MPA 701 Essay: Criticisms and Benefits of Integrated Reporting

This essay, prepared for an MPA 701 accounting course, critically examines the limitations of traditional financial reporting, which primarily focuses on financial outlook and neglects social, economic, and environmental aspects. It highlights the criticisms associated with this narrow approach, emphasizing the need for a more comprehensive reporting framework. The essay then delves into Integrated Reporting, showcasing its foundation in shareholder theory, stakeholder theory, and Legitimacy Theory, which aim to provide a holistic view of a company's performance. Furthermore, it evaluates the costs and benefits of implementing Integrated Reporting, considering both internal organizational impacts and external stakeholder perspectives. The essay concludes by underscoring the advantages of Integrated Reporting in terms of value creation, risk management, and improved stakeholder relationships. The essay also highlights that the Integrated Report emphasizes providing benefits at a great extent both within an organization and from an external viewpoint such as the creation of value for stakeholders.

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Name of the Student
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Author’s Note:

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Executive Summary
The purpose of the report is to focus on criticism related to Traditional Financial Reporting. The
criticism shows Traditional Financial Reporting dealing with a financial outlook of the company
and it does not focus on reporting on another context of the company such as social, economic
and environmental and social effects of the company related to the financial statements. In
addition, Integrated reporting depicts the reunion of two main theories such as shareholder theory
and stakeholder theory and Legitimacy Theory which are discussed in brief. Lastly, the study
covers the costs and benefits of an Integrated report providing at a great extent both within an
organization and from an external viewpoint.

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Table of Contents
Introduction......................................................................................................................................3
Discussion........................................................................................................................................3
1. Main criticisms of traditional financial reporting.................................................................3
2. Theories behind Integrated Reporting..................................................................................4
3. Costs and Benefits of providing Integrated Reporting.........................................................5
Conclusion.......................................................................................................................................7
References........................................................................................................................................8

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Introduction
The purpose of ‘Traditional financial reporting’ is to give information related to the
financial position of an organization. However, it has been subject to many criticisms concerning
dealing with only financial outlook. International Integrated Reporting Council (IIRC) has
developed Integrated reporting which is having a global alliance with companies, regulators,
investors, other accounting profession and (NGOs) non-governmental organizations (Dumay et
al. 2017). The reporting gives accurate information related to the strategy of an organization,
including its governance and measurement of performance. In addition, it presents some
connection between social, economic and environmental context and its financial performance. It
establishes to show how it becomes possible for the organizations to create short, medium value
including the long term, which helps the stakeholders as well levels (De Villiers, Venter and
Hsiao 2017). In this report, two main theories of Integrated reporting has been discussed in brief,
including its cost and benefits.
Discussion
1. Main criticisms of traditional financial reporting
Traditional financial reporting is guided by International Financial Reposting Standards
(IFRS), which are issued by the International Accounting Standards Board (IASB). The purpose
of ‘Traditional financial reporting’ is to give information related to the financial position of an
organization in a structured way following these standards (De Villiers and Sharma 2017).
Traditional Financial Reporting has been subject to many criticisms. It concerns dealing
with the only financial outlook of the company, and it does not focus on reporting on another
context of the company such as social, economic and environmental and social effects of the

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company related to the financial statements. The details used while recording transactions of a
business in traditional reporting, as well as preparation of the financial statement, are concerned
with financial aspects. For such reasons, the management of an entity concludes only to focus on
the financial results of the entity, which makes these reports to depict conservative evaluation of
financial operations of the entity (Rimmel 2019).
Such reporting measures significant differences between economic results and accounting
system, making the problems more complicated for the evaluation. There are companies whose
financial statements focus on economic events which helps the external users of the information
to focus on the performance of the about the company. However, under traditional reporting
concept, there is no focus on the external factors of the activities of the company, such as social
factors. They are not concerned about the cost related to social and environmental, and the
financial statements do not represent any measures and dedication of an entity regarding this
matter as well as in relation to its personnel, shareholders, customers and community. In
addition, there is no presentation of the influence of steps on the community and the
surroundings.
2. Theories behind Integrated Reporting
Integrated reporting depicts the reunion of two main theories, such as shareholder theory and
stakeholder theory. The approach of shareholder depicts that maximizing the value of
shareholder should be the primary goal of the company (Chang et al. 2017). In addition, outlook
of this theory states that the purpose of integrated reporting is subjected to include social,
environmental, and problems of governance that creates effect on the evaluation of the company.
Hence, it is essential to add more valuation for shareholders while formulating the structure for
integrated reports.

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The stakeholder theory present that measures of the organization for attainment its
objectives can affect the stakeholder (individual or group) and entails value creation for the
stakeholders, including participating parties. This theory establishes that it is easier to meet goals
if there is a close and strong relationship between external parties. Hence, it focuses on
strengthening the relationship with external parties and the company.
However, Integrated reporting is based on these two theories and is combined in order to
assess the chances of getting benefits resulting from the manufacturer and those who are
accounting information users.
Legitimacy Theory
Another theory related to Integrated reporting is Legitimacy theory, which demonstrates that
for existence or survival of an association, it should act with the community’s measure and
values (Adams et al. 2016). That’s why an association should give environmental disclosures in
their yearly report. The theory said for the existence of an association then it should assure it
remains legitimate in the external stakeholder’s eye whom it considers being having the
capability to have a result on its legitimacy. An approach that initiates the enterprise to stay
legitimate within the eyes of the ordinary public it by spontaneous environmental condition and
social exposure in their yearly report. This has been an approach to push association to
promulgate social and environmental reports (Dube and Maroun 2017)
3. Costs and Benefits of providing Integrated Reporting
The execution cost of an integrated report structure involved urgency and opportunities cost
analysis of data procurement and the price of creating the structure (example purchasing price of
programming licenses, counselling costs). In addition, previously operating in reach of company

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for the integrated report formation creates the cost on a non-stop basis and applies to each the
concerned personnel and instrumentality used. Some of the examples of structure cost of
integrated reporting costs are wages and employee interest costs, the costs of guidance and
administration, depreciation costs used for this scope utility costs, and many more (Barth et al.
2017). Moreover, Integrated report is seen to be a time-consuming process and costly.
Integrated Reporting emphasizes providing benefits at a great extent both within an
organization and from an external viewpoint (Hoque, M.E., 2017) such as the following:
 Value creation for helping stakeholders byways of means like recognizing and measuring
of non-financial factors (Gokten and Gokten 2017).
 It aims at proper identification of risk and opportunities
 Inspiring the organization to develop their thinking in a unified way
 It combines the non-financial performance to the business more directly
 Improved relationship between corporate reputation and stakeholder
 It also focuses on improving internal processes which makes a better understanding of the
business, including improvement in the process decision making.
 Better integrated thinking and management.
 It was highlighted from improved gross margins that any cost-benefit of adopting
integrated report could take time to perceive.
 Greater understanding and connecting the distinct sources and drivers of longer period
value and allowing better strategy management, decision-making and execution via their
business model.
 It helps organizations achieving trust and securing their honour by encouraging improved
relationships among lander, staff and alternative stakeholders.

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Conclusion
Thus from the above discussion, it can be concluded that Traditional Financial Reporting
has been subject to many criticisms. The criticism is related to dealing with the only financial
outlook of the company and it does not focus on reporting on another context of the company
such as social, economic and environmental and social impacts of the company related to the
financial statements. It shows significant differences between economic results and accounting
system, making the problems more complicated for the evaluation. In addition, Integrated
reporting depicts the reunion of two main theories such as shareholder theory and stakeholder
theory and Legitimacy Theory which are discussed in brief. Moreover, Integrated report is seen
to be a time-consuming process and costly, including providing benefits at a great extent both
within an organization and from an external viewpoint such as the creation of value for
stakeholders.

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References
Adams, C.A., Potter, B., Singh, P.J. and York, J., 2016. Exploring the implications of
integrated reporting for social investment (disclosures). The British Accounting
Review, 48(3), pp.283-296.
Barth, M.E., Cahan, S.F., Chen, L. and Venter, E.R., 2017. The economic consequences
associated with integrated report quality: Capital market and real effects. Accounting,
Organizations and Society, 62, pp.43-64.
Chang, R.D., Zuo, J., Zhao, Z.Y., Zillante, G., Gan, X.L. and Soebarto, V., 2017. Evolving
theories of sustainability and firms: History, future directions and implications for renewable
energy research. Renewable and Sustainable Energy Reviews, 72, pp.48-56.
De Villiers, C. and Sharma, U., 2017. A critical reflection on the future of financial,
intellectual capital, sustainability and integrated reporting. Critical Perspectives on
Accounting, p.101999.
De Villiers, C., Venter, E.R. and Hsiao, P.C.K., 2017. Integrated reporting: background,
measurement issues, approaches and an agenda for future research. Accounting &
Finance, 57(4), pp.937-959.
Dube, S. and Maroun, W., 2017. Corporate social responsibility reporting by South African
mining companies: Evidence of legitimacy theory. South African Journal of Business
Management, 48(1), pp.23-34.

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Dumay, J., Bernardi, C., Guthrie, J. and La Torre, M., 2017. Barriers to implementing the
International Integrated Reporting Framework: A contemporary academic
perspective. Meditari Accountancy Research, 25(4), pp.461-480.
Gokten, S. and Gokten, P.O., 2017. Value Creation Reporting: Answering the Question
„Value to Whom” according to the International Integrated Reporting Framework. Zeszyty
Teoretyczne Rachunkowości, (91 (147)), pp.145-169.
Hoque, M.E., 2017. Why company should adopt integrated reporting?. International Journal
of Economics and Financial Issues, 7(1), pp.241-248.
Rimmel, G., 2019. Human Capital Disclosures in Swedish State-Owned Enterprises—A
Comparison of Integrated Reporting Versus Traditional Reporting. In Challenges in
Managing Sustainable Business (pp. 55-75). Palgrave Macmillan, Cham.

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