Implementing Integrated Reporting System in the Organization
Today, with increasing challenges of accounting and the need to follow the accounting standards in the organization, it has become mandatory for the accounting team to deploy a particular accounting and reporting standard that will assist them in improving the quality of information shared to the shareholders, promoting a more cohesive and efficient approach to corporate reporting, enhancing accountability in all the practices of the organization, improving stewardship, and thereby supporting integrated thinking, decision-making and actions within the organization (Milne & Gray, 2013).
Also, it is important to note that the social and other environment disclosures have evolved in the present-day time hence, the stand-alone reports of the companies will not help them provide their performance overview to all the stakeholders of the organization. They need to follow a particular standard reporting procedure known as Integrated Reporting through which they will be integrating the social, financial, environmental, and governance information of the organization (Milne & Gray, 2013).
The formation of the International Integrated Reporting Council was carried out in 2010 with an objective to improve accounting regulations and financial accounting standards' setting in a given environment (Milne & Gray, 2013).
This report will thereby focus on the purpose of implementing Integrated Reporting system in the organization. It will highlight the need, major benefits, basic building blocks, role of accounting departments, and future recommendations related to Integrated Reporting in a given operational environment.
Historical Development of Integrated Reporting (IR)
Integrated Reporting framework is a tool that can be used by the organizations for the purpose of delivering better corporate reports to the shareholders. Also, it will provide other details about their current strategies and performance to rest of the stakeholders of the organisation (Nagel et al., 2017). However, earlier, it was found that due to lack of regulations and lack of compliance, the organizations were not providing correct financial details to the concerned shareholders.
Also, there was not business value discussed through such reports that often lead to misguiding on the performance of the organization. The investors lacked information on the long-term strategies and business plans of the organization that further led to creation of gaps between them and the top-level management of such companies.
Hence, there was a growing need to narrow these gaps and help the top-level management to have a proper reporting system that will share not only the financial details but also the business model, the current performance, the future business plans and the long-term objectives of the organization (Nagel et al., 2017). The aim of installing Integrated Reporting framework was to generate concise reports that will help the organization manage different outcomes and actions.
Novo Nordisk is considered to be the pioneer of Integrated Reporting framework. He provided a consolidated account of social, financial, and environmental performance of his Danish Pharmaceuticals company in 2013 (Nagel et al., 2017). It thereby helped the investors, shareholders, and other concerned stakeholders of the organization to take different decisions.
Later, there was also a committee formulated for International Integrated Reporting that will bring together all information in a clear, consistent, concise, and comparable format. It will thereby provide more visibility to the investors and they can accordingly take decisions regarding whether to stay invested or withdrew their investments from a given firm.
Need for Integrated Reporting Practices
With increasing challenges of accountability and improving transparency in the practices of the organization, the senior management was looking for a reporting system that will help them close these gaps in a given working environment (Klettner, Clarke, & Boersma, 2014).
The structure of the Integrated Reporting framework will first help in moving beyond the basics of reporting and will then provide effective services to the top-level management of the organization. This framework is not only compliance-focused but also meets specific Corporate Social Responsibility (CSR) Key Performance Indicators (KPIs) in a given environment.
Building Blocks of Integrated Reporting
There are several buildings blocks of Integrated Reporting that outline the major fundamental concepts used to develop this framework. These include - strategic focus and future orientation, connectivity of information, stakeholder relationships, materiality, conciseness, reliability and completeness, and consistency and comparability (Searcy & Buslovich, 2014). From the strategic focus and future orientation perspective, it will provide details on organization strategies and how it will create value in the short, medium, and long-term.
It will provide a holistic image of the inter-related and interdependent factors that are affecting on the ability of the organization to create value over time. It will further assist in improving the relationships with the different stakeholders of the organization. Also, it will share information that substantively effects on the performance of the organization.
Further, each of the reports generated through this framework will be concise, reliable, complete, consistent, and in line with the legal compliance of the accounting standards. The reports will also provide an overview of the corporate governance policies implemented by the organization in a given working environment.
Also, with the help of information obtained in the outputs section, one can determine how value is delivered to the investors, shareholders, and other important stakeholders of the organization (Chan, Watson, & Woodliff, 2014). Even, employees will get aware on the performance of the different business activities taking place in a given environment. The value creation process will thereby deliver value through the reports generated based on Integrated Reporting framework.
In a given Integrated Reporting framework, there are six major capitals that the reporting standard address to and provides vital information about it to all the stakeholders of the organization. The first is the financial capital, wherein details regarding usage and availability of funds will be shared (Chan, Watson, & Woodliff, 2014).
Also, accountants will ensure that the value of intangible assets is disclosed in the information report. The next is the manufactured capital, wherein information on production-oriented reports will be shared. The third is the human capital, wherein information on people's skills and experience and their approach to work will be discussed (Chan, Watson, & Woodliff, 2014).
The reports will share information on employee alignment with organization's governance and risk management approach in a given working environment. Further, it will also highlight the major activities undertaken by the Human Resources (HR) department of the organization (Chan, Watson, & Woodliff, 2014).
The next is the intellectual capital, wherein information on employee competencies, intellectual property, company culture, organizational procedures and programs, and other information on brand and image will be shared (Tschopp & Nastanski,. (2014). The fifth is the natural capital wherein details on accounting methodologies and usage of natural resources will be provided from the CSR perspective.
Finally, the last is the social capital wherein details on value addition services, economic outputs of the organization, and activities conducted by the organization for the development of social institutions will be shared.
The purpose is to provide details on the different activities conducted and procedures followed by the organization in a given environment. Each of these six capitals is incorporated by the accounts department through - management accounting, internal auditing, corporate reporting, external auditing, and governance. It will thereby make sure of adhering to the legal compliance of the different regulatory authorities in a given environment.
Role of Accountants in Implementing Integrated Reporting
The role of accountants in implementing the Integrated Reporting framework is vital as they need to first make provisions for accountable and reliable information. They also need to take into account the six capitals and accordingly prepare reports for each of them. They need to link multiple facets of the organization to a single report and thereby provide a holistic overview on the performance of the organization (Tschopp & Nastanski, 2014).
They further need to consider the long-term objectives and thereby demonstrate how current strategies implemented will assist in achieving those objectives. They also need to review the past data and subsequently link with the current data so that the investors can compare and judge on the performance. They need to show how value is created for multiple stakeholders of the organization. They also need to communicate on the strategic priorities as well as determine the impact of corporate activities on the entire organization.
Finally, they need to include the risk management model and corporate governance structure through which the organization’s culture, ethics, values, principles, and risk mitigation plan will be reflected in the entire report (Kaine & Green, 2013).
Accountants Participation in Integrated Reporting Content Elements
The key purpose of accountant’s participation in Integrated Reporting content elements will be from different perspectives. These include - strategy and resource allocation, organizational overview and external environment, future outlook, current business model, corporate governance, risk and opportunities assessment, performance from a holistic perspective, and linking communication objectives with the needs of the shareholders of the organization (Kaine & Green, 2013).
Through the participation of the accountants, the investors will be able to find information on - leadership structure and practices, processed sued to make strategic decisions, mechanisms deployed for addressing ethical concerns, determining organization's attitude to work toward the future outlook, set the working tone in the organization, and manage risks from different perspectives.
Further, through their participation, they will be able to use the Integrated Reporting framework for providing information on the current business model of the organization. The organization will be using certain model for the purpose of determining strategic outputs. Hence, it is important to share this information with the concerned stakeholders so that they can accordingly take their decisions in a given operational environment.
Impact on Change on the Understanding
Initially, I used to believe that the accounting statements prepared by the accounting departments of the organization will be based on the performance and sales figures; however, I did not estimate that they could be manipulated for the purpose of attracting the investors. Also, I was not aware of the corporate governance policies in the field of accounting.
I thereby found this topic of greater interest as it also helped me enhance my knowledge and skills regarding this framework. I shall thereby remain more careful in the accounting practices and will also ensure that the organization is following the principles and the model of Integrated Reporting framework in a given environment.
Applying to the case of Non-Accountants
The given topic is on Integrated Reporting, which is a new framework used for the purpose of delivering better and transparent corporate reports specifically to the investors and the shareholders of the organization. Recently, it is noticed that the organizations are involved into unethical practices and hence were providing corporate reports that could easily catch the attention of the investors; however, these were false reports as the figures and facts were manipulated.
The sole objective for developing such reports was to attract the investors so that they could invest the money in the respective organization. It has thereby become important for the organizations to develop corporate reports that will not only provide information on the financial performance but will also share details on the current performance from a 360-degree perspective.
For the non-accountants, it will share details regarding current strategies implemented by the organization, the long-term goals and objectives, the future business plans, and the business model implemented by the organization. It will thereby provide a better overview of the performance of the company in a given working environment to the investors. They will thereby be able to take better decisions regarding whether to invest in such companies or not.
Selected Topic of Interest
Today, several companies are found to be engaged into fraudulent activities as they are manipulating with the facts and figures of the organization. As a result, several investors are losing their money in such companies. Some of the major examples in this particular case scenario include - Enron, Satyam Computers, and even Yahoo Inc.
Thus, the accounting authorities decided to step up and develop a framework that will force all the companies to provide a general corporate report to the investors wherein they will showcase details on - their current performance from the financial perspective, the different strategies implemented in a given operational environment, the gaps covered through different strategic initiatives, the feedback and review of the ground-level staff on the work culture and work environment, the business model deployed, and the future plans of the organization.
It will thereby prevent the senior management from getting involved into other types of unethical practices and instead deliver a better image of the organization from all the perspectives. This topic is thereby of interest as it will provide all the factual information about the past performance and the future goals and working directing of the organization (Klettner, Clarke, & Boersma, 2014).
Further, it will view the traditional corporate reporting through a new lens and thereby will make reporting more investor-relevant. It will thereby meet the different needs of the investors from their needs' perspective. Further, it will result in a broader, more cohesive, and efficient approach to reporting for the organization. It will enhance accountability and stewardship, meet the information needs of the stakeholders, and thereby provide a meaningful assessment of the organization's long-term viability in the present working environment (Klettner, Clarke, & Boersma, 2014).
Personal Reflection through Learning
Accounting is a very typical subject and hence involves a lot of technicalities within it. It thereby becomes difficult to understand the different perspectives in a given working environment. It is important to understand how the reports generated and the information shared through Integrated Reporting will improve the value of the connected stakeholders of the organization.
There is a model working in a given Integrated Reporting framework, wherein the inputs will be received from - finance department, manufacturing department, human resources department, and administrative department (Chan, Watson, & Woodliff, 2014). There will be vision, mission, and objectives identified of the senior-level management in the organization. Now, based on this data, the information collected will be processed to generate reports as per the Integrated Reporting framework.
The reports will thereby provide the current performance overview and the future outlook of the organization. Thus, so far my understanding has completely changed since I need to focus more on the corporate governance policies, ethical principles, and the six capitals of the Integrated Reporting framework.
I have to remain careful and also guide rest of the employees in the organization to provide true and accurate facts of the organization. Also, one needs to make sure they do not indulge into any kind of unethical practices and thereby provide false values to the respect department in the organization. Finally, the HR department and the Accounts department need to overcome these issues and prepare the reports of the company that will provide proper facts and figures to the investors in a given environment. It will thereby deliver true reports to the respective investors and they can take better decisions from the investment perceptive.
Affecting my Understanding of my Personal Strengths and Weaknesses in Examining Accounting Issue
It is important to provide the right form and type of reporting to the concerned shareholders and stakeholders of the organization. The investors have invested in the respective organization with certain objectives; hence, it is a moral responsibility of the top-level management to deploy reporting mechanisms that will provide details on the performance of the organization from different perspectives (Loyens, 2013).
The investors are not only looking out for the financial information and performance of the company. They also want to determine the long-term objectives, current working model, and the strategies implemented in a given working environment.
The new Integrated Reporting (IR) framework was thereby developed with an objective to - provide an understanding of the organization's strategy and performance, providing details on different types of capitals, improving connectivity and reliability of the information, and thereby disclosing vital information with the investors (Loyens, 2013).
Thus, from the strengths perspective, I have gained knowledge not only on the Integrated Reporting Framework but also have focused on the governing principles and the underlying practices in the organization. I need to make sure that the company is following true practices for this issue and subsequently is generating reports as per the needs of the investors.
However, there are also certain issues such as lack of understanding of the technical reports, lack of collaboration with the accounts department, and lack of understanding of the reports from the investors' perspective. Thus, from the non-accountants' perspective, I need to remain careful and take steps that will improve my knowledge and technical expertise in this field. Only then I shall be able to determine whether the reports generated are as per the requirements of the investors or not.
Using the Knowledge in the Future
The importance of Integrated Reporting framework in a given working environment is high as it not only delivers value from the reporting perspective but also embeds processes of the organization into the reporting standards. The investors will thereby be able to obtain important information on the performance of the organization (Kareiva et al., 2015).
On the other hand, the role of the accountants is of utmost importance in implementing IR framework in the organization. The adoption of IR framework will reach to the true potential only when several actions are taken by the accounting team on laying the groundwork for a transformation in external corporate reporting. The top-level management thereby needs to monitor these activities and subsequently take steps for future improvement.
Thus, from the aspects of using this framework in the future, I first need to gain knowledge and expertise from the technical perspective of accounting. Second, I also need to focus on the aspects such as materiality matrix, IR project and Organizational Culture, and Legal and Economic environment of the organization. It will help me understand the performance of the organization and the work culture from a deeper perspective. I also need to work closely with the accounts department and the senior management to ensure providing true and accurate information of the organization to the respective stakeholders.