Accounting Theory: Assist Corporations Meet Essay

Question:

Discuss about the Accounting Theory for Assist Corporations Meet.

Answer:

Introduction

This report presents detailed explanation as to how a move from the traditional corporate reporting to an integrated reporting could benefit an organization and its key stakeholders. This starts by a discussion on the capacity of a traditional corporate reporting to different corporates, followed by the meaning of integrated reporting and how it could assist in addressing limitations of the traditional reporting. Further, the report presents a discussion as to how integrated reporting differs from the other non-financial reporting techniques, then a review of the advantages and disadvantages of integrated reporting. The report is then lapped up by an explanation as to how relevant integrated reporting could be to stakeholders of various listed companies.

Capacity of Traditional Corporate Reporting to Assist Corporations Meet

Their Current Environmental and Social Challenges

Revelation of the corporate, social, environmental as well as governance aspects has turned to be the topic of greater attention. Traditional corporate reporting is usually a signal of superior and competitiveness corporate governance. This kind of reporting always assists in addressing all relevant information concisely and also discloses thoroughly measures undertaken including on corporate policy, activities, company’s prospects, strategic plans as well as current initiatives in protecting the environment (Guthrie & Abeysekera 2006). Therefore, a stronger traditional corporate reporting could assist in attracting capital and maintaining confidence in capital markets; hence, assisting organizations meet their environmental and social challenges. In addition, traditional corporate reporting has the capacity to assist organizations meet their environmental and social challenges since it assists capital providers and potential investors to understand financial performance of a given organization. This makes it easier for the corporations to get financial assistance from capital providers to carter for their environmental and social needs.

In essence, the information and gauge that traditional corporate reporting need are tool that an organization’s management could utilize as the key input to their strategic planning. In addition, traditional corporate report is regarded as the communication instrument in providing reassurance to the shareholders about an organization’s behaviour beyond its financial status. Therefore, the exercise of the traditional corporate reporting could be viewed as an instrument in an organization’s business strategy, not only the public relations application (Stubbs & Higgins 2014). Further, traditional corporate reporting has the capacity of delivering information which would assist in improving decision-making value to customers, employees and investors which is in return essential for corporations as it could assist them meet their environmental and social challenges. It also has the capacity to increase accountability and transparency of different organizations since it was considered as a significant means for organizations to show their long-term economic value and performance, while assuming corporate responsibility and donating to a sustainable development.

Further, traditional corporate reporting has the capacity to assist organizations meet their current environmental and social challenges in that it provide management’s take on an organization’s external market. Even though no one has the capacity to predict the future, potential investors wish to understand what an organization’s leadership thins the future would hold (IIRC 2013). This is basically, provided under traditional corporate reporting where competitive environment, macroeconomic environment as well as regulatory environment in which an entity operates in is reported. In addition, traditional corporate reporting has the capacity to assist organizations deal with environmental and social challenges in that they provide details on how well these organizations manage their intangible and tangible assets, including customers, innovation, brands, social and environmental reputation aimed at creating value.

Meaning of Integrated Reporting and How It Can Address Limitations of the Traditional Reporting

IR is a precise communication process on how a given company’s strategy, presentation, prospects and governance bring about formation of value over time (De Villiers et al. 2014). In essence, it is usually the global alliance of organization, investors, regulators, accounting experts and standard setters. It is one of the recent reporting developments in line of the anticipated reporting inventions which are said to help improve significance of the corporate reporting. This helps in establishment of guiding principles as well as content elements which is said to govern full content of IR and in explaining vital ideas which support them (Stubbs & Higgins 2014). It enhances accountability and transparency which is crucial in building resilience and trust, by revealing how chief shareholders’ genuine interests and requirements are understood, considered and replied to via actions, continuing statement and decisions. In essence, IR is the procedure initiated on an integrated thinking which is said to results in intermittent integrated reports by a given company about value creation within a specified period and related communications about aspects of value creations (IIRC 2013). Therefore, given the above definitions of IR, it is evident that IR can help in addressing limitations of the traditional corporate reporting in that it would help in improving superiority of the evidence presented to suppliers of the financial capital in enabling a more effective as well as a more productive allocation of the capital. In addition, IR addresses limitations of the traditional corporate reporting since it endorse a more efficient and cohesive tactic to the corporate reporting that attracts numerous reporting elements and communicate complete aspects that are said to materially upset volume of a given company to creating value. It also enhances stewardship and accountability for a broader base of the capital and promotes understanding for interdependencies (Owen 2013).

Further, integrated reporting could address limitations from traditional reporting technique in that it bring about better risk identification as well as mitigation procedures which is a win for an organization, its directors and shareholders it affects. It also assists in addressing traditional reporting limitations in that it alter decision-making procedures in a manner that bring into line benefits to the society and general business (Stubbs & Higgins 2014). Furthermore, integrated reporting can assist in addressing limitations of traditional corporate reporting in that it does not only shows the connection in between an entity’s governance, financial presentation, strategy and social economic and environmental context within which an organization operates, but it also integrate sustainability into an organization’s core business (IIRC 2013). Further, it helps in addressing limitations of traditional corporate reporting in that it gives clear metrics, translating both the environmental and social issues into the business language; that is, figures. This is achieved by including the ESG metrics such as the ones different companies are experimenting currently which is important for investors as well as other stakeholders.

How Integrated Reporting Differ from the Other Nonfinancial Reporting Techniques

Integrated reporting differs from other forms of reporting in that it moves past the silo method of reporting and gathering a more inclusive evaluation and exhibition of an entity’s performance as well as worth. This gives numerous benefits like giving an entity an all-inclusive outlook of evidence pertinent to its key strategy, capacity to create and sustain value as well as business model. Therefore, unlike the other reporting approaches, integrated reporting provides all the relevant information for the internal and external purposes while at the same time providing appropriate information to the shareholders (Fr?as-Aceituno, Rodr?guez-Ariza & Garc?a-S?nchez 2013). Further, it differs from the other nonfinancial reporting techniques in that it entails a holistic discipline that is mostly based upon an interlinking process of all data sets; meaning that in integrated reporting all the relevant information including the non-financial information are to be made available on timely, reliable and regular basis.

Furthermore, integrated reporting differs from other nonfinancial reporting in that it entails consequences of the integrated thinking unlike other nonfinancial reporting which are silo based promoting thinking in silos. In essence, integrated support or reflects integrated thinking and therefore is it both a consequence of the integrated thinking and stimulating it. Also, integrated reporting differs from other nonfinancial reporting in that under integrated reporting, other methods of capitals like natural, human and social intellectual and the manufactured capital are included unlike other nonfinancial reporting which are predominantly based on presenting an organization’s stewardship on the financial capital (Abeysekera 2013). Further, integrated reporting aims at connecting the future and past of all the strategic relationships and resources unlink the traditional reporting which does not connect all the information to one another and to an organization’s sustainable value creation and objectives.

Additionally, although short-term data is significant in analysing a given organization, other nonfinancial reporting focus solely on short-term objectives unlike the integrated reporting that focus on turning around this myopic fact and report both short and long-term information. It also differs from other nonfinancial reporting in that it is principle based enabling focus on aspects which are material to specific organizations and enabling disclosure of particular status in a clear language (Stubbs & Higgins 2014). This is contrary to other nonfinancial reporting which are often claimed to be a bit compliance oriented; hence, hindering an entity’s capacity to exercise suitable judgement. Further, complexity and length in the financial reports is said to hinder different readers in collecting information (Dumay, Bernardi, Guthrie & Demartini 2016). Nonetheless, with integrated reporting, it is easier for the readers to collect information since the reports under integrated reporting are in a focused and concise manner unlike the other nonfinancial reporting where reports are lengthy and imprecise manner.

Advantages and of Integrated Reporting

Integrated reporting is said to bring about some societal and investors’ advantages like transparency as well as some disadvantages. Therefore, this section would analyse business advantages and disadvantages of the integrated reporting as compared to other reporting practices. To start with, the first advantage of the integrated reporting is greater clarity. This is based on the fact that integrated reporting provides adequate linkage of non-financial and financial relationship (Stubbs & Higgins 2014). Further, integrated reporting is advantageous since it enhances better decision making amongst investors and other stakeholders. In essence, it enhances increased effectiveness in the decision making via improved analysis of relationship that exists between non-financial and financial information. In addition, integrated reporting enhances deeper engagement such as increased communication effectiveness and efficiency through improved utilization of technological possibilities.

It also lowers reputation risks through increased understanding of the probable risks via improved analysis of the tactical and strategic choices which could affect externals. In essence, integrated reporting provides essential opportunities in increasing understanding of an organization. This enhances increased knowledge of the risks and opportunities associated with a given organization in addition to an improved strategic communication which are important outcomes of the increased business understanding emerging from integrated reporting (Abeysekera 2013). Integrated reporting gives a greater access to wide range of external and internal information sources via integrated processes and standardization of the information. In addition, it provides streamlined reporting via more reuse of the reporting elements, collaboration and transparency of reporting and an analytical concept utilized by both external and internal analysts. It also give better allocation of the capital as well as other resources and better access to the business partner and capital markets (De Villiers, Rinaldi & Unerman 2014). Further, integrated reporting assist in breaking down the silos and increasing the cross-functional communication amongst different departments by improving information flows; hence, improved connection across different departments. In essence, integrated reporting assists in increasing proficiency between different departments and also improves information usage.

In spite of the numerous benefits associated with integrated reporting, there are also some challenges that come with this form of reporting. For instance, lack of clarity and complexity are seen as some of the probable disadvantages linked with integrated reporting (Rensburg & Botha 2014). Although integrated reporting focuses on reduction of complexity and increasing clarity, the whole range of the non-financial data additionally to the financial information could prove to just increase complexity and to reduce clarity. In addition, under integrated reporting, there is lack of a tested set of the standard. Though the IR presently launched a framework, the framework has not yet been tested in the field; which could give the report preparers with best practice and case-studies that would in turn stimulates the awareness which is presently absent. Furthermore, integrated reporting is said to lack adequate guidance in establishing a balance in between commercial sensitivity and transparency as well as exposure of the risks (Fr?as-Aceituno et al. 2013). In addition, IR has a disadvantage in that under this framework, auditors would request for other reporting mechanisms, liability considerations and new standards. Basically, while dealing with the future-oriented data using integrated reporting it could prove a bit hectic to adapt to this framework. This is based on the fact that this reporting technique could prove impossible to assure which could in turn damage reliability of the information processed through integrated reporting.

How Integrated Reporting is Relevant to Stakeholder of Various Listed Companies

Integrated reporting is relevant to numerous stakeholders of listed companies in that it informs them about sustainability performance accomplished against the targets, strategy and vision adopted in serving their interest as well as other aspects that could influence the company performance in future. Further, integrated reporting is more relevant to shareholders of different listed companies since it gives them more relevant understandable information in enabling better decision-making (Kooiker, 2014). Further, integrated reporting is relevant to different stakeholders in that it improves corporate communication through both the stakeholders’ engagement for selection of important information and transparency on value creation.

Furthermore, it is relevant since it provides some insights into organizations’ resources and relationships and how different organizations interrelate with exterior atmosphere and capital in creating value. To be more specific, integrated reporting include total of all capitals, benefits garnered by an organization, market value and cash flows as well as successful accomplishment of an organization’s objectives. Studies shows that integrated reporting is relevant to investors in that is helped them management their investment risks, assess organization dynamics and regulatory environment, and be able to assess the organization’s forward looking information. In essence, this framework is relevant to investors in that it helps them to gain greater insights into listed organizations’ strategies, their business models as well as how they create values over time; hence, supporting their investment decisions and improving their returns (Adams 2015).

Further, integrated reporting is relevant to shareholders in that it assists in shifting the extent to which a listed company co-exist in mutually beneficial manner (Stubbs & Higgins 2014). It recognizes both the value-created for shareholders and that one for an entity. This could have some impacts on the long-term value production of listed organizations and provides of their capital. In addition, integrated reporting is relevant to shareholders since it enhances business-society relation that is characterized by mutual advantage and trust, which is crucial to long-term success of these companies. Integrated reporting is also relevant in that is a means to encourage competition between different listed companies over which firm is more sustainable for the stakeholders. Further, integrated reporting is relevant to the stakeholders since it allows them to make more informed evaluation of the future of different organizations. It is also relevant to stakeholders since it help them easily understand reports of various organizations since integrated reports shows interdependency of both financial performance and the non-financial issues of the companies; hence, changing stakeholders’ perception.

References

Abeysekera, I 2013, A template for integrated reporting,’ Journal of Intellectual Capital, 14(2), 227–245.

Adams, CA 2015, ‘The international integrated reporting council: a call to action,’ Critical Perspectives on Accounting, 27, 23-28.

De Villiers, C, Rinaldi, L & Unerman, J 2014, ‘Integrated reporting: Insights, gaps and an agenda for future research,’ Accounting, Auditing and Accountability Journal, 27(7), 1042–1067.

Dumay, J, Bernardi, C, Guthrie, J & Demartini, P 2016, ‘Integrated reporting: A structured literature review,’ Accounting Forum. doi:10.1016/j.accfor.2016.06.001.

Fr?as-Aceituno, JV, Rodr?guez-Ariza, L & Garc?a-S?nchez, IM 2013, ‘Is integrated reporting determined by a country's legal system? An exploratory study,’ Journal of cleaner production, 44, 45-55.

Guthrie, J & Abeysekera, I 2006, ‘Content analysis of social, environmental reporting: What is new?,’ Journal of Human Resource Costing and Accounting, 10(2), 114–126.

IIRC 2013, The International Integrated Reporting Framework: Accessed 3rd October, 2017 from;

IIRC. (2013). International integrated reporting framework. London: International Integrated Reporting council. Accessed 3rd October, 2017 from;

Kooiker, KG 2014, Towards a new corporate reporting model? Analyzing stakeholder opinions concerning the role of business in society and integrated reporting (Master's thesis, University of Twente).

Owen, G 2013, ‘Integrated reporting: A review of developments and their implications for the accounting curriculum,’ Accounting Education, 22(4), 340–356.

Rensburg, R & Botha, E 2014, ‘Is Integrated Reporting the silver bullet of financial communication? A stakeholder perspective from South Africa,’ Public Relations Review, 40(2), 144-152.

Stubbs, W & Higgins, C 2014, ‘Integrated reporting and internal mechanisms of change,’ Accounting, Auditing and Accountability Journal, 27(7), 1068–1089.

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