International Integrated Reporting Council (IIRC) has suggested integrated reporting as the contemporary approach towards corporate reporting. The concept of corporate reporting has gained huge significance in the recent times as it is the only means through which companies can communicate with all its stakeholders and provide them information that is necessary for their decision making. Corporate accounting must be kept at pace with the changing economic reality and hence it must promptly address the information needs of the stakeholders of the company by providing not merely the financial information but also the non-financial information. The International Federation of Accountants (IFA, 2017) has recently stated that integrated reporting is the system that is used to achieve more coherent system of corporate reporting that fulfils the need of single report providing a wider picture of entity’s ability of value creation. Basically, integrated reporting is the new but quite powerful idea which focuses on enhancing the way business organisations thinks and reports about the performance of the business (De Villiers, Rinaldi & Unerman, 2014). In the modern era, companies have their own accountability as well as stewardship obligations and therefore IR is being used by the organisations to communicate with their stakeholders about the story as to how they use the economic resources to create value for them. Though, in the present times, there is no prevailing standard framework which is accepted universally for the integrated reporting but the practice of IR is being adopted voluntarily by leading corporations as it has numerous benefits. It can be anticipated that in upcoming 5-10 years, IR shall certainly become a mandatory practice at-least for the listed companies at the universal level so that to promote communication of financial as well as non-financial information regarding the performance of their business.
The high-quality of the business reporting is generally a distinctive feature of the organisations that are strong and sustainable and it is also at the heart of the strong financial markets and economies. Corporate reporting is the important way that allows organisations to communicate with its stakeholders on account of their stewardship obligations. Like any other business activity corporate reporting is also required to be paced up with the emerging information needs of the stakeholders. Certainly, technology will change the way corporate reporting is undertaken and the way corporate reports are delivered to the stakeholders. The significant and continuous changes in the technology by far have led to increased access and interest towards the corporate affairs and resultantly the information needs of the audience is growing continuously. Looking at the enhancing information demands of the stakeholders, the scope of corporate reporting must be enhanced to meet their wider information needs both in financial and non-financial terms so that they can use such information to undertake short-term as well as long term decisions. Unfortunately, corporate financial reporting has partly lost its relevance in the eyes of its intended users (Jensen & Berg, 2012). It has been generally argued by the experts that corporate financial reporting do not sufficient and timely information and also it provides overload of information.
The framework of integrated reporting as suggested by IIRC would support a business organisation in addressing clearly and concisely the matters that influence its ability of creation and sustaining the value not only in short or medium but also in long run. Integrated report aims at giving complete picture of the activities of the entity in the simple and clear manner that could be easily understood by the users who do not even possess the special skills and knowledge in the relevant areas. A firm has to report about the economic activities that it carries in the particular period to allow the users to assess the financial performance of the business (Stewart, 2015). Along with the financial reports the entity also has to report about the non-financial matters such as its participation in the social and environmental activities. The existing corporate reports of the entities majorly incorporates the annual financial information and do not include detailed non-financial information related to such entities. In future, the existing financial reports will be replaced by the integrated reports (Abeysekera, 2013).
The global financial crisis of 2007-2009 was the main catalyst for the development of concept of integrated reporting to promote the financial stability and regaining the trust of general public in the capital markets about their capability to serve the economy. Integrated reporting is the concise communication by company to its stakeholders about its strategy, performance as well as prospects in relation to both its internal and external business environment that leads to creation of value in short term and long term (Eccles & Krzus, 2010). Over the past few years the emphasis is on integrated reporting has been primarily on the importance of creation of organisational value by way of six capital factors out of which financials and manufactured capitals are two main factors. IR identifies the other four capitals that are intrinsic to the creation to the value in short and long run as well. These capital factors are intellectual, human, social and natural (Churet & Eccles, 2014). Out of these capitals, human capital and intellectual capital are the two most complex areas under non-financial reporting because of the fact that they are not easily quantifiable. Intellectual capital is the major intangible factor in the rapidly developing digital economy (Tapscott & Barry, 2009). It is probably the most complex but at the same time most significant factor to be defined for the success and achievement of competitive in the business community. Hence, it is of utmost importance to report about such capitals by way of integrated reports. Integrated reports must be more than mere static documents containing financial information so as to provide more detailed information of shareholder’s or other stakeholder’s interest.
The accounting professionals are choosing the technical steps, undertaking required training so as to adopt the changes in the reporting practices that are occurring worldwide (Humphrey, O‘Dwyer & Unerman, 2015). This approach of corporate reporting will surely reduce the burden of reporting and improve its quality by making disclosure of concise and material information about the company through integrated report. Also, the accountants are given with the responsibility of providing assurance on the integrated reports in place of mere financial reports which ultimately enhances the credibility of information contained in such reports. However, as the corporate reporting evolves over a period of time and the adoption of integrated reporting become wider, the accounting professionals will require development of new set of skills. They are required to extend their engagement scope from mere financial reports to report on the non-financial matters relating to the entity (Serafeim, 2015).
It has been since last few years that integrated reporting has initiated to be adopted by the multinational companies such as SAP Novo, Nordisk and Tata Steel etc. (Bhasin, 2016). Integrated report comprises of both financial and non-financial information regarding the overall performance of the reporting entity, the new management practice of integrated reporting will certainly take together not only the financial capital moving in and out of business but also the social or natural capital affected by the business by illustrating about its performance with absolute transparency (Acuity, 2017). The legislation of different countries is initiating to include this management practice as the formal and mandatory obligation. By far, South Africa has adopted the concept of mandatory compliance with the framework of integrated reporting for all the companies that are listed on Johannesburg Stock Exchange (Atkins & Maroun, 2015). As per GRI, the countries that are leading in the field of integrated reporting are South Africa which is then followed by various other countries such as Netherlands, Brazil, and Australia. The IR phenomenon is slowly but certainly making its place not just as the external communication tool but also as a genuine agent towards the internal changes within the organisations (Milne & Gray, 2013).
The way that accountants use to carry out the reporting function is changing globally as the trend in the direction of the non-financial reporting is becoming a global norm and shaping the future for integrating reporting. The adoption of this new phenomenon is creating various competitive advantages for the companies and countries as well. About 1600 corporations across the world have already adopted the IR principles. In Australia, companies like Lend Lease, Stockland, Australia Post, National Australia Bank and Vic Super (Adams & Simnett, 2011). In New Zealand also 8 out of top 100 listed companies have adopted IR framework by far along with 40 more organisations from public and private sectors which are producing integrated reports voluntarily. Also as per the directive issued regarding EU Non-Financial Reporting, in Europe more than 8000 companies have integrated their financial as well as non-financial reports (Bhasin, 2015). In India, the accounting regulators have initiated changes to bring in the concept of integrated reporting in their corporate act by making mandatory provision of participation in corporate social responsibility initiatives by the listed and other prescribed companies (Watson, 2015). Moreover, recently the Securities and Exchange Board of India (SEBI) has also issued a circular to recommend top 500 companies to adopt the framework of integrated reporting. Top multinationals such as Wipro, Reliance Industries, and Tata Steel etc. have already adopted the framework of IR. It seems that the concept of integrated reporting is gaining more and more significance in certain countries with the passage of time. These countries are Japan, Korea and Singapore. The acceptance of IR continues to pace up moderately across the world with certain part of the world such as Europe and Asia where it is being adopted with the greater momentum. In the present times, various European countries have rules and regulations in the areas of sustainability reporting while many European companies that are at their development stage of legislation to force reporting of non-financial information (Schaltegger & Wagner, 2006).
The current reporting laws and regulations require preparation of a strategic report with the director’s report of the companies. The strategic report requirement is closely linked to the IR principles. In Netherland and Scandinavian countries, IR is gaining more and more significance for the companies as the stakeholders and not the shareholders of these countries plays active role. Further, the increase in the attention of US towards the development of Sustainability Accounting Standards Board will certainly enhance the attention of the country towards IR as well as sustainability within accounting profession (Owen, 2013).
The concept of IR has introduced a paradigm shift towards corporate reporting landscape by way of acting as a management as well as communication tool to understand and measure as to how entities could create value currently and in the coming years. As IR is slowing but gradually gaining a momentum globally, the count of companies that are publishing integrated reports is also increasing. The agenda of adoption of IR principles is not only to provide more information to the stakeholders but also to provide them the quality information (Milne & Gray, 2007).
Integrated reporting being a cohesive and efficient approach towards corporate reporting offers a wide range of benefits in short run and long run (Krzus, 2011). The researchers have demonstrated that adoption of non-financial reporting framework will create a stable and strong investor base for the reporting company in longer run. Also, the presentation of company’s results by way of integrated report will enable the company to raise capital at lower costs. Moreover, the practice of integrated reporting promotes the share prices of the reporting. These benefits are not available to only larger entities but also to the small and medium enterprises. The adoption of integrated reporting framework also supports the sound corporate governance mechanism at any organisation. In the present time, the world is at the breakthrough stage of integrated reporting under which companies, investors and the regulators of accounting profession across the world are endorsing the IR framework (Brown & Dillard, 2014).
As a current development in the areas of corporate accounting, integrated accounting is presenting a new feature of corporate reporting in context of its relevance in future and the business sustainability. It has been claimed by various researchers that the corporations that adopt the practice of producing integrated reports have more potential to attract and retain shareholders for the longer term. Also, the investors who place more values in the companies with high Environmental, social and governance standards are more attracted towards the companies which communicate about their sustainability practices as these practices helps in boosting up the confidence of the investors and other stakeholders of the company (Adams, & Frost, 2008). An integrated report enables the investors to look at the business viability of the company beyond the short run. Through the proper integration of financial and non-financial information entities could more clearly show that sustainable development is one of their prime approaches of business. IR is considered as the means of influencing both reporting entity as well as investors in a manner that they can consider the results of both positive and negative externalities linked to corporate investment and operations decisions concerning particularly the social and environmental issues. Integrated reporting thus creates more competitive advantages for the companies adopting such practices (Maas, Schaltegger & Crutzen, 2016).
Though it can said that the adoption of IR practices brings in various opportunities and benefits to the business organisation, still the same is facing various challenges. The major most challenge that IR is facing is of auditing and assurance of the information that is reported by way of integrated reports. The search for the professional parties that will provide the assurance on the non-financial matters reported by the entity is still on-going. Moreover, it is quite difficult to measure and quantify the non-financial metrics of the business and thereafter integrating them with the entity’s financial performance (Thomson, 2015). Though, financial reporting is relatively easier to capture data but the nature of data sources to undertake sustainability reporting is quite diversified and inconsistent. Moreover, it is of utmost importance to train the personnel of the organisation to prepare the integrated reports. Further, the beneficiaries to the financial reporting and sustainability reporting may be different. It is true that both financial as well non-financial reports serves multiple stakeholders like investors, government, employees, business communities etc. Though few stakeholders of both the reports are same but not all the stakeholders are entertained by integrated reports. Integrated report seems to overburden the top management of the company particularly the chief financial officers. It is also being claimed that sustainability accounting is primarily considered to be concerned about creating values for its stakeholders and not for the society. IR is considered as more incremental rather than radical or transformative change because of lack of a comprehensive set of standards and therefore it casts a barrier in the widespread adoption of IR framework (Steyn, 2014).
Because of the above limitations of integrated reporting, the broad acceptance of the said framework is being hindered. The delay in the adoption of IR framework at universal level is caused as a result of lack of harmonisation among companies, industries and the countries in regards to the content of IR. These factors lead to the debate that is presently on-going about whether to replace the existing corporate reports with the integrated reports or not.
From the above discussion, it can now be concluded that integrated reporting is undoubtedly a commonly debated issue in the community of corporate reporting in the recent time. Integrated reports are nothing but the extended version of existing corporate reports which contains information regarding the financial matters related to the company. These reports contains both financial and non-financial matters as well to meet the growing needs of detailed information of the stakeholders of the company for their decision making process. In the current times, the stakeholders of a company are not considered merely about the financial performance of the company rather they pay equal attention to the company’s performance in the areas of its social, environmental and regulatory obligations. Assessment of both the types of information is necessary for the stakeholders to reach at the conclusive decision and hence integrated reports will serve as an effective tool to undertake the desired communication with the stakeholders. As a result of this numbers of corporations at an international level are proposing the adoption of framework of integrated reporting. Considering the benefits of adoption of IR for both companies and their stakeholders, the interest in IR is growing continuously. However, since the adoption of IR is at initial state of its development and due to the relative lack of data an empirical confirmation cannot be made as to where it will ultimately reach. In the adoption of framework of integrated reporting, a company, industry or the country as a whole may have to face various challenges due to the absence of proper set of standards in this regards. But, the benefits of adoption of practices of integrated reporting shall exceed the challenges faced by the companies in its implementation. Due to this it can be argued that integrated reporting is definitely the future of corporate reporting. As the integrated reports will help in satisfying more stakeholders it will provide the company to achieve more competitive edge over others. In order to ensure that IR is adopted globally by all the listed companies in the coming 5 to 10 years would definitely require a combination of various market and regulatory forces. A single integrated report will meet the information needs of the stakeholders to a greater extent than the mere financial reports. Ideally integrated report will be a combination of financial figures and information regarding company’s corporate social responsibility initiatives (Yaismir Rivera-Arrubla, et. al., 2017). It will emphasise on the company’s key strategies and enable the timely and systematic communication of such strategies. An integrated report will act as the comprehensive document that will reveal about risks and opportunities faced and managed by the reporting entity.
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