Integrated Reporting
introduction:
o Traditionally, the main goal of corporate reporting was disclosure of the organization’s
financial information to increase transparency and accountability, However,
organizations have come to own more intangible assets, from only 17% in 1975 to more
than 80% currently. To represent this value accurately, organizations began to provide
more nonfinancial information
o Integrated reporting is a relatively new concept. It gained momentum with the creation of
the International Integrated Reporting Council (IIRC) in 2010, This global entity,
composed of regulators, organizations, accounting firms, and standards setters, issued
the International <IR> (Integrated Reporting) Framework in 2013, This principles-based
framework gives guidance to organizations preparing integrated reports
o Integrated report consist of financial information & Non-financial information
o The primary purpose of integrated reporting is to show capital provider how the
company create value over time
o Financial information in integrated report consisting of Financial statements which
Discussed in Unit 1
o Non-Financial information in integrated report allow organizations to share its story of
value creation with external parties
o Value creation, value creation process & 6 capitals are fundamental concept of
integrated report
1
Created by: Mohamed Zakaria
Value creation & Value Creation Process
o When an organization sells a product, it creates value for itself (in the form of revenues)
and indirectly for the customer (the form of which depends on the nature of the good or
service sold). This process affects not only the financial aspect of the organization but
also its reputation and its relationship with its stakeholders
o In selling products to customers, an organization is operating within a social
environment, and the outcomes of these interactions (connectivity) affect the
organization’s social license to operate
o When the value created by the organization for itself or for others is
material, it should be Explained in the integrated report.
o Company using 6 Capitals to create value
The Six Capitals
2
Created by: Mohamed Zakaria
1. Financial capital is the available pool of funds , e.g. cash flow from operating,
investing & Financing activities
2. Natural capital consists of the renewable and nonrenewable environmental
resources, e.g. water, air, Land
3. Manufactured capital consists of manufactured tangible objects, such as Fixed
assets
4. Intellectual capital is the intangible assets of the organization, such as: system,
protocols, licenses
5. Human capital refers to employees’ competencies, abilities, and experience
6. Social and relationship capital is the relationship of the organization with the
environment in which it operates
Capitals in the integrated report
o All six capitals need not be present in every integrated report, Some capitals may not
be relevant for a particular organization
o Capitals need not be identified by the same name in every integrated report.
3
Created by: Mohamed Zakaria
The Value-Creation Process
The value-creation process consists of the following elements
o Inputs are resources used in business activities.
o Business activities transforms the inputs (capitals) into outputs
o Outputs are the results of the organization’s business activities
o Outcomes are the internal and external effects of business activities and outputs
on the capitals
o The business mode
4
Created by: Mohamed Zakaria
Integrated Report
o Consist of financial information & non financial information about how company
create value over time
Integrated Reporting
o a process founded on integrated thinking that results in a periodic integrated report by
an organization about value creation over time
5
Created by: Mohamed Zakaria
Integrated thinking
o Integrated thinking is a process of decision making, management, and reporting. It is
based on the connectivity and interdependencies among the organization-specific
factors that affect the organization’s ability to create value over time
o Integrated thinking is a prerequisite to IR
o Integrated thinking is a prerequisite to IR. Understanding the influences financial and
non financial factors have on each other is necessary to Report in an integrated
mannerabout the performance of the organization
o Integrated thinking cannot be done in a stand-alone department. Different
departments must work together to measure and report the organization’s value
creation for both itself and its environment
6
Created by: Mohamed Zakaria
Guiding Principles
1. Strategic Focus and Future Orientation: The report should indicate how the strategy
affects the ability to create value Over time
2. Connectivity of Information: The integrated report should show a holistic picture of
different aspects of the organization
3. Stakeholder Relationships: The key stakeholders and the quality of their relationship
with the organization should be reported
4. Materiality: The organization should disclose information that has a substantial
effect on its ability to create value over time.
5. Conciseness: An integrated report should be clear and concise
6. Reliability and Completeness: An integrated report should be free of material
errors. An integrated report must include all material information, whether it is
positive or negative
7. Consistency and Comparability: The material information in an integrated
report should be consistent over time. Changes and improvements made should
be explained. Comparability among organizations is difficult due to the
applicationof the <IR> Framework to the specific situation of each organization
Notes: the guidance principles help to present content of integrated report
7
Created by: Mohamed Zakaria
Content Elements
1. Organizational overview:
▪ The organization should provide overview about
i. It’s identity
ii. It’s mission
iii. It’s vision
iv. Market in which operate
2. Business model:
▪ The organization should describe its business model which
include input, process, output & outcomes
3. Governance:
▪ The organizations should indicate about the polices, produces, rules by
which organization govern & how it supports company in value creation
4. Risks & opportunities:
▪ The organization should indicate the risk faces and opportunities and
how they effect on the company ability to create value
5. Strategy & resource allocation:
▪ The organization should indicate its strategy
▪ The organization should identify its goals & way that will used to
achieve
▪ The company should indicate its resource allocation plans
6. Performance:
▪ The organization should indicate to which extend it achieved it period
goals
8
Created by: Mohamed Zakaria
7. Outlook:
▪ The organization should report about challenges &
uncertainty that encounter
▪ How it will apply its business model
8. Preparation and presentation:
▪ The organization should indicate how it prepare integrated report
▪ How it determines the materiality
9. General report guidance:
▪ This item in the Content Elements is not based on a question. It
provides information about essential issues that should be considered
during the preparation process, such as materiality, capital disclosures,
and an explanation of the business model
Notes: content element composed of questions should be answered except the last
content
Challenges of adopting integrated report:
o Materiality: it’s difficult for the organization to identify the material
matters
o Data quality: the quality of data included in the integrated report is
important
o Assurance: its difficult to assurance on integrated report specially
the non-financial information
o Lack of standard: the absent of universal standard, make the
preparation of integrated report difficult
o Ton at the top: the support of CEO plays important role in
adoption integrated report
9
Created by: Mohamed Zakaria
Benefits from adopting IR
1. Linking financial and nonfinancial information, which provides more
clarity about the value-creation process
2. Better decision making and resource allocation
3. Better relationships with stakeholders
4. More employee engagement
5. Lower reputational risk
6. More committed customers
7. Better measurement and internal control systems for nonfinancial
information
8. Breaking down silos within the organization by requiring different
departments to work together to produce an integrated report
9. Lower costs of, for example, debt and equity over the long term
Worldwide adoption integrated report if:
• Legislation is issued
• Standards established
• Investor pressure
• Firms in the same sector encourage each others
10
Created by: Mohamed Zakaria
Thank You -
◆
•
^
11
Created by: Mohamed Zakaria
