In creating value, existing firms require to actively manage a wider range of their resources (Eccles & Krzus 2014). Therefore, creating sustainable value for the entities relies on adapting to the change and opportunities in their environment or efficiently managing intangible assets that could represent a significant level of the market value. To resolve such issues integrated reporting is viewed as a crucial framework for the organization (Kooiker 2014). With these considerations, this report aims to present a vision for moving from traditional corporate reporting to the integrated reporting. This would first start with the presentation of the significant limitations of the traditional corporate reporting. It follows with an explanation of what integrated reporting entails and how the integrated reporting could help in rectifying limitations of the traditional corporate reporting. The paper also presents some of the advantages and drawbacks of integrated reporting to an organization.
Traditional corporate reporting comprised of separated environmental, social and annual reports. These reports were publicized only for the fund providers and shareholders and had distinct intended purposes (IIRC 2013). Thus, it fails to offer ample evidence on the corporate deeds. Therefore, traditional corporate reporting is said to have some pitfalls in communicating to the other stakeholders as well as regarding transparency. This is due to the notion that most shareholders want both non-financial and finance information or data in a single report. Furthermore, traditional corporate reporting has some limitations regarding its short-term value creation and performance and in its holistic focus. Further, traditional corporate reporting lacks sufficient disclosure regarding uncertainty and risks (Frias?Aceituno, Rodriguez?Ariza & Garcia?Sanchez 2013). Therefore, traditional corporate reporting is considered unfit or unsuitable reporting procedure in fulfilling shareholder’s demand in distinct aspects of the information in the business operations.
Traditional corporate reporting allow different organizations to provide different types of the disclosures in distinct aspects like environmental reporting, sustainability reporting as well as corporate social reporting (IIRC 2013). This makes it quite hectic for the company to prioritize every shareholder and even some decision makers get confused on who needs to be prioritized. This is due to the huge press conference and publication costs for every report. The organization needs to adopt an appropriate framework which could perform beyond the emerging concerns of traditional corporate reporting to evade such limitations (Owen 2013).
Meaning of Integrated Reporting as well as How It Could Rectify Traditional Corporate Reporting’s drawbacks
IR is the concept created to articulate better the wider operation of the organization and that articulate the measures which contribute to the long-term value and the function played by a different group in the society. Integrated reporting is also a measure that examines five other capitals which should guide an entity’s long-term success and decision-making (Jensen & Berg 2012). It is the succinct statement on how an entity’s policy, enactment, prospects, and governance resulting in value creation in long, medium as well as short-term. It is also an integrated and holistic illustration of an enterprise’s overall operations in both its financial as well as in sustainability. This fetches all the substantial data on an enterprise’s policy, performance, prospects, and governance in a manner which reflects social, environmental and money-making perspective within which an enterprise conducts its operations.
It also offers a succinct and vibrant illustration of how the enterprise demonstrates stewardship as well as how it sustains and creates value (Churet & Eccles 2014). Also, it brings about exercise of the financial reporting, governance and environmental reporting as well as arms the enterprises in tactically managing their products, reputation, and operations to the shareholders and be properly equipped for managing the jeopardy that might affect or hinder long-term viability in an enterprise. Thus, integrated reporting needs to be implemented as the company’s fundamental reporting vehicle.
Integrated reporting could rectify the limitations of the traditional corporate reporting in that it facilitate a single document or consolidated report, in which an organization could support syntheses of all the reporting concerns as well as the performance indicators for their shareholders (Godfrey 2013). This is based on the fact that integrated reporting brings together the non-financial as well as financial measures in sole financial report and demonstrates the relations amongst the non-financial and financial performance measures. Furthermore, integrate reporting could help in rectifying limitations of the traditional corporate reporting since as reports are already long and keep getting longer every day, IR contribute in providing numerous data from civil society, to regulators and then to markets; hence supporting future development in reporting (de Villiers, Rinaldi & Unerman 2014). This is because IR leads to wider description of an organization’s performance as compared to traditional reporting.
Integrated reporting differs from the other reporting procedures, or approaches to the non-financial reporting such as sustainability reporting in that integrated reporting are more connected from organization’s financial report contrary to sustainability reporting which is often disconnected from an entity’s financial reports (IIRC 2011). Further, integrated reporting is forward looking as compared to sustainability reporting which is backward looking. Also, integrated reporting provides links between an entity’s core strategies as well as sustainability issues contrary to sustainability reporting which fails to give a like or association between organization’s core strategies and sustainability issues (Flower 2015). Besides, integrated reporting differs from other forms of reporting in that it encourages organizations in considering sustainability risks as well as adopting sustainable business practices, creating a more viable society as compared to another form of reporting that fails to create a more sustainable community.
Further, integrated reporting links the non-financial and financial information for better comprehension as compared to sustainability reporting which offers only three-bottom-line disclosures (Crowther 2016). It also includes some other material information which could assist shareholders in comprehending about how organization’s value is created contrary to sustainability reporting. Further, integrated reporting differs from other reporting approaches in that its primary object is to provide the firm’s providers of the financial capital integrated representation of significant aspects which are material to its future and present, future value. This is contrary to sustainability reporting which focuses on a company’s social, governance, economic and performance towards the sustainable global economy.
Integrated reporting is believed to bring about societal benefits as well as investors advantages like greater transparency (IIRC 2013). One of the most significant benefits that the company would experience by adopting integrated reporting is better and new understanding of how the firm destroys or create value (Eccles & Krzus 2010). The firm could also benefit from integrated reporting since it enhances disclosure of key opportunities and risks which in turn enables investors in assessing long, medium and short-term impacts of the risks. Basically, organizations would benefit by adopting integrated reporting in that; first, it would enhance some strategic focus on both their non-financial and finance performance (Churet & Eccles, 2014). This would, in turn, have a potential of attaining a general indulgent of the value initiator as well as how such values give rise to the organizations’ tactical aims. Furthermore, adopting integrated reporting would be beneficial for an organization since it would assist the organization in improving its model and strategies in its process of integrated decision-making and thinking support. Integrated reporting is also beneficial since it makes visible company’s use of as well as dependence on distinct resources and capital and its access to and effect on them. It also brings about the meaningful evaluation of the enterprise’s long-term feasibility its strategy and model; hence, meeting material requirements or desire of potential investors as well as other shareholders (Eccles & Saltzman 2011).
Integrated reporting serves as a form of discipline in an organization (IIRC 2011). It assists in making sure that an entity succinctly reports the sensible data in a manner that demonstrates how healthy the enterprise is doing in the non-financial proportions which in turn disturb or distress eminence of an entity’s conveyed policy and its implementation. Integrated reporting is also beneficial since it provides improved internal control and measurement system for producing timely and reliable non-financial information (Cheng et al. 2014). Thus, by embracing IR, organizations are mostly enforced to intensify the value of the IF and monitoring and internal control systems. Integrated reporting also reduce expectation-reality gap in between the organization and external stakeholders by communicating in the transparent and holistic manner the position, performance, vision, mission and philosophy of the company both in sustainability and financial terms (Serafeim 2015).
In spite of the above benefits of integrated reporting, the approach also has some drawbacks. For instance, integrated reporting entails the integration of environmental, governance and social issues in an organizational procedure of the firm and as such, there are some costs linked with the adoption of this practice (Busco, Frigo, Quattrone & Riccaboni 2013). Furthermore, field data and evidence show that costs of integrated reporting take the highest portion of all the costs in an organization. Also, to implement integrated reporting, organizations require capital for the skilled experts to make some sense of the data and be able to incorporate such data in the financial reporting. Finally, integrated reporting could result in propriety disclosure costs that stem from communicating some competitive information.
Integrated reporting is relevant to numerous interested parties in an organization. This is because it is positively linked with group valuation and therefore its benefits are far much above its costs. In essence, integrated reporting is relevant to different stakeholders in an organization since they help in reducing costs linked to information processing where environment information and operation is complex (Adams 2015). Integrated reporting enhances high-quality information and organization’s reporting environment. Also, integrated reporting is relevant to different stakeholders in that it enables all types of financial reporting features; thus, it is not only the reporting model or approach in an enterprise but is much more than just reporting. With these considerations, organizations should adopt integrated reporting since it is the most efficient means of communicating with its stakeholders which would demonstrate a holistic image of an organization regarding the future links and targets between the financial reporting and performance on corporate environmental and social responsibilities (Adams & Simnett 2011).
Also, provision of integrated report would be crucial to stakeholders since it would help them in making better-informed decisions regarding where to assign or apportion their money. It is also relevant to them since it provides share information on a wider range of metrics which attribute to long-term value as well as the role the company plays to the general public (IIRC 2011). This could, in turn, help the company attract many value investors; hence, increasing profitability of the enterprise, as well as the value, returns to shareholders. Integrated reporting is also relevant to shareholders since it focuses on sustainable business practices and thus assists in promoting long-term decision-making, facilitating accountability as well as fostering the culture of stewardship.
Conclusion
In conclusion, integrated reporting is usually set as the means organizations across the globe report their financial performance. The main aim of this reporting approach is usually to concisely and clearly tell the financial results of the firm. This would involve what the company does, who it is, its strategy, risk and opportunities, how it create value, its governance and business model as well as performance against strategic goals in a mean that provides shareholders a holistic overview of an organization and its future. In essence, it can be concluded that integrated reporting provide a comprehensive overview of an enterprise by placing across its performance, strategy and business ideal in a perspective of material environmental and social issues; that is, the firm in its real value. The approach also entails forward-looking information in permitting shareholders to make a more informed evaluation of future creation of value capability of an entity. Integrated reporting also provides an explanation on how an entity interacts with external environment as well as capitals in creating some values within the long, medium as well as short-term.
References
Adams, CA 2015, ‘The international integrated reporting council: a call to action,’ Critical Perspectives on Accounting, 27, 23-28.
Adams, S & Simnett, R 2011, ‘Integrated Reporting: An opportunity for Australia’s not?for?profit sector,’ Australian Accounting Review, 21(3), 292-301.
Busco, C, Frigo, ML, Quattrone, P, & Riccaboni, A. (2013, ‘Integrated reporting,’ Concepts and Cases that Redefine Corporate.
Cheng, M, Green, W, Conradie, P, Konishi, N, & Romi, A 2014, ‘The international integrated reporting framework: key issues and future research opportunities,’ Journal of International Financial Management & Accounting, 25(1), 90-119.
Churet, C, & Eccles, RG 2014, ‘Integrated reporting, quality of management, and financial performance,’ Journal of Applied Corporate Finance, 26(1), 56-64.
Crowther, D 2016, A social critique of corporate reporting: Semiotics and web-based integrated reporting. Routledge.
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.
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Flower, J 2015, ‘The international integrated reporting council: a story of failure,’ Critical Perspectives on Accounting, 27, 1-17.
Frias?Aceituno, JV, Rodriguez?Ariza, L, & Garcia?Sanchez, IM 2013, ‘The role of the board in the dissemination of integrated corporate social reporting,’ Corporate Social Responsibility and Environmental Management, 20(4), 219-233.
Godfrey, A 2013, ‘Comparative International Accounting,’ Pacific Accounting Review.
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