INTEGRATED REPORTING

Integrated Reporting

Integrated Reporting

Introduction

The concept of “Integrated Reporting” suggests that company reports that meaningfully combine financial and sustainability aspects provide a more realistic picture of a company's risks and opportunities and thus help investors to arrive at better investment decisions (Hopwood.et.al, 2005). So, what exactly are the effects of on the process of valuation for investment decisions? Financial and sustainability reports have traditionally been published separately with little connection to one another. However, the rising discussion about integrated reporting (IR) has shifted the focus to a more holistic representation of company performance (Adams, 2004).

Discussion

Financial reporting has institutional legitimacy, thanks to a variety of factors. They include measurement, reporting, and auditing standards; effective enforcement mechanisms, including courts of law for redress of fraud in the financial statements; sophisticated internal control and measurement systems; and information technologies that enable rapid capture and aggregation of data. But financial reporting also has its critics, who cite its increasing complexity, making it hard for all but the most sophisticated users to understand the reports. There is also the difficulty of finding the most relevant information, the time lag in issuing reports, the paucity of information about the risks being taken by the company to create value for shareholders, and the backward-looking nature of the reports. Questions about whether a financial report presents a “true and fair view” of a company cannot be adequately answered, because the reports do not contain information on nonfinancial performance that can determine a company's long-term financial picture.

As a result, an increasing number of companies are voluntarily starting to produce sustainability or corporate social responsibility reports. Typically, they contain information on a company's environmental (e.g., energy and water usage and carbon emissions), social (e.g., labor practices, employee turnover, and workforce diversity), and governance (e.g., independence of the board and approach to risk management) performance. In some cases, they also include information on the company's philanthropic and community activities. Frameworks and standards for the information in these reports are not nearly as well established as they are for financial reporting.

The adoption of integrated reporting at Philips can be attributed to three motivating factors: increased efficiency, reduced cost, and improved communication. Pierre-Jean Sivignon, former chief financial officer of Philips, said integrated reporting started as an exercise in streamlining.

International Integrated Reporting Committee (IIRC)

The formation of the International Integrated Reporting Committee (IIRC), which comprises a host of globally leading organizations in the area of company reporting standard setting and accounting. It aims to create a globally accepted accounting framework for sustainability combining financial and sustainability information: “in a clear, concise, consistent, connected and comparable format”.

The reporting model must move with the times if it is to remain relevant. The business world is developing at breakneck speed and greater demands are being placed on it by regulators and shifts in public opinion (Eccles&Krzus, 2010).

The goal of the IIRC is not to increase the reporting burden on companies and other entities. Rather, it is to help them and all their stakeholders make better resource ...