Integrated Reporting combines financial and non-financial information with a revolutionary perception that is designed to support all the stakeholders to comprehend all the mechanisms of business value and letting them know how they may be affected by upcoming opportunities and exposures (Adams, 2014). It has been perceived that a number of stakeholder matters may have an essential consequence on business value. They may signify threats, probably a loss of operating license or opportunities, such as the formation of most important new markets. It is significant that reports should cover these concerns to deliver a more comprehensive image of value. Corporate Responsibility reporting at times highlights the cost of handling these subjects over the business advantage. Reporters should be inspecting to prioritise the utmost appropriate issues:
1- High impact issues must form part of the core business reporting curving through the report in the same way as other tactically relevant business issues.
2- For lower impact issues they possibly will need to see the appropriate risk pointer and comprehend that the risk is being coped up.
It has been observed that Integrated Reporting aims to progress and increase the quality of information available to providers of financial capital to allow a more well-organised, effective and productive allocation of capital. Its purpose is to sponsor a more consistent and efficient tactic to corporate reporting that draws on different reporting components and links the full range of factors that materially affect the capability of an organisation to generate value over time. Moreover, IR aims to augment responsibility and stewardship for the comprehensive base of capitals which comprises financial, manufactured, rational, human, social connection and natural and upholds understanding of their interdependencies. To support the thinking of integrated reporting, decision making and activities that emphasis on the formation of value over the short, medium and long term is also one of the key purposes of IR (Cheng, 2014).
The IIRC is organised in order to comprise as many of the relevant and cognisant people and organisations in the discussion and progression of Integrated Reporting as needed. The International Integrated Reporting Council (IIRC) is a universal combination of supervisory bodies, investors, corporations, standard generators, the accounting line of work and NGOs. Together, this combination shares the sight that communication about value formation should be the next step in the development of corporate reporting. Together, this combination shares the view that communication about value formation should be the next step in the development of corporate reporting. The IR Framework sets out the determination of an integrated report that states the primary reason for an integrated report, which is to give details to providers of financial capital that how an organisation produces significance over the time. An integrated report aids all stakeholders who are involved and concerned in an organisation’s aptitude to craft value over time which comprises with business partners, regulators, suppliers, customers, employees, local communities, legislators and policy-makers (Kaplan, 1998).
The IIRC carries together leaders from an imposing list of organisations, containing the International Federation of Accountants (IFAC,) Financial Accounting Standards Board (FASB), United Nations Environmental Programme, International Accounting Standards Board (IASB,) Global Reporting Initiative (GRI), Finance Initiative, UN Global Compact, Carbon Disclosure Standards Board (CDSB), International Organisation of Securities Commissions (IOSC), WWF, and the World Business Council for Sustainable Development (WBCSD). Its mission is to create an internationally accepted integrated reporting framework which carries together financial, environmental, social and governance information in a clear, abridged, dependable and equivalent format. The objective is to assist with the development of more inclusive and comprehensible information about organisations, prospective as well as retrospective, to come across the needs of a more maintainable, universal economy.
The major part of the IIRC is to:
1- Reach a consensus between governments, listing establishments and authorities, business, investors, accounting bodies and those who set standards for the finest way to confront the challenges of Integrated Reporting.
2- Recognise priority areas where extra work is needed and deliver a plan for growth.
3- Improve an overarching Integrated Reporting framework, which sets out the scope and strategic modules of Integrated Reporting
4- Contemplate whether standards in this part should be voluntary or mandatory
5- Encourage the adoption of Integrated Reporting by applicable regulators and report formulators (OPRIȘOR, 2014).
Part of the contest for the IIRC is not in producing an Integrated Reporting Framework in the notion, but in what way it makes sure that such a framework can be practically applied. To support with this challenge, as one of the mechanisms to notify its work, the IIRC requested companies to apply to take part in a Pilot Programme which was expected to run through to October 2013. With a ‘kick off’ in October 2011, the first rotation of the pilot (2011/12) will pursue to apply the principles of Integrated Reporting as set out in the Discussion Paper and the draught framework. The second cycle (2012/13) will additionally grow the finest practice grounded on the combined experiences of the Pilot Programme companies and other input obtainable to the IIRC (Soyka, 2013).
It is noticed that IIRC is very keen to impose lawful characters through incorporation as International Integrated Reporting Council, a private company limited by guarantee, subject to the misunderstanding of its higher authorities such as directors and the Board as a whole, which have conceivable duties in respect of and are ultimately accountable for the IIRC. The International Integrated Reporting Framework will be used to speed up the acceptance or implementation of IR across the world. IR applies values and perceptions that are concentrated on carrying better consistency and efficiency to the reporting procedure and adopting ‘integrated thinking’ as a way of breaking down internal silos and reducing repetition. It progresses the quality of information available to workers of financial capital to empower a more efficient and productive allocation of capital. It emphasis on value formation, and the ‘capitals’ used by the business to generate value over time subsidises in the direction of a more financially stable global economy (Mertins, 2012).
It was found that the Consultation Period was introduced in ten of the world’s largest capital markets in 2013, and from then wide-ranging consultation took place with organisations all over the world. The consultation draught was then provided by the International Integrated Reporting Council (IIRC). The draught Framework pursues to generate the basis for a new reporting model to allow organisations to deliver brief communications of how they fashioned value over time. It is known as a principles-based document comprising three key sets of requirements for the groundwork of an integrated report meeting. They encompass with the fundamental concepts, guiding principles, and the content elements. The consultation draft Framework sketches three fundamental concepts as supporting IR (Lyons, 2013).
1- Fundamental concepts set on:
- Capitals: Stores of value that an organisation rest on for its achievement as inputs to its business model, and which are amplified, reduced or transformed through its actions and productions. These widen the present emphasis on financial and manufactured capital to contain rational, human and social and relationship capital which are all associated with human activity, and natural capital, which delivers the environment for the other capitals. Not all of these capitals would be appropriate to all organisations and organisations may describe further capitals, or reflect some substances to be across capitals.
- Business model: It has also added attention in reporting for its connection to accounting standards and financial statement preparation. Business model thinking delivers a stimulating model for emerging financial reporting standards. For example, a business model tactic to the accounting for financial instruments determines that a debt security has to be measured at market value when it is held for trading reasons, but is stated at historic cost if it is proposed to be held to maturity. In other words, it shows how an entity produces value, through a selected system of inputs known as resources, business activities, outputs that are products and services and outcomes such as internal and external consequences both positive and negative.
- Value creation: It is observed that the concept of ‘value’ for IR purposes is wider than traditional meaning of value emphasised on financial performance, and embraces other forms of value that are shaped through the increase, decrease or transformation of capitals, each of which may eventually affect financial revenues. Consequently, the value is comprehensive in its theoretical base, incorporates different time prospects for different stakeholders, and necessitates an attention on all relevant capitals (Busco, 2013).
The draft Framework progresses the requirements for an integrated report through:
2- Guiding principles: These reinforce the composition of an integrated report, comprising the tactical emphasis and future orientation, the connectivity of information, stakeholder responsiveness, materiality and conciseness, reliability and completeness, and consistency and comparability.
- Tactical emphasis and future orientation: An integrated report have to deliver vision and understanding into the organisation’s approach, and how that refer to its capability to form value in the short term, medium and long term and its use of and possessions on the capitals.
- Connectivity of information: An integrated report should illustrate as a broad value conception story, the combination, inter-relatedness and dependencies among the mechanisms that are material to the organisation’s capability to formulate value over time.
- Stakeholder responsiveness: An integrated report should deliver understanding into the excellence of the organisation’s relationships with its main stakeholders and how and to what extent the organisation understands, takes into account and reacts to their legitimate needs, interests and expectations.
- Ø Materiality and conciseness: An integrated report should arrange for abridged information that is material to evaluating the organisation’s aptitude to generate value in the short, medium and long term.
- Reliability and completeness: An integrated report should embrace all material stuff, both positive and negative, in a composed or balanced way and without any material error.
- Consistency and comparability: The information in an integrated report should be offered on a source that is reliable and steady over time and in a way that allows comparison with other organisations to the extent it is material to the organisation’s own value formation story.
3- Content elements: The CD necessitates that an integrated report should stand-alone as a short communication, connected to other reports and communications for those shareholders who want further information. The classes of information required to be comprised in an integrated report under the draft Framework introduced as a sequence of queries instead of a prescriptive list of disclosures.
The Content Elements are not anticipated to help as a standard structure for an integrated report with information about them looking in a normal order or as insulated, separate segments. Rather, information in an integrated report is introduced in a way that makes the links among the Content Elements evident. The content of an organisation’s integrated report will rest on the individual conditions of the organisation. The Content Elements are consequently specified in the form of questions instead of checklists of particular disclosures. Accordingly, senior management and those charged with governance will need to work out judgment in putting on the Guiding Principles to determine what information is stated, as well as how it is reported. The draft Framework is intended principally for the for-profit companies in the private segment, but the Consultation Draft designates that it can also be applied, adapted as essential, by the public sector and non-profit organisations (Busco, 2013).
Key requirements for an integrated report:
1- An integrated report is produced in accordance with the Framework
2- An integrated report put on all principles-based requirements in the Framework unless, and to the level, the absence of reliable data, particular legal prohibitions or competitive harm fallouts in a helplessness to disclose information that is material, therefore, in this case, further information is provided.
3- An integrated report is an unrelated and brief communication, associated with other reports and communications for those stakeholders who want additional information.
IR IN THE CORPORATE REPORTING LANDSCAPE:
It has been stated that IR is just about better reporting and not more reporting. It is steady with various expansions in corporate reporting that take place within national authorities across the world which will deliver the impetus for larger innovation in corporate reporting universally. It has a mutual focus on conciseness, strategic emphasis and future orientation, the connectivity of information, and the capitals and their interdependencies. It also highlights the significance of integrated thinking within the organisation (Eccles, 2010).
Key Issues to Be Resolved
The issues comprised in this section are resulting from the CD submission delivered by an academic subcommittee of the IAAER. In giving these comments, the subcommittee records that their comments are supportive of the IIRC’s objective to progress an international framework for integrated reporting IR and are carried with the intent to augment the acceptability of IR universally. It was found that one of the key issues of IR Framework is a relationship with the information. This states that although the majority of respondents approved with how the CD defined the relations between IR and other reports and communications. But there was a substantial confusion about how an integrated report aligns with, refers to and avoids repetition with other reports and disclosures like financial and sustainability reports. Another question that was raised was whether the notions and principles of IR should be implemented to existing corporate reports and communications or introduced in an isolated report.
It is found that there has been general agreement amongst IIRC governance bodies for some time. It stated that the major purpose of an integrated report is to elucidate to providers of financial capital specifically those with a long-term interpretation of an organisation’s continuance and performance about how an organisation produces value over time. Nevertheless, there was a desire between a numbers of respondents for an integrated report to encounter a much wider set of information needs, with over one-third of respondents articulating concern that the CD placed financial capital ahead of the other five forms of capital, graded investor interests above those of other stakeholders and implied that monetisation of information is essential.
As IR is desired by business and investors, businesses need a reporting environment that is helpful and beneficial to understanding and pronouncing their strategy, which supports to drive performance inside and attract financial capital for investment. Investors require comprehending how the strategy being pursued produces value over time (JINGA, 2014).
An integrated report normally highlights estimated variations over time and delivers information, erected on sound and transparent analysis, about:
1- The organisation’s prospects about the external environment the organisation is probable to face in the short, medium and long term.
2- How that will affect the organisation
3- How the organisation is presently armed and furnished to react to the critical challenges and uncertainties that are possible to ascend.
Care is needed to safeguard the organisation’s specified expectations, ambitions and intentions that are grounded in reality. They need to be proportionate with the aptitude of the organisation to provide on the opportunities available to it comprising the availability, quality and affordability of suitable capitals, and an accurate appraisal of the organisation’s competitive landscape and market positioning, and the risks it faces. Significant factors affecting the external environment embrace features of the legal, commercial, social, environmental and political situation that shake the organisation’s capability to produce value in the short, medium or long term. They can affect the organisation straight or indirectly by inducing the availability, quality and affordability of a capital that the organisation uses or affects.
It has been observed that information involved in an integrated report is, by nature, central to managing the business. Accordingly, if an element is significant for running the business, the cost must not be an issue in failing to attain critical information to suitably measure and accomplish the matter. An organisation may assess cost and benefits when determining the level, extent of specificity, and meticulousness of information necessary for an integrated report to meet its key purpose, but may not refrain completely from making any disclosure about a material matter on the basis of cost. In containing information about material matters dealing with a competitive advantage like critical strategies, an organisation deliberates how to define the essence of the matter without classifying particular information that might cause a substantial loss of competitive advantage. Accordingly, the organisation contemplates what benefit a competitor could really gain from information in an integrated report, and balances this in contradiction of the need for the integrated report to accomplish its prime purpose (Boedker, 2005).
The task of IIRC is to produce an internationally recognised integrated reporting framework which brings together the financial, environmental, and social and governance information in a clear and precise way so that it is generally accepted across the world. The integrated report gives details to providers of financial capital about how an association makes value over time. It, therefore, comprehends applicable facts and figures, both financial and other. An integrated report benefits all stakeholders fascinated in an organisation’s aptitude to make value over time. The purpose of this Framework is to create Guiding Principles and Content Elements that rule the overall content of an integrated report and to clarify the fundamental concepts that underpin them. This Framework is written primarily in the background of private sector, for profit companies of any size but it can also be implemented and adapted as necessary by public sector and non-profit organisations