What is Integrated Reporting and its Benefits?
Discuss About The International Of Economics Financial Issues.
Integrated reporting has become an important aspect in organization’s reporting. Primarily, it is the process that results in communicating the value creation within a business over time. Over the past few years, the market value of firms has moved from a price based mainly on tangible assets to greater emphasis on the intangible assets (Krzus, 2011). As such, the definition of value of an organization has deeply changed. Thus, the main purpose of an integrated report is to provide a single report that fully integrates both the non-financial and financial information. Primarily, the non-financial information may include the social, governance, environmental, among other intangibles. It is noteworthy that this form of reporting has numerous benefits for not only the firm but also its key stakeholders. One of the key benefits of using IR to incorporate the financial and non-financial information of a firm is that it creates greater trust and credibility with the firm’s stakeholders, suppliers and customers.
The main purpose of preparing an integrated report is to provide one report that fully incorporates an organization’s financial and non-financial information to enable the reader of the information to better understand the cause and effect relationship that exists between the various aspects of the company. Additionally, the report acts as a platform for a firm to furnish more detailed data than what is available in other reports (Krzus, 2011). In addition, this form of reporting aims at enhancing the quality and value of the data available to lenders of capital about the business position. Furthermore, it aims at promoting cohesion and provides an efficient approach to corporate reporting (The International IR Framework, 2013)
The use of an integrated report in preparing the financial and non-financial information has significant benefits for not only the firm but also its stakeholders, suppliers and clients. There are four major benefit of using integrated reporting. Primarily, it is associated with greater clarity, better decisions, lower reputational risk and deeper engagement for the firm (Krzus, 2011). Firstly, integrated reporting allows management to coherently describe the relationship between the company’s financial and non-financial information. It also allows the management to make informed decisions regarding the relationship between financial and non-financial performance, thereby help improve on the effective and efficient use of its capital and other resources (Integrated Reporting, 2014). What is more, it helps a company to effectively focus on risk by helping its management understand the effect of its strategic and tactical choices on society.
Guiding Principles of Integrated Reporting
Other benefits of using integrated reporting include; it shows the link between the financial and non-financial performance metrics of the firm (Hoque, 2017). Furthermore, a firm that prepares an integrated report maximizes its potential to transfer, hand-over or sell the business as it offers a better basis for valuation of the firm (Busco, Quattrone and Riccaboni, 2013). Moreover, it helps in securing financing for the firm at a more reasonable cost than the normal financial reports would.
The preparation of an integrated report is guided by various principles that organization must follow. There are 7 guiding principles to integrated reporting. They include strategic focus and future orientation, connectivity of information, materiality, stakeholder relationships, consistency and comparability, and reliability and completeness. For this assignment, I shall discuss only two guiding principles and demonstrate how they help to achieve the main purpose of IR. Later, I shall analyze how Newcrest utilized them in their 2017 annual report.
According to The International IR Framework (2013), an IR should offer insight into the firm’s plan and show how it is connected to the company’s capability to create value in the medium, short, and long term. It should also indicate its use and consequences on the capitals. Thus, the firm is expected to highlight significant risks, opportunities, and dependencies originating from its business model and market position. In addition, the firm is required to incorporate the views of those charged with governance on various factors. First, it should indicate the views of the governors on the relationship between the future and past results and factors that can alter that relationship (The International IR Framework 2013). Additionally, it should present their opinion on how the business balances long, short and medium term interests. Furthermore, the governance views on how the company has gained from previous experiences in developing future strategic choices should also be included in the report. Therefore, adopting this guiding principle involves clearly articulating how the continued availability, affordability and quality of significant capital contributes to the firm’s ability to achieve its objectives
The International IR Framework (2013) also prescribes that an IR should be concise. As such, it should include sufficient information to help the reader to understand the firm’s governance, performance, strategy, and prospects without being overwhelmed with unimportant details. In this case, the organization is expected to seek a balance in its report between conciseness and the rest of the principles (The International IR Framework 2013). In order to achieve conciseness, the report must express concepts clearly with a few words as possible. It should also use plain language instead of jargons and very technical terminologies. Furthermore, it should follow a logical format that contains internal cross-references to reduce repetitions within the report.
Case Study: Newcrest Company and its 2017 Integrated Report
Notably, Newcrest is the best gold mining enterprise in Australia. Newcrest is a reputable Australian corporation taking part in exploring, mining and development of gold and copper concentrates (2017 Annual Report, 2017).In addition to its Australian branches, Newcrest has extended its operations to other parts of the world such as Indonesia. Primarily, Newcrest deals with gold and copper based explorations and development. Newcrest is a leader in Australia’s mining industry (2017 Annual Report, 2017)..
As noted earlier, an IR is expected to portray a strategic focus and future orientation. It is worth noting that the Newcrest 2017 provides a depiction of its strategy. The report highlights the significant risks and opportunities that flow from its business model and market position. The main opportunities highlighted in the report include the availability of large gold reserves in its mine estimated at 65 million ounces (2017 Annual Report, 2017). In turn, this suggests that the company has a reserve of gold that would last approximately 26 more years, providing the company an opportunity to remain operational and obtain significant profits from the mines (2017 Annual Report, 2017). It also highlights its exploration and technical capability as an opportunity for the firm to rise above its rivals and set it apart to take advantage of future discoveries. In addition, the paper highlights the relationship between past and future performances of the firm as required by the guidelines. Additionally, the report reflects on how the firm has learnt from previous experiences in developing its future strategies.
Conciseness is an important guiding principle that the Newcrest Company has observed in its 2017 integrated report. By and large, the report adopts a logical structure that is easy to follow and make cross-references throughout. The report is divided into sections that provide the reader a detailed overview of the aspects being discussed within the section. In addition, the paper uses simple language that is easy for the reader to understand (2017 Annual Report, 2017). It is clear that the report is written in plain language without highly technical terminology and jargons that may hinder the reader from comprehending the details of the report (The International IR Framework 2013). As a result, the concepts explained in the paper are clearly expressed, making it easy for the audience to understand the details of the report easily. Most importantly, the integrated report includes sufficient context that helps the reader understand the firm’s strategy, performance, prospects and governance without necessarily burdening the reader with the less relevant information. The report gives details of its management and structure of governance by introducing the board members alongside their qualifications. In addition, it provides a detailed report on the performance of the business over the 2017 financial year indicating that the firm experienced significant growth (2017 Annual Report, 2017). The report shows that the company’s financial metrics have improved significantly over the past 3 years. It also forecasts that the robust growth would continue over the near future. Therefore, in general, the 2017 annual report for Newcrest Company is sufficiently concise.
Conclusion
Integrated Reporting provides a more detailed reporting that improves the quality of information about the financial and non-financial information of business. It provides an opportunity for the firm to offer a clear picture about the state of the organization. As a whole, the Newcrest Company has implemented and used the integrated reporting system in its financial reporting.
References
2017 Annual report (2017), Newcrest Company. pp. 4-256.
Busco, C., Frigo, M., Quattrone, P. and Riccaboni, A. (2013). Integrated reporting. New York: Springer International Publishing.
Hoque, M. (2018). Why Company Should Adopt Integrated Reporting?. International Journal of Economics and Financial Issues, 7(1), pp.241-248.
Integrated reporting: Evaluating Value (2014). EYGM Limited, pp.1-52.
Krzus, M. (2011). Integrated reporting: if not now, when?. Blickpunkt: Integrated Reporting, pp.271-274.
The International <IR> Framework (2013). The International Integrated Reporting Council (IIRC), pp.1-37.
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