The relationship between businesses, its investors, its stakeholders and the society as a whole has become relevant now more than ever. The drive of technology toward transparency and inclusiveness brings in the challenge of meeting the information needs of various players in a wide array of business undertakings.
Business organizations are heavily restrained by superfluous and cluttered reporting cycles that are short-term framed, are contextualized in past events and subjective hindsight, have a compliance-driven character, and have a fragmented approach—making a report unnecessarily complex that it does not convey a holistic story at all. With excessive emphasis on financial information, investors cannot get enough access to relevant information beyond what is presented as ordinary numbers and figures—widening the gap of mistrust between the business entity’s management, its investors and its stakeholders.
In response to the new and wider value creation model, businesses have been adopting the Integrated Reporting and Thinking <IR> framework. The <IR> has emerged as a global movement to institutionalize a more cohesive and efficient approach to corporate reporting. It aims to communicate to investors quality information on how organizations allocate and manage their resources and relationships—or comprehensively their capitals—to create value over the longer term. The <IR> identifies six broad categories of capitals used by organizations in meeting the needs of different stakeholders. These capitals include financial, manufactured, intellectual, human, social and relationships, and natural. Integrated Reporting gives organizations a rounded and well-supported perspective on their strategy and plans, and its impact on the different capitals, making better-informed decisions, managing key risks, and taking advantage of key opportunities.
Integrated Reporting was born out of the lapses of the traditional corporate reporting system. The financial focus of corporate reporting practices has overshadowed other equally important concerns for different stakeholders such as societal welfare and environmental protection. There is growing concern over the capitalist market’s expansion and the stability and preservation of resources for future use. Enthusiasm over adopting measures to achieve productive and inclusive growth without endangering future generations is picking up pace. Future-oriented information becomes more relevant than objective yet historic information.
Aside from improved resource allocation, accountability and stewardship, <IR> is also seen ending the incentive and rewards systems that perpetuate short-term thinking and decision-making; effecting reporting practices apt to modern-day business models; evolving a system of capital allocation that is more aligned toward achieving the long-term goals of businesses and the society; painting a more comprehensive picture of the company and its prospects to investors; and over all, bringing together key players in the society in the bonds of trust and confidence.
Integrated Reporting and Thinking should be the next step in the evolution of corporate reporting and it will likely become the catalyst for a more sustainable global economic governance mechanism. As it brings together different key players toward a better level of understanding and strategic relationship, we can just wait and see how Integrated Reporting will make congruent goals and objectives work for the benefit of the present and the future business ecosystem, or life and nature in general.
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 to boa.secretariat.@gmail.com.
Joshua Tito Tangca is a BS in Accountancy graduate of the Technological Institute of the Philippines Quezon City.