Integrated Reporting vs Current Reporting Framework, Interactions with Reports and Communication - Case Study Example

INTEGRATED REPORTING CASE STUDY Author’s Name Class Name Professor’s Name School City and State Date Introduction Accounting and financial reporting over the years has seen an increase in the number of activities and also information that is provided by organizations whenever they are presenting their audited report. Balance sheets, income statements, statement of cash flows as well as statement of shareholder equity play a key role in informing the public of the financial status of the firm. Accounting standards have been set over the years with the need to make sure that organizations are able to report in a manner that is timely and also reveal important information to stakeholders and prospective shareholders for purposes of decision making. Research also shows that 90% of corporations all over the world have always ensured that they comply with accounting standards that have been set for both their countries and by international bodies. Accounting standards apply to all companies and they are aimed at providing a true and fair view of the status of the company. Traditional accounting and the information that is released to the public has undergone major changes over the years and this is because of the manner in which systems have been changing (Eccles, Cheng and Saltzman 2010). Accounting standards setters have been involved in the process of making sure that the reporting framework that is utilized by firms is one that adheres to certain rules and also delivers what prospective consumers might need at any given time. The need for accountability from stakeholders has been growing for ages and with increase in demand, a shift in practices by these companies has been witnessed. A shift in the traditions over time has made it possible to ensure that the kind of reporting prepared by accountants or those with responsibilities meet the minimum standards that have been set. The emergence of integrated reporting that details more fine components of accounting reporting has been put forward to replace the one that is being used currently (Epstein 2011). Traditional accounting reporting The advent of computers and technology has led to several changes in the way accounting reporting is done unlike before. Traditional reporting involved the use of manual techniques to come up with account reports and this was always prone to errors. The types of information that were contained in such reports were always limited because of the fact that it heavily relied on human ability and the way financial information had been structured. Gradual improvements have seen a change in the manner in which reporting is done and also the nature of information that is contained in the reports that are given out. Integrated reports have additional features that need to be contained in the report in order to ensure that it meets the required standards. Integrated reporting versus current reporting framework There are several things that differentiate current practices and what has been proposed in the integrated reporting. Current reporting only details specific number of factors aimed at giving the consumers of the report an overview of the status of things and at the same time ensure that it can be relied on whenever decisions are being made. This includes external financial statements such as balance sheets, income statements and statements of shareholder equity. In addition, it also involves notes of statements, financial information that is posted on the corporate websites and prospectus concerning the issuance of common stocks and other securities. On the other hand, integrated reporting proposes to increase a number of parameters that will be contained in future reports as a way of making sure that they are detailed and give a clear understanding of what the company is and its position. In order to meet the integrated financial reporting standards, the following information will have to be captured in future reports (Kimmel & Weygandt 2012). The first thing that has to be contained in the Integrated reporting report framework is the business strategy and governance which is argued that will be a holistic way of ensuring that things are done in the right manner. The integration of this factor in reporting is aimed at bringing cohesion and holistic thinking in the way business is being done. Prospects and performance of the business have to also be reported in a manner that is clear and concise in nature. This is what makes integrated reporting even more detailed and futuristic in nature compared to the current reporting practices that are being utilized. It is also aimed at accelerating the reflection of corporate reporting and at the same time reflect developments in the in the financial governance of any given institution. The benefits of the framework include informed decision making that leads to efficient capital allocations and at the same time for reference purposes. This is information that is contained in a single document together with other parameters that are already involved in current reporting. Interactions with reports and communication The report states that in the event that there is missing information or the information is unreliable, an integrated report should indicate which kind of information is missing or has been omitted and the reason why this has been done. Unavailability of data and the steps being undertaken to ensure that the information is obtained should be stated clearly and this giving rise to a situation that involves interaction of many reports at the same time. The manner in which the interaction between these reports has been characterized gives a clear way of presenting information that might have been omitted or can only be understood if previous or other reports and read and analyzed. It is the best way to make a report holistic and also ensure that facts are laid down through communication that has been properly done. Capital framework It is understood that all organizations depend on certain forms of capital in order to be successful within the industry that they are playing in and as a result of that, integrated framework lists down the types of capital as financial capital, manufactured capital, intellectual capital, human capital and natural capital. Not all capitals are equally relevant in this particular kind of reporting and as a result of that, their importance varies from time to time. The use of word “Capital framework” in this particular case simply means the kind of framework that has to be utilized when it comes to reporting about capital and related factors within the organization. The use of capitals in reporting is useful because it serves as a way of giving an overview of the status of the company beyond its assets and liabilities at any given time. In addition to that, it is also another way of making sure that future decisions can be made based on the nature and availability of the capital that a company has. The relationship between external shareholders and the capital a company has is also outlined in the integrated report making it easy to understand but at the same time detailed in nature (Greuning 2010). Current initiatives There are various initiatives that are being carried out by parties to ensure that integrated reporting is fully operational and companies can start using the framework when it comes to matters of accountability and financial reporting. They include: a. Regulators Regulators are involved in the process of making sure that they come up with practices that are in line with this kind of reporting and at the same time laws are put in place to ensure that there is compliance. b. International bodies International bodies have since started working on an initiative to ensure that companies across the world are trained and well acquainted with this particular reporting framework as a way of making it operational. Training and mobilization has been witnessed in various parts of the world by these bodies. c. Accounting professions Accounting professions understand that this framework is going to be critical in how they do their work and the kind of components that are supposed to factored whenever they are doing their financial reporting. They are also familiarizing themselves with this framework to make sure that they understand it. d. Academics Many schools and colleges are reviewing their curriculum in order to ensure that their educational programmes that touch on accounting and financial reporting have integrated reporting framework covered in their syllabus (Schaltegger 2010). Positive accounting theory and integrated reporting Positive accounting theory aims at making good predictions of world events and then translates them into accounting transactions. They are theories that try to predict and explain what is likely to occur. Based on this mode of financial reporting and prediction, integrated reporting might not be achieved because of a number of factors. They include: a. Integrated reporting is detailed Integrated reporting is detailed and as a result of that, there is always need to ensure that accurate data has been provided thus making it hard for large firms to do it at once. b. Some factors are beyond company control There are certain factors that are beyond the control of any given firm such as the political stability of business environment as well as performance on the stock market if the company has been listed. Integrated reporting may not reflect the true situation on the ground. c. Time factor Looking at the nature of work that has to be done when it comes to financial reporting under the IR framework, there is a lot that has to be done and this makes it complicated for businesses. This kind of reporting might not work perfectly in the event that much information has to be reported (Horngren, 2015). References Epstein, M. (2011). Advances in management accounting. Bingley, UK: Emerald. Eccles, R.G., Cheng, B. and Saltzman, D. (2010). The landscape of integrated reporting. Reflections and next steps, Cambridge (Mass.), Harvard Business School. Greuning, H. (2010). International financial reporting standards a practical guide (4th ed.). Washington, D.C.: World Bank. Horngren, C. (2015). Introduction to management accounting = (formerly Accounting for management control, an introduction) (4th ed.). Englewood Cliffs, N.J.: Prentice- Hall. Kimmel, P., & Weygandt, J. (2012). Financial accounting: Tools for business decision making (4th ed.). Hoboken, NJ: John Wiley. Schaltegger, S. (2010). Sustainability accounting and reporting. Dordrecht: Springer. Read More