is liable to identify and classify its stakeholders. In addition to this, the management is also responsible to identify their needs. It is important in order to better understand the stakeholders. This process is also important from integrated reporting aspect. It is quite important to understand the expectations and interests of stakeholder for decision making aspect. Internal stakeholders include employees and investors while external stakeholders include customers, suppliers, natural environment, communities etc. all these stakeholders have contractual relationship with the organization (Phillips, 2011). They have rights and interest with the organization. They also possess the ability to influence the resources and decision making of the organization. An organization should not limit itself with the identification of stakeholders and their expectations but should go a step forward for building a value for their customers. These processes include establishing policies, governance structures, targets and monitoring of performance.
The stakeholder theory is an important aspect of integrated reporting; it aims to widen the horizons of management regarding creating and increasing wealth of stakeholder. The business organizations had followed the same concept of increasing the wealth of shareholder as they think that it is the only way to achieve success. The shareholder theory has gained significant attention from the companies working around the globe. Stakeholder theory has been appreciated and accepted by various economists of UK and USA (Bonnafous-Boucher and Rendtorff, 2016). It has become the basis of US anti takeover statutes. However the stakeholder theory does not found any relevance in the Australian corporate institutions and corporate laws. Stakeholder theory does possess wide possibilities in Australian corporate in order to enhance integrated reporting in their corporations.
The theory of positive accounting is quite important and gradually it is replacing the normative approaches been followed in the corporate environment. The approach is based on making predictions of the actions of the corporate world and presenting the same in financial terms. Initially corporations around the world has started following normative approach which suggests certain actions that are require to be taken by the organization in order to remain competitive (Setyorini and Ishak, 2012). Apart from this it also recognizes the economic consequences persisting in real time. Positive accounting theory views that managers are required to become flexible in choosing accounting policies. Positive accounting standards has remained one of the most influential and attracting topic from the last four decades. Before the arrival of positive accounting theory, several companies relied on normative accounting standards. Normative accounting theories had been preoccupied with developing accounting principles. Positive accounting theory represents a major shift the thinking paradigm of people and corporations around the world (Positive Accounting Theory (PAT)). The theory believes that the material self interest of management is often referred as opportunistic behavior (Kabir). The theory of positive accounting is based on estimating the actions of business organizations (Setyorini and Ishak, 2012).
Legitimacy theory has gained high rated attention within the social and environmental arena. Companies use information to achieve social and environmental legitimacy facing the public. Legitimacy theory cannot be grouped into one single approach rather it is two approaches, one is the macro and the other one is the micro enterprise approach. The macro approach can be described as legitimacy institutional theory and is related mainly to religion, type of market management and government (Henderson et al, 2015). While the other approaches that are micro enterprise approach deals with entities or business corporations. Micro enterprise approach is also known as strategic legitimacy theory. Legitimacy theory can be understood as a process by which an organization seeks approval or avoid a situation by the groups of which the company is formed (Burke, 2006). They in turn try to establish a healthy relation between the values shared by society in general and their behavior. In this approach the concept of community is quite wide and is the most important aspect in this theory. Managerial aspects are also included in this theory, managing legitimacy as a resource is designed to achieve a specific goal. The need and desire of legitimacy often result in the preparation of integrated reporting.
Positive accounting theory and stakeholders’ theory are quite appropriate in the context of integrated reporting. However both the theories are part of integrated reporting. Stakeholder theory has shackled the old norms of considering the increment in the stakeholder’s wealth and not thinking about providing them value for their share. Stakeholder reporting aims at assessing the priorities, needs and requirements of the stakeholder. This in turn helps in understanding the stakeholder. The management nowadays has started to focus on the needs of the stakeholder, this aspect is quite important in understanding the stakeholder and it also helps in decision making aspect (Phillips, 2011). Today the profit of shareholder has not remained the major concern, providing value to them in a better and effective manner has become more important. The concept of shareholder theory has recognized by organizations working around the globe and it has also helped in gaining a better understanding about value creation. This theory has gained popularity not amongst the corporations but also in the investors. This theory has changed the age old notion of people and corporations. In addition to this theory has also provided a wide horizon of value creation. Wealth alone is not value and hence to make the shareholder more satisfied, integrated reporting is important in which all the information regarding financial and non financial aspects is recorded in a single document. This theory has been accepted in UK and US based corporations.
Initially before the introduction of positive accounting theory, normative theory pre-dominates the accounting principles. The theory of positive accounting basically revolves around making estimations about the actions of the business firms. In addition to this, the theory tries to identify the economic consequences in real time (Setyorini and Ishak, 2012). . This theory is quite important as in this global and dynamic environment, it has become quite difficult to predict the actions of business firms and the theory makes the task simpler. Positive accenting theory views that managers are required to become more flexible in their decision making. Normative approach recommends what should be done whereas the positive accounting theory predicts the action and accounting principles of a firm.
Conclusion
Integrated reporting has become a significant aspect in business organizations that are working around the globe. It has provided an alternate way of establishing connection with the stakeholders by providing them reports that explains the financial and sustainable aspects of the business organization. Integrated reporting has gained worldwide recognition due to its easy approach of presenting all the data in one document. It has provided ease of doing business in the global scenario. Integrated reporting has become a significant aspect in the corporations around the world it has become a source of indirect communication in which companies tries to explain their strategies, governance and performance to their stakeholders. Earlier the annual reports are prepared in two segments, first in which all the information regarding the financial details was mentioned and the second one in which the sustainability report was present. Now only one report is required to be prepared in which all the details are mentioned. Integrated reporting is based on certain theories.
The report has analyzed three theories namely, stakeholder theory, positive accounting theory and legitimacy theory. Stakeholder reporting aims at assessing the priorities, needs and requirements of the stakeholder. The stakeholder theory underlines that the increment in the profit of shareholder has not remained the major concern, providing value to them in a better and effective manner has become more important. This approach helps in understanding the stakeholders and investors in a better and effective manner. Another theory was the theory of positive accounting. This theory is quite important as in this global and dynamic environment, it has become quite difficult to predict the actions of business firms and the theory makes the task simpler.
References
Bonnafous-Boucher, M. and Rendtorff, J.D. 2016. Stakeholder Theory: A Model for Strategic Management.
Burke, P.J. 2006. Contemporary Social Psychological Theories. Stanford University Press.
Busco, C., Frigo, M.L., Riccaboni, A. and Quattrone, P. 2013. Integrated Reporting: Concepts and Cases that Redefine Corporate Accountability. Springer Science & Business Media.
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https://www.eskom.co.za/OurCompany/CompanyInformation/Pages/Company_Information.aspx
Henderson, S., Peirson, G., Herbohn, K. and Howieson, B. 2015. Issues in Financial Accounting. Pearson Higher Education AU.
Kabir. M.H. Positive Accounting Theory and Science. Journal of CENTRUM Cathedra.
Mio, C. 2016. Integrated Reporting: A New Accounting Disclosure. Springer.
Phillips, R.A. 2011. Stakeholder Theory. Edward Elgar Publishing.
Positive Accounting Theory (PAT). Accounting Scholar.Com. https://www.accountingscholar.com/positive-accounting-theory.html
Robertson, F. 2015. What is Integrated Reporting and why does it matter https://www.icas.com/ca-today-news/what-is-integrated-reporting-why-it-matters
Setyorini, C.T. and Ishak, Z. 2012. Corporate Social and Environmental Disclosure: A Positive Accounting Theory View Point. International Journal of Business and Social Science. Vol. 3 No. 9.
Villiers, C.D. and Maroun, W. 2017. Sustainability Accounting and Integrated Reporting. Routledge.
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