Letter of transmittal
Dear Mr. ABC,
Please find enclosed the detailed report with a discussion on how the integrated reporting is going to impact the accounting practice and its clients. The main findings of this study are:
Integrated reporting requires the organisation to report about their social and natural capital in addition to the financial capital.
Since the investors and the stakeholders of the companies are demanding more information, integrated reporting can be helpful for the organisations in future.
It is recommended that the accounting practice should prepare a team of accounting professionals who are able to help the organisation and its clients in understanding integrated reporting.
I am thankful to you for giving me this opportunity to understand this new trend of inclusion of the non-financial information as a part of integrated reporting. I hope that this report will help in bringing in the necessary clarity and assist the accounting practice with decision making.
The world in which we operate is continuously changing and becoming more connected than ever before. The business organisations can enjoy access to more resources and also face capital constraints due to increasing competition. It is important other members of the organisation address all these issues sustainably for ensuring the long-term success of the business. Integrated reporting is an effective tool that can help in bringing this gap by providing the organisation with an opportunity to explain the process of value creation in an effective and efficient manner. It is recommended that the accounting practice needs to prepare a team of experts that are able to communicate the effectiveness of integrated reporting within the organisation and also to the clients. These experts should be provided with training that enables them to communicate the advantages of integrated reporting. The lack of a clear guidance on the preparation of an integrated report is resulting in a lot of ambiguity. However, most of the organisations have started including details about the environmental and social impact as a part of their annual report. There is a need to continuously monitor the reporting landscape and keep the organisations updated on the latest development in this field. The limited number of integrated reports available for analysis indicates that the integrated reports can be structured by including the information about the financial performance, sustainability and other details that enable the organisations to create value.
1.1 Research background
There are numerous developments taking place in the corporate world and in the reporting practices of the organisations operating in it. The regulators, government and the business organisations need to make sure that corporate reporting keeps its space matching with the developments in the economic reality. It should be able to fulfil the expectations of the stakeholder audience with the help of all the relevant financial and non-financial information that highlights the immediate and long-term focus of the business. Integrated reporting has become the most discussed and debated topic among the global business community. Numerous organisations are considering adopting the integrated reporting framework for their annual reporting practices. However, this decision needs to be made at both a strategic and operational level by the organisations. An integrated report can help the organisations in optimising the reporting process and also enhance the collaboration among the different segments of the business with an interdisciplinary approach. Reporting promotes dialogue between the different departments and can also help in enhancing the efficient utilisation of the financial and non-financial resources of the organisations. However, deduction of integrated reporting can result in a sweeping change for the business organisations and still looks like a distant step. Organisations need to practice tremendous coordination between the different segments (Villiers & Venter, 2017).
The integrated reporting framework plans to promote an approach to corporate reporting that is more cohesive and that covers the entire range of factors that have a material impact on the ability of the organisation to continue to create value. This framework is being designed for enhancing the stewardship and accountability of the organisations and for helping them in understanding the interdependency of the manufactured, human, relationship, intellectual and social capital. A step by step implementation of integrated reporting can allow the organisation to enjoy the benefits of the existing reporting structures and incrementally move towards this practice. This research is carried out to analyse integrated reporting as a phenomenon and the impact that is going to have on the organisations. It also discusses the internal and external benefits for the organisations and their stakeholders as they begin implementing and practising integrated reporting (Zyl & Anria , 2013).
1.2 Purpose of the study
This report is compiled to analyse, understand and identify the challenges and opportunities that come with embracing integrated reporting for an accounting practice. An accounting practice is facing the dilemma in deciding whether it is time to adopt integrated reporting and pitch the same to the clients. It begins by discussing the background of integrated reporting and the current progress made in this context globally. Weather report then presents the benefits of integrated reporting for the accounting practice and for the client organisations availing their services. This is followed by a detailed analysis and discussion of the knowledge that is currently available about integrated reporting presenting the final recommendations for the accounting practice regarding this decision. This report will serve as a guide for the accounting practice helping the decision-makers of the organisation in arriving at a consensus and deciding how to face the regulatory changes that will be followed with the increasing application of this concept (Matuszyk & Rymkiewicz, 2017).
1.3 Research significance
The strong and sustainable organisations and financial market are created with reliable and good quality business information. This business information is presented by the organisations in the form of annual reports. The changes taking place in the corporate reporting landscape throughout the world have made it mandatory for the organisations to redefine the way they present the information about the organisational performance. The organisations do not rely only on their own resources for creating value in the form of products and services but also make use of the resources that belong to the society. Consequently, the benefits of the value created by the organisation should also be shared among the members of society. The integrated report provides the organisations with the medium to evaluate and communicate this and corporate sustainability while creating long term value for all the stakeholders (James, 2015). This forward-looking approach to corporate reporting has brought the entire economy to a new paradigm that needs to be understood and adopted by the organisations worldwide. This research presents an overview of the existing information and guidance available on integrated reporting and its significance for an accounting practice.
1.4 Equipment and methodology
The research methodology adopted for this study is based on secondary data that is collected from the previously published sources including the electronic and non-electronic media. The electronic sources include the journals, articles and reports published on the internet and the non-electronic sources include the books and magazines containing information about integrated reporting. The research design followed for compiling this report is the explanatory research design. This research design is used for conducting a study on a problem that is not very well studied before. The primary purpose of this study is to elaborate on the information available on integrated reporting and build on this knowledge by analysing the specific theories available in the existing literature.
It is important to identify and acknowledge the limitations of the study to help the readers in understanding how they might have impacted the findings. This report also suffers from some limitations. Since integrated reporting is a relatively new concept, there is a lack of previous studies available on its implementation and effectiveness for the organisations. The existing literature helps in forming the foundation that assists the achievement of research objectives. The lack of prior research on the effectiveness of integrated reporting has limited the study and lack of empirical evidence of its success has also influenced the recommendations (Torre, Bernardi, & Guthrie, 2019).
1.6 Ethical considerations
This research report is compiled while taking into consideration all the ethical consideration set out by the university. All the information gathered from the secondary sources is duly credited to the original contributors by following the referencing system recommended by the college. No information in the study is plagiarised and the research is conducted as per the university ethical code of conduct.
2. Integrated reporting
There are numerous developments taking place in the corporate world and in the reporting practices of the organisations operating in it. The regulators, government and the business organisations need to make sure that corporate reporting keeps its space matching with the developments in the economic reality. It should be able to fulfil the expectations of the stakeholder audience with the help of all the relevant financial and non-financial information that highlights the immediate and long-term focus of the business. Integrated reporting is being promoted by the International Integrated Reporting Council (IIRC) as an extremely powerful idea that improves the planning, resource allocation and reporting practices of the businesses. There are several countries and organisations that have already adopted the integrated reporting framework. This framework enables the organisation to clearly communicate how the resources utilised by them contribute to creating value (Bhasin, 2017).
2.1 Integrated reporting background
For more than half a century, there have been formal and informal efforts to improve corporate reporting practices. However, it was only in the 1990s that South Africa decided to emerge as a leader in this direction and make efforts to improve the corporate governance practices of the organisations. The Johannesburg stock exchange made it mandatory for all the listed organisations to adopt these corporate governance principles (King III) from March 2010. Also known as integrated reports, the South African listed organisations have to present the annual reports that include the information about good corporate citizenship, sustainability and leadership practices. The IIRC was formulated in the year 2009 with the Global Reporting Initiative (GRI) the representatives. This organisation is responsible for setting the pace and developing the pilot program for promoting integrated reporting. The organisation has developed an International Integrated Reporting Framework highlighting the concepts and principles that can streamline the integrated report prepared by the organisations. The overarching aim of the IIRC is to make integrated reporting a norm for corporate reporting by the organisations all over the world (Dumay, Bernardi, & Guthrie, 2017).
The objectives of the framework is to enhance the quality of information that is provided to the stakeholders and investors of the company about the financial capital and its utilisation so that they can make well-informed decisions and promote productive allocation of this capital (IIRC, 2013). The framework also plans to promote an approach to corporate reporting that is more cohesive and that covers the entire range of factors that have a material impact on the ability of the organisation to continue to create value. This framework is being designed for enhancing the stewardship and accountability of the organisations and for helping them in understanding the interdependency of the manufactured, human, relationship, intellectual and social capital. The framework supports integrated thinking and decision making by helping the organisations in identifying the sources that promote value creation. In line with the various developments taking place in corporate reporting, the Framework is an effort to provide guidance that is based on principles for the organisations that are looking forward to preparing an integrated report. This is to give the necessary impetus to innovations and integration in corporate reporting globally.
2.2 Benefits and challenges
The fundamental change brought about in corporate reporting practices with integrated reporting can allow the organisations to develop a deeper understanding of the basic building blocks that help in value creation for the organisations. Integrated reporting is an entirely new convention that can enable the organisations to meet the compliance requirements that are growing at a faster pace than ever before. The new and better understanding of the process of creation or destruction of value by the business is the biggest benefit that comes with integrated reporting (Brown & Dillard, 2014). This process also makes the organisations disclose all the significant opportunities and risks and provide the management with more information that can facilitate effective decision making for the business. Integrated reports tell the detailed story of how the organisation creates more value internally and externally helping them in gaining the trust of the stakeholders and establishing an improved relationship with the employees and the investors.
The challenges that the accounting practice and client organisations are expected to face when adopting integrated reporting are discussed here. The definition of value creation is ambiguous in the present guidelines and framework and the organisations often find it a challenge to identify and articulate what is perceived as value by the company and its stakeholders. The integrated reporting practices also required by organisations to break down the existing silos in the company and develop new processes for data collection and presentation. The presentation of a holistic view of the environmental, social and economic factors influencing the ability of the organisation to create value and their interdependencies can be a challenge. Because of the existing immaturity in the value articulation, it is a challenge for the organisation to define the performance measures that take into consideration the non-financial measures. The organisations also find it a challenge to identify how the value is derived from the non-financial capital by the business.
Integrated reporting requires the organisations to strike a balance between the positive and the negative news. However, most of the organisations presenting the integrated report lack the necessary reliability and completeness when reporting about the non-performing segments of the business. In addition to this, the integrated reports can become very lengthy and it is a challenge to keep them concise and meaningful at the same time (EYGM Limited, 2014).
2.3 Analysis and discussion
Since integrated reporting provides the necessary information to the internal and external stakeholders of the organisations, it is expected to be embraced by more and more organisations and countries in the near future. Therefore, the accounting professionals and the organisations should start paying attention to the pool of data and sift through it to gather the relevant information that has a material impact on the functioning and the profitability of the organisation. Integrated reporting is a holistic approach to corporate reporting that helps in interlinking the different data sets for the organisations. Once the accounting practice is able to completely implement integrated reporting, it will be able to pass on the benefits to the client and also promote this transparent and sustainable approach to corporate reporting (Matuszyk & Rymkiewicz, 2017).
Integrated reporting can only be carried out by the organisations by ensuring greater cooperation across the different departments. It also requires greater stakeholder involvement. The organisations do not have to do this in one go. It is recommended that the companies practice overall communication of the concept and the development of the integrated report by following a series of steps as presented in the figure below.
Most of the countries and organisations have only started at their journey towards integrated reporting. The lack of a clear guidance on the preparation of an integrated report is resulting in a lot of ambiguity. However, most of the organisations have started including details about the environmental and social impact as a part of their annual report. There is a need to continuously monitor the reporting landscape and keep the organisations updated on the latest development in this field. The limited number of integrated reports available for analysis indicates that the integrated reports can be structured by including the information about the financial performance, sustainability and other details that enable the organisations to create value. It is important that the integrated report provides information about the strategic focus of the business, interconnected information and the details of the responsiveness of the organisation. It should be concise and reliable and include all the factors having a material impact on the performance of the organisation (Dumay, Bernardi, & Guthrie, 2017).
The world in which we operate is continuously changing and becoming more connected than ever before. The business organisations can enjoy access to more resources and also face capital constraints due to increasing competition. It is important other members of the organisation address all these issues sustainably for ensuring the long-term success of the business. Integrated reporting is an effective tool that can help in bringing this gap by providing the organisation with an opportunity to explain the process of value creation in an effective and efficient manner.
The accounting practice needs to prepare a team of experts that are able to communicate the effectiveness of integrated reporting within the organisation and also to the clients. These experts should be provided with training that enables them to communicate the advantages of integrated reporting and follow the given steps:
Carry out status quo analysis
The client organisations can move towards integrated reporting by carrying out an analysis of the present situation of the organisation, the main issues faced by them and the areas that they need to focus on when preparing an integrated report.
Business model definition
It is recommended that the organisations should try to define the business model of the organisation by considering all the relevant capitals required for producing the product or service and defining the role played by them for the creation of value (Torre, Bernardi, & Guthrie, 2019).
Risk assessment and opportunity identification
The opportunities and risks vary from one organisation to the other and they help in speeding up the development of the organisation. The identification of the risks and opportunities of the business and identifying how the different capitals conflict with the Expectations of the stakeholders that allow the organisation to gain a better understanding of the interdependencies between the economic and non-economic goals of the business.
Change the business processes
The organisations will have to establish new processes for monitoring the non-financial performance and consolidate this data to prepare a well defined and integrated report. The organisations will also require establishing the integrated monitoring processes for the new goals.
Embrace integrated reporting
The final step for the client organisations would be to successfully represent all the reciprocal relationships between the environmental, social and economic contexts business with an insight full narrative and detailed metrics that help in the evaluation of this performance (Villiers & Venter, 2017).
Bhasin, M., 2017. Integrated Reporting: The Future of Corporate Reporting.
Brown, J. & Dillard, J., 2014. Integrated reporting: On the need for broadening out and opening up. Accounting, Auditing & Accountability Journal, 27(7), pp. 1120-1156.
Dumay, J., Bernardi, C. & Guthrie, J., 2017. Barriers to implementing the International Integrated Reporting Framework: A contemporary academic perspective. 25(4), pp. 461-480.
EYGM Limited, 2014. Integrated reporting: Elevating value.
James, M., 2015. Accounting majors’ perceptions of the advantages and disadvantages of sustainability and integrated reporting. Journal of Legal, Ethical and Regulatory Issues, 18(2), pp. 107-120.
Matuszyk, I. & Rymkiewicz, B., 2017. Integrated Reporting as a Tool for Communicating with Stakeholders – Advantages and Disadvantages. pp. 1-7.
The IIRC, 2013. The international IR framework
Torre, M., Bernardi, C. & Guthrie, J., 2019. Integrated Reporting and Integrating Thinking: Practical Challenges.
Villiers, C. D. & Venter, E., 2017. Integrated reporting: background, measurement issues, approaches and an agenda for future research. 57(4), pp. 937-959.
Zyl, V. & Anria , S., 2013. Sustainability and integrated reporting in the South African corporate sector.
Response against feedback
The feedback from the professor is used as the basis for refining and improving the report and for covering all the requirements. I have taken forward the two-pronged objective of not only providing a justification of whether the accounting service should offer the clients with the integrated reporting services and whether the organisation should adopt this practice in their own reporting as well. In the recommendations section, I have clearly stated whether it will be a viable option for the accounting service to adopt and promote integrated reporting. The feedback to clarify the recommendations was taken to define which section of the report. I have provided all the references in the final report as per the feedback and the full reference including the source details and page numbers are included to incorporate and improve this reporting.