Corporate integrated reporting
Question
Task:
Description / Requirements: Over the past two decades, corporate social and environmental disclosures have increasingly been made in separate stand-alone reports in addition to a variety of other media such as web sites. These standalone social and environmental reports have become more complex (and long) as a greater range of issues has been disclosed to meet the supposed information needs of a range of stakeholders. More recently, possibly in response to the increased complexity and length of stand-alone reports, there have been moves to recombine some social and environmental disclosures with financial disclosures in single reports. In contrast to earlier social and environmental disclosures made within annual reports, where the social and environmental information was not integrated with the financial information, these recent moves have sought to integrate social, environmental, financial and governance information ( De Villiers et al. 2014*). This new reporting system is referred to as Integrated Reporting
Required: You are required to research information on the below issues, and then document the results of your research in an essay format with the following suggested sections: Introduction (suggesting 150-200 words); Body (suggesting 800-900 words); Conclusion (suggesting 150-200 words). 1. In line with the view of the above statement, critically analysis the purpose and necessity of corporate integrated reporting and the theory/ies supporting this type of report. 2. Write a conclusion for your research finding along your opinion on benefits (costs) of
Answer
Introduction
Corporate Integrated Reporting is a step to make the reporting formats of the companies concise, clear, and more useful. Along with the disclosures in the Financial Statements, there are many other disclosures have been made mandatory for the companies such as social and environmental disclosures. These reports have been made until now in the form of standalone reports that in itself is a very tedious and time taking process. Hence, in order to simplify the reporting pattern of the companies, Corporate Integrated Reporting is being taken into consideration for its implementation (Druckman, 2013). Further, the main benefit that this kind of reporting seeks is that the users of financial statements and reports will understand and anathe lyze the position of the company more quickly and effectively. Corporate Integrated Reporting also was known, as CIR will be a very beneficial tool for every company in saving lots of time and efforts (Slaper & Hall, 2011).
Purpose and Necessity of Corporate Integrated Reporting
The main purposes and aims of Corporate Integrated Reporting are:
1. Providing quality information to the users of financial statements.
The main purpose of switching to Corporate Integrated Reporting is an effort to provide quality information to the users of financial statements. The users include providers of finance/ capital, government, shareholders, banks, creditors, investors, etc. These all are the stakeholders of the company and they have full right to verify the financial position of the company as they have their capital/ funds and reputation attached to the respective company. In addition, clearer the financial reports of the company will be, more will be the capital investment and allocation of capital in the most productive manner (Jorgensen & Soderstrom, 2012). The main purpose of Integrated Reporting included compiling the total information about the company in most useful manner.
2. Enhancement of accountability and answerability.
The integrated corporate reporting aims at enlarging the accountability and answerability through the reports presented by the companies to its users. It is not possible for each user and reader of the financial statement to ask questions from the company regarding the content in financial statements. Hence, the reporting format should be such that it is self-explanatory and clarifies the doubts of the users of financial statements (Eccles & Krzus, 2010). This purpose shall be met out through such integrated reports. For example- when a company seeks financial assistance from the financial institutions and banks, it presents all its reports to the banks. The financial analysts go through all the reports but it might be possible that the finance analyst may not be able to directly understand the financial position of the company and gets confused to the wide range of reports available. Hence, the company may not be able to present its actual financial and nonfinancial position (Pyo & Lee, 2013). Hence, the need of CIR emerges here through which the company can present the material data to the financial institutions and other users through CIR, which would be self-explanatory.
3. Uniformity in viewing and comparing the financial statement.
4. Helpful in decision-making.
In case of acquisition or mergers and where CIR reporting is available, the investors and the stakeholders will be largely benefited by having all the financial data at one place and comparison and analysis will be easier because the investors need not consider more database, for example- Annual Reports, Social & Environmental, etc.
5. Non-Financial Data reporting.
Apart from the financial data, CIR will also help in analyzing the nonfinancial data as well as the Human Index and the corporate social rankings which otherwise is not available in the standalone financial statements (Hegarty et. al, 2014).
6. Detection of Key Risks and Key Performance Indicators.
The CIR will also help in finding out the key risks and key performance indicators in the company’s failures and achievements. Key risks may involve the high use of technology, high labor turnover, etc which have to be timely detected and rectified. This will only be possible when such material disclosures are made in the annual presentable reports. Moreover, where the company is aware of key performance indicators which are responsible for the company’s growth and development, the company shall be able to focus largely on those KPIs and invest their time, efforts and money on mainly those KPIs & divert their maximum resources from less productive areas to more productive and profitable avenues (IR, 2016). For example- if a company had 10 kinds of activity/ products out of which four products account for more than 70% of revenue or sales, the company may divert their resources from the remaining 6 products to those profitable products of the company which will help them in earning higher profits (Villiers & Rinaldi, 2014). This kind of material disclosures is expected through CIRs.
7. Display of Inter-Relationship between different reports.
The current corporate reporting formats that include Annual Reports, Financial reports, social and environmental reports, report to shareholders etc are prepared separately and do not show any inter-relationship between each other. The CIR aims to bring entire reporting formats under one roof so that the information that the company seeks to provide to the users may help in the easy understanding of the company operations. In addition, the investors are greatly benefitted because the company CIR format shall provide easy and informed presentable financial and nonfinancial data (Villiers & Rinaldi, 2014). This will allow them to understand the operations of the company easily and restore the faith in the company’s workings.
8. Capital Formation of the companies.
The stability of the stakeholders helps the company to enter into new businesses and it is easy for them to procure funds from the market in the form of bank finance, public offer, debentures, or short-term borrowings (Samaha & Dahaway, 2010). This all leads to steady share prices also.
Conclusion
Before implementing CIR framework, the companies should higher some experts that shall help them in implementing the CIR framework. The whole purpose of CIR reporting is to report and present the data at one place which shall help its users in decision making but it should not be done in a haphazard manner because it may lead to a total disaster because there will always be a possibility that entire data might not be captured or improperly captures by the company which may affect the company’s reputation and will also not help the users of financial statements report.
The CIR may be implemented on a parallel basis along with the standalone statements so that the companies can collect reviews about the same and smoothly convert their reporting process without losing any data and stakeholders faith in the company (Carol et. al, 2016). Therefore, to conclude, it may be said that CIR reporting may be the future of the Corporate Reporting framework and should be adopted by every company to reap the above said benefits of the CIR and pass on its benefits to its users of financial data including the society as a whole?
