Part One
The world’s largest companies are often regarded as leading the way for small- and medium-sized entities (SMEs). But that’s not how it is or at least not how it has to be. The evidence, from government statistics through to academic research, demonstrates that SMEs not only have the greatest impact on economy and society but they are also the primary drivers of innovation and change. And, where SMEs lead in product and service innovation, they can also lead in the innovation for integrated reporting.
There’s a fast-growing body of compelling evidence on the substantial benefits organizations gain from integrated thinking and reporting. But what about the benefits for SMEs? Perhaps most strikingly, the B20 (the G20’s business arm) recommended promoting integrated reporting as a key means of improving SME reporting with a view to building trust around past and future performance.
There is a clear, concise and persuasive case why SMEs and their stakeholders, from owner managers through to end consumers, stand to benefit greatly from considering integrated thinking and integrated reporting.
SMEs globally account for the majority of private sector economic activity, employment, social impact and environmental footprint. In their midst are tomorrow’s largest, most influential and impactful companies. Amazon, Alibaba, Uber and Didi Chuxing were yesterday’s SMEs. But unlike many larger companies, SMEs often have the latitude to take a long-term view and pursue objectives above and beyond simply profit. Many SMEs are run by owner managers who see business as integral to and a reflection of their lifestyle and values. This lends itself to a way of thinking, and corresponding reporting, that stresses the long term over the short term, the future over the past and principles over profit.
Integrated reporting is a generally recognized international framework that helps SMEs better understand and better communicate how they create value. It provides a road map for SMEs to consider the multiple capitals and connectivity that make up its value creation story. This makes an integrated report much more than a conventional annual report—it’s a more complete corporate report. But it need not demand much, if any, more effort to compile. And perhaps, more important, it will help SMEs understand the core drivers of their business so they can implement a business model that will help them grow.
SMEs, like larger entities, leverage a range of resources and relationships to create value. The International Integrated Reporting Framework calls these “capitals.” There are six capitals, including the familiar, financial and the less familiar, manufactured, intellectual, human, social and relationship and natural capital. Properly nurtured, these capitals can release value over time while simultaneously growing their capacity as a store of value. How these capitals can operate in an SME are detailed in International Federation of Accountants (Ifac) Creating Value for SMEs through Integrated Thinking: The Benefits of Integrated Reporting (https://www.ifac.org/publications-resources/creating-value-smes-through-integrated-thinking).
I dwelled on the impact and value of IR on SMEs with the audience who attended the Board of Accountancy sponsored symposium “Integrated Thinking and Reporting for SMEs” on January 3 in the Philippine International Convention Center. The continuation of my article will focus on more interesting issues.
To be continued
Paul Thompson is a European Federation of Accountants and Auditors director and a consultant dedicated to thought leadership and development of the global accountancy profession. From 2004 to 2016, Thompson worked for Ifac latterly as director, Global Accountancy Profession Support, a role that extended to overseeing the Ifac Global Knowledge Gateway, research and innovation, and activities in support of small- and medium-sized practices and professional accountants in business.
This column accepts contributions from accountants, especially articles that are of interest to the accountancy profession, in particular, and to the business community, in general. These can be e-mailed toboa.secretariat.@gmail.com.