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Integrated Reporting Supports Both Competition And Sustainable Growth

Merrill Disclosure Solutions | January 09, 2015

Integrated Reporting

Abstracted from: Leading Practices In Integrated Reporting

By: Prof. Cristiano Busco, Prof. Mark Frigo, Prof. Paolo Quattrone, and Prof. Angelo Riccaboni

University of Roehampton Business School (CB); Kellstadt Graduate School of Business and Driehaus College of Business,

DePaul University (MF); University of Edinburgh Business School (PQ); University of Siena (AR)

Strategic Finance, Vol. 96, No. 3, Pgs. 23-32

Integrated reporting brings sustainability to the forefront. The International Integrated Reporting Council (a global coalition of investors, issuers, regulators, accountants, and NGOs) has been testing a new Integrated Reporting Framework in 25 countries worldwide since its release in December 2013. The IIRC's explicit goal is to shift business models toward sustainable success, a term that includes both environmental and social concerns. Existing corporate reporting tends to focus on quarterly or annual financials, with very little regard for long-term consequences to all stakeholders. That would cover not only investors and customers but also employees, the communities in which the company operates, and the people who live there. In this model, companies function as stewards of human and natural resources who improve the world and people's lives while making a profit. Stewardship, explain professors Cristiano Busco, Mark Frigo, Paolo Quattrone, and Angelo Riccaboni, involves creating sustainable systems. Integrated reporting transcends other financial reporting formats by extending value creation in time and by broadening the scope of its definition.

Based on principles, not rules. Because it is principles-based rather than rules-based, integrated reporting (“IR”) is extremely flexible. Globally piloted in diverse industrial sectors, integrated reporting can be adapted to a wide variety of situations in different economic environments. For example, the IIRC's Integrated Reporting Framework identifies six different types of capital that contribute to a business model and are affected by it: financial, manufactured, intellectual, human, social, and natural. By mapping the inputs and outcomes for each of the six types, the focus of the business model shifts from short-term financial results to long-term consequences, type by type. Each one is mapped, and the process for achieving long-term success is defined within the paradigm, which needs to be kept in balance for the long-term health of both the company and society. Social planning goals may be included in the model, the authors point out. For each capital input, integrated reporting defines the company's actions and processes, the benefits to the company itself, and the benefits to all stakeholders. Companies using integrated reporting also devise and report metrics for measuring outcomes.

Management accountants play an important role. Some large global companies have already adopted integrated reporting. The authors illustrate with three notable examples: convenience-store franchiser Lawson Inc., now based in Japan; German multinational software maker SAP; and Eni, the world's sixth-largest integrated energy company, which has 78,000 employees in 90 countries. More companies are likely to adopt integrated reporting in response to regulatory, social, and investor interest in sustainability. As integrated reporting becomes more prevalent, companies will need personnel

to measure and monitor the capital inputs and stakeholder outcomes as well as participants who understand the business model and can identify its processes, devise metrics, and manage outcome trade-offs to tweak the business model toward long-term sustainability. Management accountants are particularly well suited to these tasks, the authors suggest.

Abstracted from Strategic Finance, published by Institute of Management Accountants, 10 Paragon Drive, Suite 1, Montvale NJ 07645. To subscribe, call (800) 638-4427. For more information on sustainability disclosures and integrated reporting, see Sustainability Disclosure In External Reporting: Current And Future Trends, in the October 2014 issue of Dimensions.

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