A Critical Evaluation of The Usefulness of Integrated Reporting

Question: Discuss about the Critical Evaluation of The Usefulness of Integrated Reporting. Answer: Introduction In corporate communication Integrated Reporting (IR) is considered as the main process which is seen to drive value creation. IR is identified as a precise communication tool for stating about the organization strategy, performance and governance which leads to creation of these values in the short, medium and long term. This report is able to state on the different aspects of IR as mandated by the King III Report on Corporate Governance for South Africa, which is able to combine the reporting of both non-financial and financial performance measures for promoting corporate strategy (Rensburg and Botha 2014). IR is depicted as a concise communication on the strategy of the organization, performance and activities which led to value creation. Alongside IR, The International Integrated Reporting Council (IIRC) is identified with a global coalition of the standard setters, investors, regulators and individuals involved in theaccounting profession and NGOs. The main vision of the IIRC is understood with the alignment of the capital allocation and corporate behavior with an objective to achieve a wider goal in terms of the sustainable development and financial stability. The introduction of the new reporting standard can introduce major research on the financial reporting done by companies (Thomson 2015). Some of the main analysis of the report will include the discussions on the events which led to the need for IR. The financial reporting is identified with non-relevancy, historical aspect and non-transparency. Some of the other important aspects of the discussion will be included with concerns of resource scarcity and environment. The important discourse of the study is also able to discuss on benefits and challenges of the application of Integrated Reporting. The concise report on the organization strategy and business model will be associated to the context in which the organization operates (Bouten and Hooze 2015). Analysis The requirement for Integrated Reporting came into limelight because of several events. In general capitalism is seen to rely on efficient allocation of the capital for delivering returns to the investors in the long-term, medium term and short-term. It is the duty of the companies to engage in managing the financial capital to the investors which is seen to be generated from the non-financial capital such as people, trademarks/copyrights and natural resources (Eccles and Serafeim 2014). The western model of the capitalism was questioned with the banking crisis which originated in 2007. IR is reflected with the long-term and broad consequence of the decisions associated to the wide range factors to sustain and create values. The global crisis of 2007-2009, acted as a catalyst for the establishment of the Integrated Reporting Council (IIRC), and developing Integrated Reporting (IR). This was seen as a means of enhancing the financial stability and rebuilding trust in capital market an d also serve in the real economy. IIRC is considered with the coalition drawn from the broad global communities which has represented the global communities with the interest of evolution of corporate reporting. The South African discussion paper can support the IIRC thinking. The intrinsic learning process from South Africa has provided the companies with the understanding of the development process of integrated reporting (Zhou, Simnett and Green 2017). On creating the balance between regulation and market led integration program it has been discerned that the application of the integrated reporting is not just applicable in case of the South African listed companies. The use of IR is evident is several non-listed companies which is identified with the appropriate benefits which is seen to be related to market-led initiative (Feng, Cummings and Tweedie 2017). It is also shown that due to the exiting problems with traditional financial reporting, IR was introduced to combat the failing reconciliation ofaccounting standards. Some of the common problems with the financial reporting are recognize with the complexity of the reporting standards, long disclosures and absence of any linkage between the strategy and operations. It needs to be further discerned that the financial standards in several aspects is to be assessed with non-relevance of the prescribed framework. In several cases they also represented non-transparent information which calls for the need to implement IR. The IFRS regulations vary from country to country, therefore it cannot be said that they are able to followed single universal standard for the assessment of the increasing need of the stakeholders (Adams et al. 2016). It is further depicted that several countries were seen to be imposing carve outs (removal of offending passages) and carve ins (additions) relating to the official standard which is prescribed by the International Accounting Standards Board (IASB). Countries such as India and China are prominent examples for this. On the other hand, Australia and Canada have been able to adopt an unadulterated version of IFRS (Ahmed Haji and Hossain 2016). The revenue recognition is considered as a complex problem, as in several cases the contract for the product is depicted with a futures upgrade which cannot be predicted in general situations or at times of sales. Henceforth, with the inclusion of general financial reporting and other determinates of the sales data is found to be a difficult task (Bhasin 2017). The problem associated to the revenue recognition has led to several problems associated to unofficial measures to report the financial performance, during instances of virtual operations of the business. The massive success of the social network giants such as Facebook and Twitter have been depicted with a traditional method for recognition of the revenues measurement of revenue and expenses. This prevented the true and fair representation of the various took the aspects of business reports. In addition to this, the historical cost concept may not be appropriate for depreciation and amortization of the assets in a true and fair way against the standards issued by IR. Some of the other relevant factors which led to the adoption of IR is interpreted with the scarcity of resources and the various types the other environmental concerns (Stubbs and Higgins 2014). IIRC and IR The formulation of IR is depicted to be consistent with the issues associated to corporate reporting which is based on the significant number of the corporate reporting trends which is being followed across the globe. There is several range of the market factors which is driven by a complex and dated method of reporting (Serafeim 2015). The opportunities of the implementation process are seen to be evident with the affordably of the new technology and the need for transparency, inclusiveness and considering more information associated to the material for the modern business. The vision of IIRC is measured with the alignment of the capital and responding to the behavior to the wider nature of the changes which is seen to be associated to the various nature of other information. This is seen with the motive to include principle-based guidance and element contents to explain the necessary information associated to the integrated reporting. The IIRC frameworks was released to follow with an extensive consultation and testing by the investors and the businesses across all the regions in the world. The various types of the other aspect of financial reporting is understood to be directly included across 140 businesses and investors from 30 countries (Atkins and Maroun 2015). The primary objectives of Integrated Reporting are aimed at responding to the need for consistent, concise and comparable financial reporting. Integrated Reported also considered amalgamation of the financial and non-financial aspects of the financial information which is seen to be structured around the organizations strategic objectives. In addition to this, some of the other reporting aspects for the IR is seen to be based on the consideration of the important elements of the reporting aspects which is related to the supporting the needs of the long-term investors and taking into consideration a broader aspect for the long-term consequences of decision making (Verschoor 2014). The reflection of the interconnection among the environmental, social, governance and financial factors in decisions are seen with the effect in the long-term aspect in terms of the performance and condition thereby making out the clear linkage among the sustainable and economic value. Based on the principles of integrated reporting it helps in providing the appropriate framework for the social and environmental factors, which is taken into account on systematic basis. One of the objectives of IR is also considered with bringing reporting closer to the information which is seen to be used by the management for running the business in an efficient way thereby able to address the needs of day to day requirements (Dumay et al. 2016). Benefits of IR Some of the most noted benefits of the inclusion of IR, is depicted with the consideration, that the information and the parameters go beyond the scope of normal financial information. In addition to this, some of the other benefits of using IR is realized to be based on the reporting considerations which is taken into account with the improved ability to identify and respond to the opportunities, changes and risk in the business environment. IR has helped in better decision making and linking of the social, environmental, CG and financial performance. Some of the other benefits are depicted with the linkage of overall executive compensation and financial performance. Integrated reporting is considered with better resource allocation and capital allocation (Mio, Marco and Pauluzzo 2016). IR is able to provide a breakthrough in the value creation and enabling the organizations in working cohesively. The main benefits are also described in terms of using the new information which is observed to be conducive in terms of the addressing the various perspective of creating better value for the organization. The improvement in the decision-making process were largely attributed in terms of the changes pertaining to the management information. The improving nature of the management information is evident with the integrated reporting which is having an engagement with the external stakeholders. Another perspective of the benefit is depicted with connecting the departments and broadening the perspectives (Harold 2014). The foundational benefits of the organizations are considered with the internal engagement which is described as per the increased mutual understanding and respect. The most important aspect of the benefit is considered with the organizations experiencing a new and better understanding of how they are created and destroyed. There is a major breakthrough in understanding the value creation which one of the most important objective of IR. Henceforth, it is not surprising that these areas of the organizations which are seen with dramatic impacts. Another important benefit of IR was determined with the understanding of how the non-financial performance leads to better financial performance (Rensburg and Botha 2014). Some of the important form of the benefits experienced by the board is considered with the improvement in terms of the collaborative initiatives seen with the main form of the outcomes which are associated to measuring and managing of the performance. Based on the significant illustrations of the report, the improvement process was discerned at all stages. The improvement process depicted with the collaborative initiatives is seen with board reporting more dimensions of performance. The uncovering of the range of the other management which is associated to the management system changes and including expanded board assessment for effective risk assessment. The executives are able to prepare a timely report thereby addressing the widespread nature of the changes. In several reports it was addressed that the reporters were able to view the significant benefit of IR with driving the change in the top management and reporting process (Reuter and Messner 2015). The better allocation of capital and other resources was evident with the following of the various types of the processes which are directly linked to the human capital and financial capital. The better allocation of the resources is seen to be taken into account with better inclusion of financial and non-financial information into a single document (Lee and Yeo 2016). The relationship with the strategy of the organization and governance is depicted with appropriate governance and business model which needs to be transparent. In several situations the competitive benefits are taken into consideration through operational efficiencies, innovation and differentiation. In addition to this, the improved stakeholder relations are well-thought-out with better understanding of the needs associated to the managing their expectations. IR also leads to improved compliance with the CG regulations (Stacchezzini, Melloni and Lai 2016). Challenges of the IR implementation Despite of the significant pros of IR, the main drawback of this reporting is seen to be given in form of the complexity of the reporting standards. In addition to this, it is also discerned that IR lacks clarity and conviction which will allow it to achieve the goals are apparent. The lack of the acceptance of IR was identified as the main problem in some regions. The framework for IIRC looks forward to overcome the main gaps in the framework which needs to be fleshed out (Burke and Clark 2016). Some of the other grey areas of integrated reporting is identified with other forms of reporting such as statutory narrative reports associated to sustainability. Duplication of the information needs to be avoided in IR (Atkins et al. 2015). Several companies have been involved with the wait and see approach for the integrated report and this observation is evident with the imperial evidences of the study. An augmented focus needs to be given for offering more to the public in terms of the integrated reporting. The reports should be made comprehensible and legible to the broader stakeholder audience. The printing of news space needs to be decreased in case of integrated reporting. The companies need to seek diversification from the integrated reporting which initially decreased the summarization of the financial and non-financial information. In several instances the companies are not able to fully appreciate the values which they bring to their business. IR is still viewed as a compliance driven method which is often discerned with more work during the preparation of the reports. It needs to be further discerned that some of the most eminent companies are already disclosing the key elements, however they are still seen to lack the connection among the key elements such as strategy resource allocation, business model, performance, governance opportunities and risks. Moreover, the intricacy of the IR is able to make the stakeholders difficult to understand the various aspects of financial performance related to the business and it needs much time to interpret and understand the financial performance of a business. The integrated report is further able to include necessary standardization associated to depict the true operating performance in the business. The slow nature of the progress is identified as another limiting factor for IR. In several instances IR may not be consistent with the presentation and true operating performance of the business (Adams 2015). Some of the different types of the other downsides needs to be also presented with lack of clarity, complexity and lack of the acceptability of the standards. The IIRC framework is further able to include the other considerations of the IIRC gaps, depicted with the relationship among the integrated report and other forms of the reporting such as sustainability reports and narrative reports. The framework lacks certain aspects of informed guidance and including good examples thereby eliminating the issues pertaining to transparency in reporting and inclusion of commercial sensitivity. This is well-thought-out with a higher sense of risk exposure in respect of looking forward to other information (Eccles and Serafeim 2014). Another form of the key challenge of the IR is clearly discerned with the transitioning to a traditional annual report which is seen to be focused toward presenting the detailed disclosure in an understandable manne, integrated from the initial implementation and publication process. A tremendous coordination needs to be given during the situation when there is lack of experience in the interdepartmental cooperation (Harold 2014). IR over 300 pages which was launched in 2010. The executives of the business are prone to be exposed to the key business issues (Perego, Kennedy and Whiteman 2016). The report is seen to be well received by the staff however in various situations there is a lack of interest from the investment analyst and the regulators of the information. It needs to be further assessed that the downside of IR is depicted with the increased costs and resource requirements which are related to the various types of the other considerations such as lack of experience and incr ease in the guidelines. Moreover, the introduction of IR may lead to sweeping changes and go through lengthy implementation process. This may take several years to get integrated from the initial implementation and publication process. A tremendous coordination needs to be given during the situation when there is lack of experience in the interdepartmental cooperation (Harold 2014). Conclusion The learnings of the study are able to depict that the global crisis of 2007-2009, acted as a catalyst for the establishment of the Integrated Reporting Council (IIRC), and developing Integrated Reporting (IR). IIRC is considered with the coalition drawn from the broad global communities which has represented the global communities with the interest of evolution of corporate reporting. The South African discussion paper can support the IIRC thinking. The intrinsic learning process from South Africa has provided the companies with the understanding of the development process of IR. The IIRC frameworks was released followed with an extensive consultation and testing by the inventors and the businesses across alt the regions in the world. It needs to be further determined that the various types of the other aspect of financial reporting is seen to be directly included across 140 businesses and investors from 30 countries. Some of the important form of the benefits off IR is associated w ith better decision making and linking of the social, environmental, CG and financial performance. The assistance in better allocation of the capital resources are considered with both human capital and financial capital. Despite of the significant benefits, some of the main downsides are considered with the increased cost of implementation. IIRC gaps is depicted with the relationship among the integrated report and other forms of the reporting such as sustainability reports and narrative reports. Furthermore, the executives of the business are more prone to be exposed to the key business issues. References Adams, C. A. (2015) The international integrated reporting council: A call to action, Critical Perspectives on Accounting, 27, pp. 2328. doi: 10.1016/j.cpa.2014.07.001. Adams, C. A., Potter, B., Singh, P. J. and York, J. 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