Abstract
Information management is reshaping drastically in modern firms. The traditional data handling technique that led to losses of vital financial and non-financial information is becoming a forgone issue. The emerging technique of integrated reporting is a crucial idea that firms must embrace to ensure a comprehensive reporting for effective value assessment of a business. Integrated reporting is cost-effective, as it enhances relevancy, integrity, reliability, accountability, efficiency, and convenience in information management and dissemination to customers or firm management.
It will deem appropriate for the Australian accounting firm herein to consider incorporating an integrated reporting division. The division should have a workforce competent in data management and information science and knowledgeable about the accounting standards and IIRC integrated reporting principles. However, it is anticipated that the leaders of the integrated reporting process might face challenges in formulating an effective assurance process.
Introduction
There is an increasing demand for companies to understand a range of corporate concerns and opportunities that probably affect the long-standing business values to enable them to remain productive (Deegan 2009). Managers have frequently reported that there exists a knowledge gap between an investor’s quest for awareness on the value of a firm and the available information. Finance is the greatest source of stability in modern firms, as most corporate activities rely on the financial performance of a company (Abeysekera 2007). Although the idea of having an integrated reporting division in firms is very significant, it is often received with mixed reactions. This report explores the significance of an integrated reporting division and describes its viability in an accounting firm.
Vision and Aim of an Integrated Reporting Division
Firms experience deficiencies in understanding the minor losses and critical concerns that result from poor documentation and reporting of financial and operational matters. Ghosh and Wu (2007) state that as firms continue to experience immense challenges caused by the changes in the global economy, accurate reporting of issues concerning intellectual capital is crucial. Important issues in corporate reporting remain undermined because some go unreported while information contained in records is often unclear. Such business reporting scenarios cause an extensive information gap between the available and the necessary information, which investors need to assess progress, stability, prospects, and value of current businesses (Abeysekera 2013).
In the past, firms reported losing millions of money due to lack of appropriate reporting, as nonfinancial and financial information remained scattered in fragmented offices (Godfrey, Hodgson, Tarca, Hamilton, & Holmes 2010). Integrated reporting has become a source of value reporting, as it provides a framework for comprehensive reporting regarding the operational and business growth concerns.
Eccles and Krzus (2012) write that integrated reporting offers a firm an opportunity to understand the accrued benefits of the prevailing situation, the critical opportunities, and the forms of challenges that probably affect its daily operations. Accounting firms are profit-driven organizations in the sense that any piece of financial or non-financial information regarding their operations is significant (Abeysekera 2013). The economic sphere of accounting firms is very important. As such, firms must ensure adequate sustainability throughout their operations.
When such vital information remains scattered in fragmented offices and stores where there is little caution in data handling, loss of crucial data is inevitable. According to Thiagarajan and Baul (2014), the aim of an integrated report is to demonstrate the integration of financial performance with other aspects of organizational performance essential in reaching an organization‘s vision” (p. 44). Therefore, the main vision and aim of integrated reporting is to combine financial and non-financial corporate information with an intention of providing a clear and inclusive picture of the business value of an operating firm (Abeysekera 2013).
Integrated reporting provides the stakeholders of a firm with information useful in making an informed assessment of the business value and analyze the prevailing market forces, the protracting opportunities, and the prospective future of a firm.
Elements of an Integrated Reporting Framework
The initial point of understanding the operations of integrated reporting is through consideration of the content elements, as formulated by the International Integrated Reporting Council (IIRC) (Deegan 2009). The IIRC developed seven main content elements that need inclusion in an integrated reporting framework. They include aspects of governance and remuneration, a firm’s business model, risks and opportunities associated with a company, the strategy and resource distribution, estimated performance of a corporation, the prospective outlook of a firm, and the basis of the report appearance (Abeysekera 2013).
The content element of governance and remuneration entails issues related to the management structure and its impact on the business value (Abeysekera 2013). The Australian accounting firm in this case has employees earning certain remuneration. By identifying the management approach and remuneration practices, the firm will be able to determine the factors affecting management, employment, and remuneration.
On the other hand, the content element of a business model describes the corporate strategy of an organization, which acts as a basis of determining and assessing short-term, medium, and even long-term business values (Deegan 2009). In the mentioned Australian accounting firm, an integrated report of a business model will help describe the underway practices that create business values.
The content element of risks and opportunities comprise a description of the specific threats and chances that may influence the achievement of business values (Deegan 2009). The Australian accounting firm herein deals with important financial affairs such as accounting, auditing, and taxation. Financial and non-financial information regarding these accounting practices involve risks and uncertainties that the company must track and record (Drever, Stanton & McGowan 2012). Strategy and resource distribution element entails an analysis of the resources invested in the cherished sections of the firm.
The value of an operating business can be assessed in the context of its performance in various sectors of the firm. The accounting firm has three major business sections, namely, accounting, auditing, and taxation departments. The content elements of a strategy and resource allocation enable firms to assess departmental performances, appraise departments, and make resource allocation decisions (Drever, Stanton & McGowan 2012).
Performance is a content element that aims at evaluating the extent to which a firm has managed to achieve its strategic plans. The firm is an actively competing enterprise that requires comprehensive reporting of its performance. Prospective outlook is also an important content element in integrated reports, as it allows an operating firm to understand its anticipated progress as well as the uncertainties expected (Deegan 2009). On the other hand, report appearance is a content element that involves identification of valuable and quantifiable data necessary for inclusion.
Pros and Cons of Creating the Integrated Reporting Division
Integrated reporting is becoming an essential business component because it facilitates the retrieval of financial and non-financial information of a firm by an organization’s management and customers (Henderson, Pierson & Herbohn 2010).
Integrated reporting involves value-creation that comes in two perspectives: value produced to benefit an organization and value created for others, including customers. Although financial capital focuses on the economic value created by an organization, analysts believe that the value that a company creates for others normally influences its capability to improve its net worth (Henderson, Pierson & Herbohn 2010). With integrated reporting, firms will manage data easily, ensure comprehensive reporting, enhance their corporate market reputation, and manage their records efficiently.
However, integrated reporting may be contentious in data handling, create interdepartmental inconveniences due to bureaucracies, and cause loss of flow of work, considering the fact that an accounting firm is a large company with an assortment of data. In addition, an integrated reporting leader may have a challenge of ensuring that the main internal stakeholders cooperate (Godfrey, Hodgson, Tarca, Hamilton, & Holmes 2010).
Additionally the leaders may face challenges of developing a suitable assurance process regarding the practice of integrated reporting. Moreover, formulating an effective assurance approach with efficient mechanisms for the assessment and approval of the reporting plans, structure, and processes may fail due to the global immaturity of integrated reporting (Godfrey, Hodgson, Tarca, Hamilton, & Holmes 2010). Besides, the assurance of data quality, appropriate storage, and efficient retrieval will prove to be quite challenging.
Benefits of Integrated Reporting to Clients
Integrated reporting reduces the issues of complexity that seem to affect most financial reporting activities of nowadays by allowing customers to access, review, and analyze their financial records appropriately and in an understandable and comparable manner. Organizational capital encompasses financial, manufacturing, human, intellectual, natural, and social and relationship resources of a firm (Eccles & Krzus 2010). Accounting firms involved in auditing and financial statement preparation normally deal with financial issues related to their customers. Integrated reporting helps firms compile corporate reports, ensure data safety, and make informed decisions on matters concerning services offered to consumers and the public.
Division Requirements and Marketing Plan for Its Services
The integrated reporting division may possess a name such as the ‘Integrated Reporting Department’. The department may provide services related to record keeping, where a company creates a database of financial and non-financial information of its corporate and customer transactions (Eccles & Saltzman 2011). The integrated reporting division will provide a better alignment of any reported or documented information that suits investor demands, resource allocation decisions, and customer needs (Deegan 2009). The department may store and relay information concerning previous contracts, stakeholder reports, market research, and future opportunities useful in making informed decision regarding investment and company progress.
The Required Workforce and Skills
The integrated division would require a skilled workforce to manage the comprehensive information and databases of the company. Persons competent in information science, database management, financial analysis, record keeping, and public relations, will form the appropriate workforce (Ghosh & Wu 2007). The workers dealing with keeping financial and nonfinancial information in the ‘Integrated Reporting Department’ must have a broad knowledge about the international accounting standards and the principles of integrated reporting designed by the IIRC (Ghosh & Wu 2007).
Marketing for Integrated Reporting Services
In Australia, there is currently little knowledge about the efficiency of integrated reporting in most accounting firms (Deegan 2009). The firm mentioned in this case is among the accounting firms that have not recognized the need to implement integrated reporting. In marketing the services within the integrated reporting division, I will ensure that the company understands the meaning and benefits associated with integrated reporting. I will first conduct an appraisal of current corporate reporting, information management, and record keeping systems of different departments of the firm. After persuading the management on the significance of comprehensive value reporting, I will recommend the formation of a departmental unit responsible for integrated reporting.
Cost and Benefits of Integrated Reporting
It will deem essential for the company to consider having an integrated reporting system in the accounting department. Integrated reporting offers any organization with an opportunity to produce forward-looking information that extensively combines a series of financial and non-financial data. According to Thiagarajan and Baul (2014, p. 47), “integrated reporting brings governance and financial, intellectual, social, and environmental capital onto a common platform.”
Furthermore, value reporting of financial and non-financial data in accounting firms helps companies estimate their losses, business opportunities and uncertainties, current performance, and leadership techniques that are necessary for the effective analysis and communication of the overall business value (Abeysekera 2013). Abeysekera (2013) further argues that it is cost-effective when firms store capital information in a unified manner compared to fragmented divisions because of ease of accessibility, effective risk management, appropriate information retrieval, proper financial analysis, and enhanced data management.
Conclusion
Corporate reporting has gradually lost its significance over the years due to the inability of firms to remain cautious on the relevance and reliability of appropriate and comprehensive business reporting. Financial and non-financial reports often form an important part of decision-making because they enable organizations to estimate previous lapses and present performances and business prospects related to business value. Integrated reporting provides firms with an opportunity to connect financial information and non-financial information and use such data to influence the intentions and morale of investors in different operational priorities of a firm. An integrated reporting department with a workforce skilled in information management, database management, and analytical techniques of information, and knowledge about the international accounting standards and the principles of IIRC are crucial in preventing financial issues and improving accounting procedures. More importantly, integrated reporting helps reduce the gap between reported information and the data required by investors to make crucial investment decisions.
References
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