You are required to write a critical report that discusses the possible benefits of preparing an integrated report as well as its limitations.
This critical report discusses the probable benefits of preparing (IR) and its limitation. The IIRC describes IR as the method that is found within the integrated thinking that leads to a constant IR to the company about creation of value as well as the aspect of the formation of values. The IR is a brief message that deals with the way the firm’s governance, prospects, prospectus, as well as strategy, in the perspective of the outside environment contribute to creation of value in the medium, long term and short. Different Companies around the global adopt the use of integrated reporting (Adams, 2015). Therefore it is essential to recognize how integrated reporting has evolved, benefits vs. costs, problems preventing extensive adoption as well as how the problems can be overcome, and methods in which momentum can be created around the implementation of the IR. Application of IR enables different organizations to enhance delivery of their services (Huber and Bassen 2018). The preparation of the integrated report must be according to the IIRC (International Integrated Reporting Committee). The paper is separated into different parts. First part narrates benefits that are associated with the preparation of the integrated report. The second part discusses the limitations of using the integrated report in the organization.
Benefits of preparing IR (integrated report)
IR enhances the way different Institutions think, plan as well as reporting the issues that affect the enterprise. Institution applies IR as a chance of communicating a brief, clear, combined story that enlightens the way in which value is generated in the institution (Flower 2015). The integrated report is used as an approach that assists companies to reason holistically about the plans as well as strategy, developed well-thought decisions, control key risks and opportunities to strengthened stakeholders including the investors’ self-confidence, and assist in managing the performance of the organization. Institutions of all sizes can use integrated reporting to build trust and understanding in their business (Sierra, Zorio and García, 2015). As a manager or business owner, safeguarding you’re your finance providers, suppliers, external stakeholders and customers trust is important. Integrated reporting help in building trust in the business by emphasizing on what drives value. Understanding value creation requires integral thinking, a crucial theme of the Integral reporting, which is built on splitting internal silos between departments and people to enable the organization to collectively understand the main components of the business. This comprises of the strategy, governance, business model, and risks and opportunities in the context of issues and trend that affect the business. Integrated thinking also encompasses an organization taking into consideration the various resources consumed, and correlation it depends on, enables it to be in a position of making decisions thus ensuring its resilience and viability over time (Cheng, Green, Conradie, Konishi and Romi, 2014).
Besides improving internal management processes, IR can also cause other important benefits, including It, create greater credibility and trust with suppliers, customers, society, and other stakeholders. This is essential since its help non-governmental organization and government agencies to look for the commercial partners that will not only supply services and goods that they require but do so in a sustainable manner. Integrated reporting can help in maximizing the potential to sell, transfer, or handing over the enterprise by providing a better platform for valuation, as well as securing financing at a favorable cost. Integrated reporting act as a mechanism of communicating the vision of the company about the future and the company solve nonfinancial opportunities and challenges, thereby improving the self-confidence of the investors in the Company and its capability of building sustainable value. Another benefit of the integrated reporting is that it reduces risk associated with reputational. It is capable of reducing expectation-reality link between the company and external parties through communicating in a transparent and holistic way the performance, position, mission, vision, and philosophy of the institution in both financial terms and sustainability. Integrated reporting is being applied as the techniques of improving relationships, engagement, as well as dialogue with the stakeholders. For instance, clients who value things that deal with sustainability will be dedicated to the activities of the organization. It can also improve engagement of the employees through internal collaboration and coordination since it needs unrelated units of the company to join as one in order to come up with an integral report. Integrated reporting can enable the organizations to improve their internal control and measurement systems for making timely and reliable nonfinancial information. By adopting the use of IR, organizations are capable of improving the quality of the data as well as monitoring internal controls system for nonfinancial data (Maroun 2018). This is essential so that IR can satisfy the requirement of the auditing report required by the external auditors
Integrated reporting also provides important opportunity to enhance, or establish, systems and processes for measuring, identifying, and analyzing important information in various capitals. Essential areas stimulating value creation can be created to help in setting targets and objectives, managing risk and opportunities, undertaking investment and project appraisals, as well as aligning performance to goals and objectives with important performance measures.
Reporting tool is important tool that allow corporate governance to share with most of its stakeholder. After different financial crises and scandal, transparency about the company’s board of directors, the activities will become may concern for fund providers and shareholders, and even to the authorities of the company. In this situation, fund providers and shareholders will be keen in accessing data on the organization’s governance structure, so as to know the remuneration of the people who are charged with governance and to understand how the governance offers support to strategic objectives since these are related to the performance in the medium, long and short (Simnett and Huggins 2015). Therefore, it is the duty of the board too reveals information relating to the non-financial and financial performance through voluntary and mandatory reporting. The truth is that higher degree of disclosure increases transparency, so different organization may gain trust in investors on individuals who are charged with governance. In addition, these disclosures and transparencies increase reputation of the corporate. That reputation assists the board of the Company to negotiate with different stakeholders. Finally, the process of integrated reporting can contribute to a change in the behavior of the corporate (Churet and Eccles 2014).
Limitation of using integrated report
Despite the above-mentioned benefits of the IR, not every person encourages the use of IR. These are the limitation of the integrated report:
The framework avoids sustainability accounting- IR is expected to be a solution, nevertheless during the framework development for IR, The International Integrated Reporting Council no longer satisfy the initial objectives. The main objectives of the IIRC were the enhancement of the sustainability accounting. IIRC avoid the use of the sustainability accounting by putting its focus on values for investors as a replacement for value for society and concentrating only on factors that affect the organization (Sahebjamnia, Torabi and Mansouri 2015). IR fails to perform for the interest of the public; it was created to act for all, but instead benefits only interest groups such as the investors (shareholders). The main function of IR is to give the report on values. Nevertheless, there are different ways in which values can be interpreted, for example value to society, which are to be consistent with environmental and social accounting, value to stakeholders, which are to be consistent with the theory of the stakeholders of the organization, and value to future and present generation, which has to be consistent with sustainability (Cho, Laine, Roberts and Rodrigue 2015). The main focus of IIRC is to add value to investors, and this does not represent the substitute concept of value in which IR was created for, the framework does not recognize that because there should be consideration of value to the entire stakeholders. IR only considers the value to investors since they are the most important group that has a higher impact on the value of the organization (Junior, Best and Cotter 2014).
The next is the choice in the case of the business may be questionable. There exists a falling emphasis on sustainability reporting and accounting in International integrated reporting council documents, possibly due to the accountant that is on the council. IR should act as the accounting-sustainability practice of hybrid; nevertheless, it has common features with the conventional accounting practice. Furthermore, the interest of the stakeholders of the organization into the IR is unsure (Eccles and Krzus 2014). There also exist difficulties in reporting itself, this is because the IR did not act as the core report, as required by international integrated reporting council, and there exist inadequate clear standards of reporting that are used in the organizations. IR addresses the issues of maximization of its own profit; the organization also benefits the surrounding society. This is not the best way in which organization should perform (Frias, Rodríguez and Garcia 2014) Maximization of profit is not a must that it should only give benefits to the society, there may be other downsides. The process of production of any organization could cause negative environmental influence such as global warming and pollution. An organization should take into consideration not only things that add value to the firm but also other factors that affect their performance (Villiers, Rinaldi and Unerman 2014).
Another limitation of the integrated report is lack of clarity, complexity, as well as lack of conviction that integrated report will satisfy its goals. There was the inadequate consensus in terms of the true looks of the integrated report. There was the problem of lack of accepted standards. International integrated reporting council framework has an aim of overcoming this, but there are still gaps that needed to be fleshed out in the framework (Fonseca, McAllister and Fitzpatrick 2014).
Nonexistence of reporting standard- reporting condition also raises serious standpoints. There are conditions that the organization has to fulfill in order to meet the requirement of the standard for the integrated reporting, for any organization to publish correct, comparable and complete information on the performance regarding sustainability, as well as their impact on society, environment, and stakeholders. The first condition is that the organization should publish their reporting standards that would help in assuring that the report of the company was complete and comparable in case they are to be applied by the firm. Second, the organization should make use of these standards consistently and correctly in preparing the reports of the company. According to IIRC, the context did not meet first condition (Honey, Pearson and Schweingruber 2014).
It is true that IR is an important tool for the organization. This type of tool allows all the features of reporting inside it. That is the main reason why integrated reporting is not only business reporting but it goes beyond reporting. This report discussed many benefits of the IR and it also discusses the limitation of the integrated reporting. It gives insights of the reason why IR should be adopted for the purpose of business reporting. The added advantages of the adoption of Integrated reporting is that it enables the organization to provides the necessary report as well as getting benefits from it with the improvement of internal business. Implementation of integrated reporting could be difficult, but it can help the business in improving the products and services of the organization. The main problems of IR are the inadequate reporting standards relating to integrated annual report; choosing between complete transparency and materiality; the timing of the cost of the process. The solutions that can solve the issues are by developing guidelines and clear rules in an adapted Integrated Reporting framework, there should be a clear explanation of the concept of materiality to all the stakeholders, additional information should be published on a website
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