Integrated reporting

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1. Describe and differentiate from current reporting practice the types of information that will need to be captured from now on in order to sufficiently meet the needs of integrated reporting.

The current traditional reporting practice requires information to be disclosed in monetary terms. Four types of reports are included for current reporting practice – balance sheet, income statement, statement of change in equity and cash flow statement. All the information included for current reporting purpose is quantitative rather than qualitative. International Financial Reporting Standards aims to provide statement users with information to form corporate strategies, business development plans, business models and leadership initiatives. The mathematical nature of the current reporting practices determined the general perception of accounting. However, the rapidly changing international competitive environment has made information users become more demanding for information beyond the numbers.

Integrated reporting looks beyond the traditional time frame and scope of the current financial reporting practices through the examination of wider and longer-term results of decisions and actions. It places emphasises on making clear the link between financial and non-financial values. According to the International Integrated Reporting Framework, an integrated report is an effective way of communication, on how value is created through an organization’s strategy, governance and performance. An integrated report should contain 8 content elements, namely, organizational overview and external environment, governance, business model, risks and opportunities, strategy and resource allocation, performance, outlook and basis for presentation. Quantitative information such as Key Performance Indicators (KPIs), monetized metrics and the context of provision are included in the integrated report because they are useful in explaining the value creation. An integrated report is more than a summary of financial statements, instead, it demonstrates the connectivity of information and communicate the way of value creation. Integrated reports can either be a standalone report or a section of the financial statements.

2. The <IR> process is intended to be applied continuously to all relevant reports and communications, in addition to the preparation of an integrated report. The integrated report may include links to other reports and communications, e.g. financial statements and sustainability reports. The IIRC aims to complement material developed by established reporting standard setters and others, and does not intend to develop duplicate content (para 1.18-1.20). Do you agree with how the paragraphs 1.18-1.20 characterise the interaction with other reports and communications? Justify your answer.

Paragraphs 1.12 – 1.20 states the relationship with other information. It requires integrated report should be a designated and identifiable communication. It can be used as either a separate report or included in another report as a complimentary communication. It can provide an entry point linking to other source of information. It thinks that although the current reports are getting longer, the reports appear to be separate and disconnected and the interdependences between the business’s strategy, operation, financial and non-financial performances are not clear enough. Therefore, the purpose of Integrated Reporting Framework is to facilitate and guide the future development of reporting practices by adding the connectivity and bringing all the information together.

Although this description has a good intention, many reporters may perceive that it will add to their reporting load and create more burden (Financial Reporting Council, 2013). One of the concerns raised by FRC is that the Integrated Reporting could add unnecessary reporting burden to organizations through obtaining wide adoption. If it is perceived by businesses that integrated reporting requires them to do additional reporting, then the burdens it brings will outweigh the benefits. The cost of extra reporting compliance is considered to be high. Time constraints is another threat which may jeopardise the potential benefits that Integrated Reporting may bring to current business reporting practices. Therefore, it is necessary for the International Integrated Reporting Council to either amend the relevant section to specify or make clarification about its relationship with financial reporting and sustainable reporting.

3. The <IR> Framework describes six categories of capital (para 2.17). An organisation is to use these categories as a benchmark when preparing an integrated report (para 2.19-2.21), and should disclose the reason if it considers any of the capitals as not material (para 4.5). Outline what such a ‘capitals framework’ means. Do you agree with this approach to the use of ‘capitals’? Provide justification and evidence in your explanation.

The combination of resources and relationships decides whether organizations will succeed or not. The way how they retain them and how they utilise them plays a key role in managing the available resource and strengthening the relationships, in order to support the organizations’ long term survival and growth. Integrated Reporting Framework believes that the resources and relationships can be captured by the different forms of capital. The capital model outlined in the framework is not the only possible model to be used. It aims to serve as a benchmark for the organization to make sure that all forms of capitals are considered. It also theoretically underpins the essential concept of value creation to Integrated Reporting (Earnest and Young, 2013). These capitals are related to each other and trade-offs are likely to occur. Some types of capitals are less important than others. Organizations may find a certain type of the capital is immaterial thus choose not to disclose.

The capitals are categorized into financial capital, manufactured capital, intellectual capital, human capital, social and relationship capital, and nature capital. Most organizations currently report on financial and manufactured capitals. Intellectual capitals refer to intellectual properties such as copyrights and patents, and capital existing within the organization such as knowledge and procedures. Human capitals can be interpreted as people’s capabilities and experiences. It relates to some KPIs such as employee turnover, training and educations and diversity. Social and relationship capitals are established between the organizations and their stakeholders. If an organization has common value and shared norms with its stakeholders, builds trust with its customers, suppliers and the community, then it is likely that it has good social and relationship capitals. Examples of key aspects are: anti-competitive behaviours, corruption and discrimination. Lastly, nature capital are very self-explanatory, it refers to environmental stocks such as water and air, which support the operation and growth of the organizations. The classification of different types of capitals by the Framework is an effective way of demonstrating the important aspects of reporting. It indicates that apart from financial aspect, there are many other vital elements which form the value and competitive advantage of a successful business. It demonstrates the essential areas that businesses need to make improvement in order to achieve sustainable growth. However, it is acceptable that if an organization does not involve one or more of these types of capitals as long as it provides disclosures.

4. Given this information differentiation, outline initiatives’ currently being undertaken at a global level (i.e. by regulators’, international bodies, accounting profession, academics etc.) to achieve this.

Initiatives towards integrated reporting are taking by steps by regulators, organizations and academics. Integrated Reporting evolved from non-financial disclosure, sustainable and CSR reporting to final Integrated Reporting. Loana and Adriana (2013) found that 3 stages exist in corporate reporting literature. The first stage of non-financial reporting prevails from 2001 – 2006. Companies were subject to various non-financial reporting regulations. The second stage began in 2007 when companies start to report on sustainability and social responsibilities. The number of sustainable reporting practices continued to increase in 2008. In 2010, early literature on Integrated Reporting were found. The year later, International Integrated Reporting Council issued the first Integrated Reporting Exposure Draft. Academics has made valuable research in the areas on Integrated Reporting adoption, characteristics and determinants. In 2013, Australian Financial Reporting Council issued comments on the Consultation Draft of the International Integrated Reporting Framework. Overall, Australian Financial Reporting Council thinks that the Framework is important to the financial reporting community and plays a key role in the development of reporting practices. President of CICPA states that Chinese accounting professionals and CICAP have been actively supporting and participating the development of Integrated Reporting. Efforts have been made to promote its international influences on the reform of the corporate reporting practices. It is believed that with the active participation of accounting professional bodies from many countries, the Integrated Reporting Framework will provide more valuable reference in global context. ACCA conducted a study for the ASX 50 listed organizations in Australia, which reveals 6 criteria for measurement of Integrated Reporting level, namely, mission and strategy, monitor of performance, managing risk, management method, engagement with stakeholders, and format public reporting. Nowadays, it is believed that the Integrated Reporting Framework will lead to the settings of new accounting standards in non-financial reporting. However, some organizations may find it challenging to engage with stakeholders and communicate effectively.

5. Taking a positive accounting theoretical perspective outline three reasons why Integrated Reporting may not be achievable

First of all, the Integrated Reporting Framework has a principle based approach. Its purpose is to establish guiding principles and content elements to lead the preparation of integrated reports. Therefore, standards developed with reference to the framework do not prescribe mandatory practices for adoption of Integrated Reporting. This allows some space and discretions in application of the standards and may cause problems for the consistency and reliability of the information provided. Second, as mentioned in the case study, the skills and capabilities required from accountants in order to achieve Integrated Reporting are beyond the current status of accountants who are only required to disclose financial and sustainability information. The concept of Integrated Reporting has only been in discussion for less than 4 years. Therefore, training and educations about Integrated Reporting are necessary to effectively promote the Integrated Reporting practice in real industries and public practices. In addition, the cost of preparing integrated reports in addition to traditional financial statements are high. Some organizations may feel it is unnecessary to conduct integrated reporting as it does not create direct value in monetary terms. Finally, the case study also mentioned that the vice-president of Coca Cola raised the concern that it is not sure whether its current reporting practices are integrated reporting. Australian Financial Reporting Council pointed out that the relationship between Integrated Reporting and Sustainable Reporting needs to be made clear. Financial Reporting Council suggested that Framework needs to give clearer guidance to organizations on the expectations of the scope and content of reporting on sustainability issues, because it has made the emphasis on those sustainability elements in the framework.


Financial Reporting Council, 2013,

Earnest and Young, the Concept of Capital in Integrated Reporting, 2013,$FILE/EY%20%27Capital%27%20in%20Integrated%20Reporting%20July%202013.pdf, view on 27 Apr

KPMG, 2011, Towards Integrated Reporting – Communicating Value in the 21st Century,, view on 27 Apr

Loana and Adriana, 2013, New Corporate Reporting Trend – Analysis on the Evolution of Integrated Reporting, Faculty of Economics and Business Administration, Babes-Bolyai University Romania

ACCA, 2011, Adoption of integrated reporting by the ASX50- A joint report from ACCA and the Net Balance Foundation,, view on 27 Apr

International Integrated Reporting Council, The International IR Framework,, view on 27 Apr