Importance Of Integrated Reporting In Corporate Reporting
Purpose of IR
Discuss about the Importance Of Integrated Reporting.
With companies becoming more advanced and the advent of technology, the shareholders and investors have become more conscious about the working of the organizations and the employment of their money in the organization. The given report will reflect upon the importance of integrated reporting and the primary purpose of it. The key benefits of the integrated reporting will also be discussed along with reference to the guiding principles in enhancing the reporting format (de Villiers, Rinaldi and Unerman 2014). As a practical example, the annual reports of Iluka Resource Limited will be analyzed to see to it whether the organization is successful in portraying an integrated reporting or not.
Integrated Reporting can be described as an integral coalition of companies, investors and regulators, accounting professionals and various nongovernmental organizations which aims to inculcate an environment of better communication and creation of value. The given concept is a revolution in the field of corporate reporting. Integrated reporting not only involves reporting the financial aspects of an organization in an organization but involving the non-financial aspects as well.
Purpose of IR:
The primary purpose of Integrated Reporting is to build on developments in reporting in order to incorporate a holistic form of reporting with respect to the value created by a business. This new reporting style would also reflect upon the non-financial resources which include social capital, human capital and the intellectual capital along with the incorporation of the financial capital (Adams 2015).
According to Abeysekera (2013), an analysis of the way in which these stated capitals have an impact on the society in general and on the business in particular requires critical thinking with regard to ensuring that various business activities such as strategy, sustainability, operations and human resources are included in reporting. Normal annual reporting just involves consideration of the financial aspect but this should not be the case. A report should collectivity comprise of all aspects of the organization and prove to be a clear picture of the value creation process of an organization (Iluka.com. 2018).
Users of Integrated Reporting
The Integrated Reporting approach is used by various countries since its inception in 2010 during the development of the IIRC. The report format is practiced in retail, South Africa, UK, Netherland, Spain, USA, Japan and Singapore.
- Facilitates Integral Thinking
Integral thinking is the consideration adopted by an organization which looks after the various relationships that exist between the different operational and function al units of the given organization. This integrated reporting often reflects in integral thinking and decision making which leads to better results for the organization (Integratedreporting.org. 2018). The reporting style promotes a holistic culture and helps the business to grow and serve better societies. It considers connectivity and interdependencies between various factors in an organization`s realm.
- Change in Corporate Behaviour
Guiding Principles of Integrated Reporting
The integrated reporting process can lead to a change in the various corporate behavioral aspects of the organization in a two way process. The first is that it affects the ideal culture which helps the management to start undertaking various sustainable risks. It also impacts that an organization might face (Stubbs and Higgins 2014). This helps the organization in creating strategies which then help the firm in communicating effectively with the stakeholders. Secondly integrated reporting also helps an organization to bring about necessary changes in corporate behaviour.
- New mechanism for Corporate Governance
The integrated form of reporting also helps in formation of an effective corporate governance tool which helps a firm to interact with its key stakeholders. The transparency with the board helps in helping the various stakeholders to clearly access information with respect to the organizations structure of governance and helping them to understand the objectives of the organization (Integratedreporting.org. 2018). Hence, due to this it becomes the responsibility of the company to disclose information relating to financial and non-financial performance of the firm. This serves as guidance for corporate governance
- Ensures stakeholder management
The emerging cases of various organizations relating to corporate and financial scandals made reporting and disclosure an integral part of engaging with the various stakeholders. Stakeholders prefer to deal with companies with a closure which can actually display such evidences which might lead to unforeseen circumstances. Companies publishing reports like these, ensure sustainable reporting.
- Enhances corporate reputation and Performance
The disclosures about the value creation process of a company make the whole process very transparent and tend to enhance the reputation of the firm. This is the reason why it is advised to incorporate this reporting in order to build a good image of thee company in the eyes of the customers (Integratedreporting.org. 2018). This better image of the organization allows the firm to negotiate with the host governments, attract opportunities, attract employees and allows them to charge premium prices for the various services being offered. This also leads to lowered capital cost.
- Conciseness
The guiding principle of conciseness reflects that an integrated reporting system needs to be extremely concise. This means that the information which is reflected in the report need to be full of content and include enough context in order to ensure that governance, strategy and various prospects without being exposed to information which is unnecessary and not required. Any integrated reporting system needs to ensure that the various guiding principles are balanced with the given principle of conciseness (Dergipark.gov.tr. 2018).
Iluka Resource Limited’s Integrated Reporting
In order to ensure that a given report is concise, it needs to be seen to it that the report is following a concise structure with various internal and cross references which is generally implemented to avoid repetition (Flower 2015). Instead the report should aim to link the data present in the report into more detailed information which remains stable and does not keep changing. The various concepts which the company wants to introduce to the audience needs to be explained in the beginning briefly. Furthermore, plain and simple language needs to be use in order to avoid confusion. According to Iluka.com (2018), generic disclosures need to be avoided as they are often considered to be boilerplate and not organization focused.
- Stakeholder relationships
An integrated reporting system also goes a long way in providing a deeper insight into the kind of relationship an organization shares with its various stakeholders. It tends to be a reflection upon how an organization tends to understand and convey the correct message to an organization (Iluka.com. 2018). It also reflects how the organization responds to the interests and the needs of the various customers. It is believed that value is not created within a firm alone but through maintaining healthy relationships with the key stakeholders. Very often insights from the various stakeholders prove to be an important source of information which helps in helping the firm to improve its processes; the stakeholders are also a reflection of the various environmental, economical, social and other issues
In the ordinary course of business, the stakeholders generally tend to communicate with the various organizational members but a report helps in serving an integrated thinking in the business domain. As an integral reporting system reflects transparency, long term trusts with shareholders are built which then help the firm to increase its brand value. Furthermore, the concept of stewardship and responsibility of a give firm helps in indulging in acts which tend to promote ethical responsibility.
For the purpose of analyzing whether ILUKA Limited Resources makes use of relevant integrated reporting techniques in its annual reporting method, with special reference to the above guiding principles, the reports of the year 2016 and 2017 were analyzed. In terms of conciseness, it can be stated that the annual reports of both the chosen years tends to follow a systematized format where the report follows a given flow and structure followed by a brief overview upon all the necessary information related to the given organization. The report was all inclusive but at the same time was successful in ensuring that the firm does not indulge in showing too much to its target audience.
Benefits of Integrated Reporting
The second guiding principle of Stakeholders relations which stresses upon the fact that the origination needs to portray a deeper and clear understanding of processes which they are want to share with the various employees and guides it in maintaining good relations. The reports of Iluka Limited go a long way in ensuring that the reports reflect upon and give out various details about the various functions of an organization in front of the stakeholders. ILUKA understands that engaging in the long term relationship with its suppliers would go a long way in determining the firm`s success (Icas.com 2018). The report not only consists of the financial information but also information related to the human process aspects. The report also comprises of a letter to the stakeholders and helps them to implement and analyze for the same.
Conclusion
Therefore from the given analysis on the importance of integrated reporting it could be gathered that the old format of annual formatting is extremely outdated and just provided the organizational stakeholders and related interest parties in obtaining information about the financial aspect of any organization. However, integrated reporting goes a long way in ensuring that the organization is able to reflect both financial and non financial information to the various investors and related parties to ensure transparency.
References
Abeysekera, I., 2013. A template for integrated reporting. Journal of Intellectual Capital, 14(2), pp.227-245.
Adams, C.A., 2015. The international integrated reporting council: a call to action. Critical Perspectives on Accounting, 27, pp.23-28.
de Villiers, C., Rinaldi, L. and Unerman, J., 2014. Integrated Reporting: Insights, gaps and an agenda for future research. Accounting, Auditing & Accountability Journal, 27(7), pp.1042-1067.
Dergipark.gov.tr. ,2018. Dergipark.gov.tr. [online] Available at: https://dergipark.gov.tr/download/article-file/364169 [Accessed 21 Apr. 2018].
Flower, J., 2015. The international integrated reporting council: a story of failure. Critical Perspectives on Accounting, 27, pp.1-17.
Icas.com ,2018. Icas.com [online] Available at: https://www.icas.com/ca-today-news/what-is-integrated-reporting-why-it-matter [Accessed 21 Apr. 2018].
Iluka.com. ,2018. [online] Available at: https://iluka.com/docs/default-source/asx-releases/iluka-annual-report-2017-including-appendix-4eedecf2a9140e66fb8b60ff0000e79da7 [Accessed 21 Apr. 2018].
Iluka.com. ,2018. [online] Available at: https://iluka.com/docs/default-source/annual-reports/iluka-sustainability-report-2016 [Accessed 21 Apr. 2018].
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Stubbs, W. and Higgins, C., 2014. Integrated reporting and internal mechanisms of change. Accounting, Auditing & Accountability Journal, 27(7), pp.1068-1089.