Integrated Reporting: Future of Corporate Accounting

Running Head: Integrated Reporting
INTEGRATED REPORTING:
FUTURE OF CORPORATE ACCOUNTING

Integrated Reporting 1
International Integrated Reporting Council (IIRC) has suggested integrated reporting as the
contemporary approach towards corporate reporting. The concept of corporate reporting has
gained huge significance in the recent times as it is the only means through which companies
can communicate with all its stakeholders and provide them information that is necessary for
their decision making. Corporate accounting must be kept at pace with the changing
economic reality and hence it must promptly address the information needs of the
stakeholders of the company by providing not merely the financial information but also the
non-financial information. The International Federation of Accountants (IFA, 2017) has
recently stated that integrated reporting is the system that is used to achieve more coherent
system of corporate reporting that fulfils the need of single report providing a wider picture
of entity’s ability of value creation. Basically, integrated reporting is the new but quite
powerful idea which focuses on enhancing the way business organisations thinks and reports
about the performance of the business (De Villiers, Rinaldi & Unerman, 2014). In the modern
era, companies have their own accountability as well as stewardship obligations and therefore
IR is being used by the organisations to communicate with their stakeholders about the story
as to how they use the economic resources to create value for them. Though, in the present
times, there is no prevailing standard framework which is accepted universally for the
integrated reporting but the practice of IR is being adopted voluntarily by leading
corporations as it has numerous benefits. It can be anticipated that in upcoming 5-10 years,
IR shall certainly become a mandatory practice at-least for the listed companies at the
universal level so that to promote communication of financial as well as non-financial
information regarding the performance of their business.
The high-quality of the business reporting is generally a distinctive feature of the
organisations that are strong and sustainable and it is also at the heart of the strong financial
markets and economies. Corporate reporting is the important way that allows organisations to

Integrated Reporting 2
communicate with its stakeholders on account of their stewardship obligations. Like any
other business activity corporate reporting is also required to be paced up with the emerging
information needs of the stakeholders. Certainly, technology will change the way corporate
reporting is undertaken and the way corporate reports are delivered to the stakeholders. The
significant and continuous changes in the technology by far have led to increased access and
interest towards the corporate affairs and resultantly the information needs of the audience is
growing continuously. Looking at the enhancing information demands of the stakeholders,
the scope of corporate reporting must be enhanced to meet their wider information needs both
in financial and non-financial terms so that they can use such information to undertake short-
term as well as long term decisions. Unfortunately, corporate financial reporting has partly
lost its relevance in the eyes of its intended users (Jensen & Berg, 2012). It has been
generally argued by the experts that corporate financial reporting do not sufficient and timely
information and also it provides overload of information.
The framework of integrated reporting as suggested by IIRC would support a business
organisation in addressing clearly and concisely the matters that influence its ability of
creation and sustaining the value not only in short or medium but also in long run. Integrated
report aims at giving complete picture of the activities of the entity in the simple and clear
manner that could be easily understood by the users who do not even possess the special
skills and knowledge in the relevant areas. A firm has to report about the economic activities
that it carries in the particular period to allow the users to assess the financial performance of
the business (Stewart, 2015). Along with the financial reports the entity also has to report
about the non-financial matters such as its participation in the social and environmental
activities. The existing corporate reports of the entities majorly incorporates the annual
financial information and do not include detailed non-financial information related to such

Integrated Reporting 3
entities. In future, the existing financial reports will be replaced by the integrated reports
(Abeysekera, 2013).
The global financial crisis of 2007-2009 was the main catalyst for the development of
concept of integrated reporting to promote the financial stability and regaining the trust of
general public in the capital markets about their capability to serve the economy. Integrated
reporting is the concise communication by company to its stakeholders about its strategy,
performance as well as prospects in relation to both its internal and external business
environment that leads to creation of value in short term and long term (Eccles & Krzus,
2010). Over the past few years the emphasis is on integrated reporting has been primarily on
the importance of creation of organisational value by way of six capital factors out of which
financials and manufactured capitals are two main factors. IR identifies the other four capitals
that are intrinsic to the creation to the value in short and long run as well. These capital
factors are intellectual, human, social and natural (Churet & Eccles, 2014). Out of these
capitals, human capital and intellectual capital are the two most complex areas under non-
financial reporting because of the fact that they are not easily quantifiable. Intellectual capital
is the major intangible factor in the rapidly developing digital economy (Tapscott & Barry,
2009). It is probably the most complex but at the same time most significant factor to be
defined for the success and achievement of competitive in the business community. Hence, it
is of utmost importance to report about such capitals by way of integrated reports. Integrated
reports must be more than mere static documents containing financial information so as to
provide more detailed information of shareholder’s or other stakeholder’s interest.
The accounting professionals are choosing the technical steps, undertaking required training
so as to adopt the changes in the reporting practices that are occurring worldwide (Humphrey,
O‘Dwyer & Unerman, 2015). This approach of corporate reporting will surely reduce the
burden of reporting and improve its quality by making disclosure of concise and material