Integrated Reporting – The New Way!

Many of us may have already heard about the integrated reporting. Especially the ACCA students who have Integrated Reporting very well embedded in their syllabus. However for the rest this article is to give you an overview of what exactly is Integrated Reporting (IR).

Integrated Reporting is an initiative of International Institute of Reporting Council, who primary focus is to improve the transparency levels through reporting done by the businesses. For years, the businesses have gotten away with acts which aren’t favourable to some of their stakeholders, namely society, shareholders, environment etc. Therefore the agenda of IR is to ensure that the businesses disclose bare minimum amount of information about the resources they use which somewhere or the other has been misused in past and companies gotten away. These are called the six capitals of Integrated Reporting.

The first capital is Finance. The companies use Finance to run the business, and since the finance as a capital is always limited in nature, the businesses are liable to report how it is utilised. Which anyways is the basic premises of the financial reports and hence this doesn’t change the existing requirements.

The next one is Social and Relationship. This focuses on how the company is managing its most important stakeholder, the community at large. Is the business able to create value for the society, by building schools, contributing to social welfare, creating employment etc.

The next one is Human, how the business treats is Human capital. This focuses around the treatment vetted out to employees of the organisation in terms of working conditions, pay rates, etc. The businesses are not only supposed to manage the shareholders but also the employees which are equally important stakeholders.

Then the integrated reporting talks about the Intellectual capital, has the business been able to develop new technologies. Has the business been able to come up with new methods of making their customers life’s easy, this will be evident from the amounts companies spend in Research and Development. Therefore companies are spending enough in this area; it would mean they are building the intellectual capital.

The next one is well known capital, the Natural. How the business uses its natural resources, how sustainable are the operations, is the business environment friendly. So the report will focus on the sustainability and how the business is able to nurture the most important capital, Nature.

Lastly the final capital is Manufactured i.e. all the bits that are used to manufacture, how well is this capital utilized. Therefore all the tools and equipment’s, the fixed assets that go into the manufacturing is reported under this section. It is important this capital is used efficiently for sustainable growth and economically as well.

Our key contributor Zaheer Sayed ACCA quotes “Integrated Reporting is here to stay, and businesses that adopt the IR, not only provides more confidence to the stakeholders about the efficient use of the essential capitals, but also improves the perception which goes a long way in creating a much larger shareholder wealth.”Therefore the IR is all about bringing all the aspects of business together under one roof instead of multiple reports. It gives a holistic view of the business performance which can be used by any stakeholders. In India, the IR has started to gather steam with the Securities Exchange Body of India (SEBI) endorsing the voluntary adoption of integrated reporting since 2017. Therefore it is only with time, that like world over, in India too, the businesses would be required to start providing this holistic view.