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Today, however, financial statements are only part of a larger Annual Report which is essential in playing the role of communicating key relevant financial and non-financial information to both internal and external stakeholders by covering every aspect of business affairs with the help of specific key performance indicators (KPIs).
Most of this reporting is specifically in response to compliance requirements of the applicable accounting and regulatory framework as well as shareholder requirements to disclose their current position and future. Thus the question remains – how can stakeholders gain access to more useful and insightful information regarding the organisation’s business value in a more holistic manner?
The answer lies in the International Integrated Reporting Framework. Released back in 2013, this framework establishes principles and concepts that govern the overall content of an Integrated Report (IR) and is popular among stakeholders because of its principle-based approach. Without further delay, let’s take a closer look at this principle-based framework and how stakeholders can use it to their advantage.
The primary purpose of an Integrated Report is to explain to stakeholders how an organisation creates value over time. It is set out to give a view on the organisation’s strategy, governance, performance and prospects, which lead to the creation of value.
Stakeholders are primarily interested in an organisation’s Integrated Report because the report acts as a platform to explain what creates the underlying value in the business and how the management protects this value. With the new framework, organisations are not required to have discrete sections compiled in the report but there should be a high level review to ensure that all relevant aspects are included.
This enables each organisation to set out its own key components in the report rather than adopting a checklist approach. As a result, organisations can determine the key components of the report before further creating a key storyline, resulting in more effective and productive disclosures.
While the primary audience of an Integrated Report is shareholders (who would like to understand the financial aspect), it is clear that the Integrated Report benefits anyone who is interested in an organisation’s ability to create value. These people may include employees, customers, suppliers, business partners, local communities, legislators, regulators and policymakers. IR allows stakeholders to paint a more robust picture of an organisation’s business health and its ability to create value.
But with so many audiences to aim at, businesses that want to develop concise communication will have to increase their focus to develop their narrative reporting around the business model and explain how the business has been developed. Only then will they be able to bring the best use of the Report by shifting their focus to long-term stakeholder value creation.
In summary, through the Integrated Reporting Framework established by the International Integrated Reporting Council, organisations can benefit from interactive business reports that are accessible in an easy to understand format for everyone compared to the previous boilerplate framework under the International Financial Reporting Standards (IFRS) or any other local accounting and regulatory Framework. This is why even ACCA has Integrated Reporting as a critical syllabus area in the Strategic Business Leader paper.