Contemporary Issues of Integrated Reporting in Accounting
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This report discusses the contemporary issues of integrated reporting in accounting, including the main issues of the case, existing reporting frameworks on sustainability, differences between IR and these frameworks, and how IR overcomes the issues with these frameworks.
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Running Head: ACCOUNTING ACCOUNTING Name of the Student Name of the University Author Note
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1ACCOUNTING Table of Contents Introduction................................................................................................................................3 Answer to Question 1.................................................................................................................3 Main Contemporary issues of the case...................................................................................3 Answer to Question 2.................................................................................................................4 Existing Reporting Frameworks on Sustainability................................................................4 Answer to Question 3.................................................................................................................6 Differences between IR and these Frameworks.....................................................................6 Answer to Question 4.................................................................................................................7 Overcoming the issues with these Frameworks by IR...........................................................7 Answer to Question 5.................................................................................................................7 Rationale and outcome of the early adoption of IR by the companies..................................7 Answer to Question 6.................................................................................................................8 Theory relevant with IR.........................................................................................................8 Answer to Question 7.................................................................................................................9 Main findings of Prior Research............................................................................................9 Answer to Question 8...............................................................................................................10 Implications of this Research Paper.....................................................................................10 Answer to Question 9...............................................................................................................10 Limitations of this Research Paper......................................................................................10 Answer to Question 10.............................................................................................................11 Reasons for adopting IR in the absence of Regulatory Scrutiny.........................................11
3ACCOUNTING Introduction The aim of this report is the research on the accounting as well as the accountability of the emergence of rapidly changing field of integrated reporting. Integrated reporting is defined as representation of the company’s performance of financial and non-financial aspects in the single report. It is the integration of disclosure of environmental and social aspects as well as financial performance of the company and link of both in one report. There has been increased development of integrated reporting due to emergence of many challenges because it’s interpreted and enacted in different ways within the organization1. Hence, under this report discussion will be based on contemporary issues of this case, identification of the framework of existing reporting, differences between IR and these frameworks, ways in which IR overcome the issues with these framework. In addition discussion will be done on the rationale and outcome of the early adoption of IR by the companies, theory that is relevant with IR. Further, discussion will also be based on main findings of the prior research, implications and limitation of the research paper. Lastly, discussion will be done on whether in the absence of the regulatory scrutiny, reasons of the adoption of IR with the relevant accounting theory2. Answer to Question 1 Main Contemporary issues of the case It has been long history of environmental and social reporting that was reportedby the disclosure through the annual reports of the companies, which was later disclosed in the separate report with the variety of the other media. However, due to increased number of issues for meeting the informational needs of the stakeholders of this separate report has 1Cheng, Mandy, Wendy Green, Pieter Conradie, Noriyuki Konishi, and Andrea Romi. "The international integratedreportingframework:keyissuesandfutureresearchopportunities."JournalofInternational Financial Management & Accounting25, no. 1 (2014): 90-119. 2Dumay, John, Cristiana Bernardi, James Guthrie, and Paola Demartini. "Integrated reporting: a structured literature review." InAccounting Forum, vol. 40, no. 3, pp. 166-185. Taylor & Francis, 2016.
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4ACCOUNTING become more complex. As a result of this, steps have been taken for recombining the financial disclosures with the disclosure of environmental and social in the single report. As compare to earlier where social and environmental disclosure was disclosed but there was no linking of it with financial information, these steps have helped in integrating environmental, social, financial as well as information if governance3. This has resulted into the practice, which is known as integrated reporting. The Global reporting initiative (GRI) as well as The Instituteofsocialandethicalaccountability(AccountAbility)werethemembership organization, which has developed widely adopted and most enduring reporting as well as assurance standards for the environmental and social reporting. However, the complexity of the guidelines of GRI and other problems has led to the formation of IIRC in 2010, jointly by Prince’s accounting and GRI for sustainability projects for developing integrated reporting at global level. IIRC have recognized that the existing rules of corporate reporting requires more comprehensive and fuller disclosure of financial requirements that would have been possible if existing reporting requirement is replaced by relatively short integrated report4. Answer to Question 2 Existing Reporting Frameworks on Sustainability The Balance Scorecard- It is the framework, which is used for the measurement of the internal performance, reporting as well as mechanism of the management control that integrates the measures of financial and non-financial. By doing this it not only aims at not only on overcoming the limits which is associated with the financial indicators but it also helps in aligning the departmental and individual goals with the overall strategic objectives. However, even though, measures of balance scorecard are forward looking and non-financial 3Lodhia, Sumit, and Nadia Hess. "Sustainability accounting and reporting in the mining industry: current literature and directions for future research."Journal of Cleaner Production84 (2014): 43-50. 4Stubbs, Wendy, and Colin Higgins. "Integrated reporting and internal mechanisms of change."Accounting, Auditing & Accountability Journal27, no. 7 (2014): 1068-1089.
5ACCOUNTING butitisnotnecessarythesemeasuresincludeenvironmental,socialandissuesof sustainability5. Triple Bottom Line- It has suggested including the disclosures of the information with the aspect to the environmental and social matters. Recently the tendency is for referring to the disclosuresofenvironmentalandsocialinformationasthesustainabilitydisclosures. However, due to the criticism by the critics, that “sustainability disclosure” has less to do with the sustainability and it is more concerned with the attempt by the business for connecting it with the sustainability. The Triple Bottom Line has been criticized for this6. SustainabilityReporting-Organizationshaveseparatedenvironmentalandsocial disclosures die to widely practice of the social and environmental reporting by using disclosing by media other than disclosing through annual reports that is used for disclosing many more information. It was only used for disclosing core financial information7. After the twentieth century, there was much of the social and environmental reporting that has taken place by the medium of annual reports of the company. However, these reports waspredominantlyrevealedfinancialinformationandselecteddisclosureofthe environmental and social impacts as well as their policies for managing the interactions of the organization, the society and natural environment in which it operates. It has been find that these disclosures was highly motivated by the desires of the management and organizations for meeting the requirements of perceived information by the stakeholders who held the most economic power for reporting organization8. 5Boscia, Marian W., and R. Bruce McAfee. "Using the balance scorecard approach: A group exercise." InDevelopmentsin Business Simulation and ExperientialLearning: Proceedingsofthe AnnualABSEL conference, vol. 35. 2014. 6Alhaddi, Hanan. "Triple bottom line and sustainability: A literature review."Business and Management Studies1, no. 2 (2015): 6-10. 7Junior, Renzo Mori, Peter J. Best, and Julie Cotter. "Sustainability reporting and assurance: a historical analysis on a world-wide phenomenon."Journal of Business Ethics120, no. 1 (2014): 1-11. 8Siew, Renard YJ. "A review of corporate sustainability reporting tools (SRTs)."Journal of environmental management164 (2015): 180-195.
6ACCOUNTING Answer to Question 3 Differences between IR and these Frameworks There was many complexities as well as lengthy in the earlier framework. The main problem with that framework was that there was no link up between financial information with the social and environmental information. It raised confusion among the reader of these reports separately.It was difficult for the readers for systematically linking up of the information’s across the various practices, policies and impacts.Hence, the introduction of integrated reporting has solved this problem9. Integrated reporting has the distinguishing feature which aims at providing a concise report that indicated most of the material environmental and economic actions, social, outcomes as well as risks and opportunities in the manner in which it reflects the nature of integration if these factors of the organizations. There was the intention of using the reporting through electronic forms which allowing the users of the reports for getting more detailed reports as well as other elements that is reported in integrated reports in which the users were interested most. As compare to the earlier framework, the integrated report was the concise report, which communicated the strategy of the organization, governance, performances as well as the prospects that is in relation with the external environment that has leaded to the value creation over the short, medium and long-term10. Answer to Question 4 Overcoming the issues with these Frameworks by IR Integratedreportingframeworkhashelpedinresolvingtheissueofseparate disclosure of the information of financial as well as disclosure of social and environmental information. Both of this information was presented separately which does not included any 9Adams, Carol A. "The international integrated reporting council: a call to action."Critical Perspectives on Accounting27 (2015): 23-28. 10Flower, John. "The international integrated reporting council: a story of failure."Critical Perspectives on Accounting27 (2015): 1-17.
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7ACCOUNTING linkage between the two aspects. It was also affected by the management and organization desires, which adversely affected the decisions of the readers11. Hence, with the introduction of the integrated framework all the aspects of organization performance as well as the considerations of the external environment were taken into consideration. In the earlier framework, the information was overloaded and it was difficult for the reader to interpret the informationof the sustainability report and linkage between the environmental, social and economic impacts. There was the benefit if presentation of the all the aspects of the business at one place12. Answer to Question 5 Rationale and outcome of the early adoption of IR by the companies In the expansion and development of the voluntary non-financial disclosures, Novo Nordisk has been the leader. This company has been the leader since the year 2013, for measuring and reporting of the environmental, social and financial performance in the single report. They were drived by the belief that, the integrated disclosures by them is not just the end of the process of the innovative reporting but it was the beginning of the new ways of the management,whichencompassesthecorporategovernance,rigorousperformance measurement, employee culture, inventive and emergent management tools13. Novo Nordisk has celebrated its first decade in annual report of 2013, for the integrated reporting and providing the consolidated report for the financial, environmental and social performance. These combined statements where structured for increasing the focus on the belief of the managersregardingthemostimportantfactorswhichdrivethecompanyfortheir performance according to the perspective of triple bottom line, having the intention of 11Churet,Cecile,andRobertG.Eccles."Integratedreporting,qualityofmanagement,andfinancial performance."Journal of Applied Corporate Finance26, no. 1 (2014): 56-64. 12Sierra‐García, Laura, Ana Zorio‐Grima, and María A. García‐Benau. "Stakeholder engagement, corporate social responsibility and integrated reporting: An exploratory study."Corporate Social Responsibility and Environmental Management22, no. 5 (2015): 286-304. 13Stubbs, Wendy, and Colin Higgins. "Integrated reporting and internal mechanisms of change."Accounting, Auditing & Accountability Journal27, no. 7 (2014): 1068-1089.
8ACCOUNTING increasing the transparency14. Apart from this, the business organizations of South Africa were increasingly accounted for their non-financial performance. The integrated reporting committee of South Africa has initiated the discussion regarding accountability for the business activities impact. The motive behind these changes was the insufficiency of the existing incremental changes, hence, there was the need for the way the directors and company act and organize themselves15. Answer to Question 6 Theory relevant with IR The intention of the integrated reporting is for the discharging of the duties of accountability to the responsibilities more connected with the belief of the creation of the financial value; their potential is to help the stakeholders’. It is done for developing the understanding of the impacts of the social as well as environmental and holding the accountability of the managers for them is being constrained. It is because the main focus is on the informational needs and interests of the providers of the financial capital; their vision has developed attraction among the practitioners and policy makers16. Answer to Question 7 Main findings of Prior Research South Africa has been recognized as the pioneer for mandating and development of the integrated reporting. Companies that are listed on Johannesburg stock exchange requires the adoption of the integrated reporting by using the framework of South African integrated reporting for their preparation. The framework used here has more focus on the broader issues of the environmental, social and sustainability than the framework of IIRC. The 14Perego, Paolo, Steve Kennedy, and Gail Whiteman. "A lot of icing but little cake? Taking integrated reporting forward."Journal of cleaner production136 (2016): 53-64. 15Velte, Patrick, and Martin Stawinoga. "Integrated reporting: The currentstate of empirical research, limitations and future research implications."Journal of Management Control28, no. 3 (2017): 275-320. 16Stent, Warwick, and Tuyana Dowler. "Early assessments of the gap between integrated reporting and current corporate reporting."Meditari Accountancy Research23, no. 1 (2015): 92-117.
9ACCOUNTING companies which were listed is required to issue the integrated report and if not then they are been asked for the reasons of not publishing it. The UK has been recognized as the global leader in the corporate reporting. The Institute of the chartered accountant of the Wales as well as England has described the integrated accounting as the potential for acting as the catalyst for the major improvements in the business reporting. In this country already many companies is already incorporated the principles of the integrated reporting in their existing system of reporting. In Netherlands, there was the survey of annual reports of top 50 companies by PWC; it was found that, quality of the integrated disclosures by these companies was low. The area, which was recognized as most critical and needed more improvements, was the area of communication of the opportunities and risk, the ways in which the resources were allocated forachievingthestrategicobjectivesandthemeasurementanddefinitionofthe performance17. Answer to Question 8 Implications of this Research Paper The summary of the research paper has been provided in the special issue of AAAJ, that has identified that indications of the contributions made whose insights in academic studies can be made for the development of thinking, practice and policy around the integrated reporting. Although, apart from the insightfulness of these paper, there are still many areas which needs to be further investigated. However, due to the rapid development of the integrated reporting, it will provide unique scope for the examination of the several aspects of the process of regulatory18. 17van Bommel, Koen. "Towards a legitimate compromise? An exploration of integrated reporting in the Netherlands."Accounting, Auditing & Accountability Journal27, no. 7 (2014): 1157-1189. 18Brown, Judy, and Jesse Dillard. "Integrated reporting: On the need for broadening out and opening up."Accounting, Auditing & Accountability Journal27, no. 7 (2014): 1120-1156.
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10ACCOUNTING Answer to Question 9 Limitations of this Research Paper The way of the integrated reporting is now being conceptualized in the year 2014, with the focus on the future actions as well as plans specially focus on the value creation whichisincontrastwiththeyear2010originalfocusonthestakeholdersandthe accountability for impact of the corporate activities. It means that the now the audience targeted for integrated reporting is different from the reports of sustainability. While the objectiveofsustainabilityreportwasprovidingenvironmental,economicandsocial information, the integrated reporting aims at presenting the information to the broader risk evaluation as well as potential value growth in future that appeals potential investors and capital providers. The broadening of the internal process will influence the audit and risk management. Integrated report future orientation by IIRC implies that there are serious consequencesoftheriskofcompanyandauditors.Theimplicationinrelationto implementing the integrated reporting is the need for the methodologies of compliance into the framework of assurance and performance19. Answer to Question 10 Reasons for adopting IR in the absence of Regulatory Scrutiny The integrated reporting helps in connecting the different functions in order of forming the holistic view of the business that recognizes the risks, opportunities and value that is represented in long-run as well as the wider view of capital from which it operates as well as applies the reporting to core model of business and organization’s strategy. In the fast growing economy of the country, keeping in pace to it is necessary, companies by application ofintegratedreportingframeworkcanhelpsinovercomingmanyconcernssuchas 19Thomson, Ian. "‘But does sustainability need capitalism or an integrated report’a commentary on ‘The InternationalIntegratedReportingCouncil:Astoryoffailure’byFlower,J."CriticalPerspectiveson Accounting27 (2015): 18-22.
11ACCOUNTING demonstration of responsible leadership and corporate governance. It can also lead towards good reputation among the potential capitalist, investors and the particular country. Concise integrated reporting makes the understanding of the reports easily. If the company is adopting integrated reporting then it will help the company in thinking holistically about their plans strategies which ultimately helps in informed decisions and managing the key opportunities and risk for building stakeholders’ confidence and potential investor. Hence, the stakeholders especially the investors can use the informationfor making more informed decisions regarding allocation of capital and investment in the long run20. Conclusion Hence, it is concluded from the analysis that there is rapid development of the policy of the integrated reporting and there is early development of the practice have put the challenges, it is because its interpretation, understanding as well as enacted within the institutions in different ways. Under this report, the contemporary issues have been find whichhashighlightedthattherequirementoftheintegratedreportingduetomany complexitiesof stand-alone report. Further, discussion has been done on the existing framework and difference between integrated framework and that framework which have recognized the growing demand and emergence of integrated reporting now-a-days in almost all the country. In addition, main findings of the prior research have been discussed of South Africa, UK and Netherland. Moreover, implications and limitations of the research paper have been discussed which explained that despite of the limitations that it draws the synthesis of existing literature, that was at early stage of development, it has wide prospectivefor further development. Lastly discussion has been done that in the absence of the regulatory scrutiny, why should the company adopt integrated reporting. It has been find that due to increasing issues of transparency and sustainability, corporate reporting is gaining importance 20Simnett, Roger, and Anna Louise Huggins. "Integrated reporting and assurance: where can research add value?."Sustainability Accounting, Management and Policy Journal6, no. 1 (2015): 29-53.
12ACCOUNTING as well as it is also useful for the stakeholders and other users who are interested in the affairs of business.
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13ACCOUNTING Reference Adams, Carol A. "The international integrated reporting council: a call to action."Critical Perspectives on Accounting27 (2015): 23-28. Alhaddi, Hanan. "Triple bottom line and sustainability: A literature review."Business and Management Studies1, no. 2 (2015): 6-10. Boscia, Marian W., and R. Bruce McAfee. "Using the balance scorecard approach: A group exercise." InDevelopments in Business Simulation and Experiential Learning: Proceedings of the Annual ABSEL conference, vol. 35. 2014. Brown, Judy, and Jesse Dillard. "Integrated reporting: On the need for broadening out and opening up."Accounting, Auditing & Accountability Journal27, no. 7 (2014): 1120-1156. Churet, Cecile, and Robert G. Eccles. "Integrated reporting, quality of management, and financial performance."Journal of Applied Corporate Finance26, no. 1 (2014): 56-64. Dumay,John,CristianaBernardi,JamesGuthrie,andMatteoLaTorre."Barriersto implementing the International Integrated Reporting Framework: A contemporary academic perspective."Meditari Accountancy Research25, no. 4 (2017): 461-480. Dumay, John, Cristiana Bernardi, James Guthrie, and Paola Demartini. "Integrated reporting: a structured literature review." InAccounting Forum, vol. 40, no. 3, pp. 166-185. Taylor & Francis, 2016. Flower, John. "The international integrated reporting council: a story of failure."Critical Perspectives on Accounting27 (2015): 1-17. Junior, Renzo Mori, Peter J. Best, and Julie Cotter. "Sustainability reporting and assurance: a historical analysis on a world-wide phenomenon."Journal of Business Ethics120, no. 1 (2014): 1-11.
14ACCOUNTING Lodhia, Sumit, and Nadia Hess. "Sustainability accounting and reporting in the mining industry:currentliteratureanddirectionsforfutureresearch."JournalofCleaner Production84 (2014): 43-50. Perego, Paolo, Steve Kennedy, and Gail Whiteman. "A lot of icing but little cake? Taking integrated reporting forward."Journal of cleaner production136 (2016): 53-64. Sierra‐García,Laura,AnaZorio‐Grima,andMaríaA.García‐Benau."Stakeholder engagement,corporatesocialresponsibilityandintegratedreporting:Anexploratory study."Corporate Social Responsibility and Environmental Management22, no. 5 (2015): 286-304. Simnett, Roger, and Anna Louise Huggins. "Integrated reporting and assurance: where can research add value?."Sustainability Accounting, Management and Policy Journal6, no. 1 (2015): 29-53. Stent, Warwick, and Tuyana Dowler. "Early assessments of the gap between integrated reporting and current corporate reporting."Meditari Accountancy Research23, no. 1 (2015): 92-117. Stubbs, Wendy, and ColinHiggins. "Integratedreportingandinternalmechanismsof change."Accounting, Auditing & Accountability Journal27, no. 7 (2014): 1068-1089. Stubbs, Wendy, and ColinHiggins. "Integratedreportingandinternalmechanismsof change."Accounting, Auditing & Accountability Journal27, no. 7 (2014): 1068-1089. Thomson, Ian. "‘But does sustainability need capitalism or an integrated report’a commentary on ‘The International Integrated Reporting Council: A story of failure’by Flower, J."Critical Perspectives on Accounting27 (2015): 18-22.
15ACCOUNTING van Bommel, Koen. "Towards a legitimate compromise? An exploration of integrated reporting in the Netherlands."Accounting, Auditing & Accountability Journal27, no. 7 (2014): 1157-1189. Velte, Patrick, and Martin Stawinoga. "Integrated reporting: The current state of empirical research, limitations and future research implications."Journal of Management Control28, no. 3 (2017): 275-320.