International Integrated Reporting Council’s long term vision is a world in which integrated thinking is embedded within mainstream business practice in the public and private sectors. The cycle of integrated thinking and reporting, resulting in efficient and productive capital allocation, will act as a force for financial stability and sustainability. Many are those who think that the concept of integrated reporting should be given prominence and if possible, legislated and made compulsory for all listed entities.
Required:
i) Describe the scope of integrated reporting; and (2 marks)
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According to the International Integrated Reporting Committee (IIRC) integrated reporting is a process that results in communicating the value creation of an entity over time through an Integrated Report.
The IIRC defines an Integrated Report as ‘a concise communication about how an organization’s strategy, governance, performance and prospects lead to the creation of value over the short, medium and long term’
Integrated reporting provides information not only on the financials of an entity, but also information on strategy, governance, performance and prospects.
The following issues are often the subject matter for integrated reports:
- Overview of the organisation
- The strategic direction of the entity
- Analysis of stakeholder relationships
- Overview of the external environment
- Overview of governance structures
- An explanation of the entity’s business model
- Strengths, Weaknesses , Opportunities and Threats (SWOT) analysis
- Basis of resource allocation
- Analysis of financial performance and financial position
- Sustainability projection.
ii) Discuss the benefits of integrated reporting to preparers and users of financial statements. (4 marks)
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The primary benefit of integrated reporting is that it allows a company to better understand, manage and report on multiple dimensions of value.
A properly designed set of performance measures often included in integrated reports will give management the incentive and urge to improve performance.
For other stakeholders, the report is intended to provide more and better information to increase stakeholder understanding of the company- its management, strategy and operations, and its perils and prospects.
It has been suggested that the integrated report will become an organisation’s primary report, which links in with various supporting, more detailed, reports.