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Foundations of Accounting - IIRC | Assignment

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Added on  2019-11-25

Foundations of Accounting - IIRC | Assignment

   Added on 2019-11-25

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FOUNDATIONS IN ACCOUNTINGINTRODUCTIONThe International Integrated Reporting Council (IIRC) was incorporated in August 2010with the sole purpose of creating a sense of awareness and responsibility amongst thecorporate managers about sustainable environment and corporate social responsibility.IIRC’s governing body was constituted with 40 members, who were heads of the FASB,IASB, IFAC and IOSCO, the CEOs of the ‘Big Four’, heads of some of the majorBritish professional accountancy bodies and some CFOs from major MNCs, includingHSBC, Nestle and Tata. As can be seen, the Governing Council had majority membersfrom the accountancy profession, hence it was not surprising that the two main issues ofenvironment and sustainability for which it was founded, took a backseat in itsoperational charter, (Barkoczy, 2012).The main role designated to IIRC was outlined by the governing council in its firstDiscussion Paper published in 2011 (IIRC, 2011). (Barkoczy, 2011) says the discussionpaper provided the answer to integrated reporting by stating that, and I quote“Integrated reporting brings together material information about an organization’sstrategy, governance, performance and prospects in a way that reflects thecommercial, social and environmental context within which it operates. It provides aclear and concise representation of how an organization demonstrates stewardshipand how it creates and sustains value (IIRC, 2011, p. 2)”. UnquoteThe IIRC justified its recommendation for a new reporting model, where companieswould be required to put forward a separate Integrated Report. This single report,anticipated IIRC, would eventually become the company’s “Primary Report” and wouldbe replacing the existing reporting pattern (IIRC, 2011, p. 6). PURPOSEThe purpose of developing this new form of reporting, to be known as IntegratedReporting, under the overall guidance of the International Integrated Reporting Council(IIRC), was to make the companies devote more time and attention towards sustainable
Foundations of Accounting - IIRC | Assignment_1
environment practice. With ever expanding networks, communication channels and roleof the corporate managers in managing the companies, the corporate world is regularlyfacing greater challenges. These are connected with over-consumption of the alreadylimited natural resources, the consistent change in climatic conditions and the growingneed of providing healthy food, clean water and better standard of living for thegrowing workers’ population, (Barkoczy, 2013). Continuing with the purpose of IIRC, Prince of Wales, while addressing the inauguralmeet, had said, and I quote “We are at present battling to meet 21st century challengeswith, at best, 20th century decision making and reporting systems. The IIRC’s remit isto create a globally accepted framework for accounting for sustainability. Theintention is to help with the development of more comprehensive and comprehensibleinformation about an organization’s total performance, prospective as well asretrospective, to meet the needs of the emerging, more sustainable, global economicmodel’’. Unquote. This address by the Prince of Wales underlined the unmistakablesigns of IIRC’s idealism: accounting has been given the task to save the planet from theperils of financial blunders.CONFLICTIn the viewpoint of this paper, all decisions which should be taken for tackling theissues discussed above should be based on clear and comprehensive data available. Butin actuality, the different points raised by the Discussion Paper of IIRC have conflictingattributes, (Barkoczy, 2012). The paper has described six categories of ‘capital’: (a)Financial Capital(b)Manufactured Capital(c)Human Capital(d)Intellectual Capital(e)Natural Capital (f)Social CapitalIn this Discussion Paper of 2013, IIRC clarifies the concept of these categories.Financial Capital denotes the company’s ‘funds’; Manufactured Capital describes thematerial objects created by mankind; The Human and Intellectual Capital portions arethe trickiest categories and so are the Social and Natural Capital categories. Although
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the basic idea of Integrated Reporting was to focus on sustainability and environmentand since welfare of mankind is the mainstay behind a well-functioning relationshipbetween people, this is what should have been demonstrated in the existence of aneffective governance policy, (Barkoczy et al, 2010). But the boundaries between variouscategories are quite vague and this has created more confusion than offering a solution.REASONSThe basic idea of an Integrated Report was for the management to present, through thereport, how the company, with the help of sustained activities, was able to bring aboutchange in the values of the notified capitals, which should be measured by the changeachieved in the values of the capitals. The companies are to adopt the Balance Sheetapproach, as has been their practice, (Cch, 2013). The IIRC also emphasises on thismethod of reporting but with a difference. Apart from reporting the Financial Results,the managements were to report the assessment of the firm’s performance of ‘assets’other than those appearing in the conventional balance sheet. These should cover allthose resources on which the company relies not only for financial prosperity but alsofor the prosperity of other values, (Marsden, 2010). These other values of the noted‘capitals’ includes the capital of society, including the environment. In this regard, itshould be understood that most of the noted capitals reported in the integrated reportmay not be owned by the firm. IIRC in its Discussion Paper had proposed that anintegrated report would be the company’s primary report and shall replace the existingarrangements. In the later stage, IIRC dropped this proposal, although the council hasnot admitted it directly, (Marsden, 2010).CASE STUDY – MTN GROUPFinally, what has been made clear by IIRC is that companies no longer are under theobligation of presenting a single integrated report. This is a big and highly significantretreat on the part of IIRC. Now, when we analyse the 2014 Integrated Report of theMTN Group Limited, which the Group made public with this title, we find that thecompany did not actually follow the guidelines of IIRC with respect to the various‘Capitals’ notified by the Council. Since MTN Group did not lay emphasis on thesecapitals, its Integrated Report has lost the status of being the Group’s primary report. Infact, the presented report is just like the other reports which the Group has beenreleasing year after year. Thus the 2014 Integrated Report of the MTN Group is just an
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