Telling the story behind your company's financial performance is a powerful skill, but what if you could take it one step further?
In today's business environment, stakeholders want to understand more than just how much profit your company made. They're seeking a broader perspective that communicates the key factors influencing your organization's ability to create long-term value. These include your company's business model, market opportunities, and social and environmental impact.
That's where integrated reporting comes in. It combines financial and non-financial information to show how different factors interact to drive sustainable success.
Integrated reporting is a holistic approach to corporate reporting that combines financial data with non-financial insights.
Integrated reporting in accounting takes a broader approach than traditional methods. Instead of focusing only on financial results, it incorporates environmental, social, and governance (ESG) factors to give a bigger picture of a company’s strategy, performance, and overall impact.
This helps stakeholders understand how well the business is positioned for long-term success, sustainability, and resilience.
Some organizations help set the standards for integrated reporting. A key example is the International Integrated Reporting Council (IIRC), which now operates under the
International Financial Reporting Standards (IFRS) Foundation. The IFRS Foundation continues to support and provide resources for integrated, globally consistent corporate reporting.
Integrated reporting is a strategic tool that helps organizations tell a more complete story. Its primary purpose is to explain how a company creates, maintains, or loses its value over time.
Here are some of the key benefits of integrated reporting:
- A holistic view of performance: Integrated reporting combines financial and non-financial information to present a complete picture of how an organization creates value. It covers important non-financial aspects, like business strategy, risks, sustainability, and long-term goals.
- Stronger decision-making: Companies are equipped to make informed decisions. They receive information and data beyond financial performance, enabling them to spot risks and opportunities earlier.
- Greater transparency and trust: Integrated reports show how a company deals with social, environmental, and economic issues. This transparency helps build stronger trust with investors, employees, and other stakeholders.
- More efficient reporting: Instead of producing multiple standalone reports, integrated reporting streamlines information related to different factors into a single document. Stakeholders and key decision-makers can access all relevant data in one place, saving them time and effort.
- Better long-term value creation: Companies can focus on what truly matters. Integrated reporting supports the development of resilient business strategies by fusing financial success with sustainability and governance.
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The IIRC developed the
Integrated Reporting Framework, which provides a structured approach for organizations to report how they create and preserve value over time.
Instead of viewing financials, sustainability, and governance as separate topics, the framework highlights how they are all connected.
To understand how an organization creates and sustains long-term value, you need to look beyond just financial performance. Value is created over different time horizons and through various resources, known in integrated reporting as "capitals."
The Integrated Reporting Framework encourages organizations to consider how they use and affect different types of capital. To support this integrated approach, the framework identifies six capitals that drive value creation, which include the following:
- Financial Capital: Funds available for producing goods or providing services, including debt, equity, and grants
- Manufactured Capital: Physical objects and infrastructure used in production or service delivery (e.g., buildings, equipment)
- Intellectual Capital: Intangible assets such as knowledge, systems, intellectual property, and software
- Human Capital: People's competencies, experience, and motivation, as well as their capacity for innovation and development
- Social and Relationship Capital: The organization's relationships with stakeholders, communities, and networks
- Natural Capital: Both renewable and non-renewable environmental resources like water, air, land, and ecosystems that the organization depends on
Understanding how these capitals work together helps companies spot potential risks and opportunities in different areas.
The framework outlines eight content elements to guide the creation of a high-quality integrated report. These ensure that the report is relevant, consistent, and meaningful.
The eight elements that every integrated report should include are as follows:
- Organizational Overview and External Environment: What the business does and the conditions it operates in
- Governance: How the organization's structure supports value creation
- Business Model: The inputs, activities, and outputs that fulfill the company's purposes
- Risks and Opportunities: Key opportunities, challenges, and risks the organization has and how it is dealing with them
- Strategy and Resource Allocation: Where the company is heading and how it plans to get there
- Performance: Both financial and non-financial objectives that the organization has achieved
- Outlook: The challenges and uncertainties that the company may face while pursuing its goals, and how the organization is or will be equipped to handle them
- Basis of Preparation and Presentation: How the information is selected and presented, including assumptions or reporting boundaries
Together, these elements create a consistent structure for telling a company's full story, from its current position to its long-term mission and goals.
Stakeholders want to understand how a business impacts the world, especially regarding environmental risks and social challenges. This is where integrated reporting plays a critical role.
Rather than treating sustainability reporting as a separate or optional component, integrated reporting includes environmental and social factors, such as climate change, resource use, and talent retention, as part of the broader picture of business performance and long-term value creation.
It helps companies show how they handle sustainability-related risks and opportunities as part of their long-term plans. For instance, a business might share how cutting carbon emissions or improving supply chain efficiency supports future profits.
In short, integrated reporting gives a clearer view of how value is built over time. This helps stakeholders better understand the risks, opportunities, and long-term growth prospects of the business.
While integrated reporting offers clear benefits, adopting it can be challenging. Many organizations struggle to move from traditional reporting methods to this more holistic approach.
Common challenges include collecting consistent and reliable non-financial data, which can take a lot of time and effort. It’s also tough to measure the impact of things like brand reputation, employee morale, or environmental efforts, since these aren’t as easy to quantify as financial results.
Additionally, many professionals are still unfamiliar with the integrated reporting framework or unsure how to apply it effectively.
You'll gain a solid understanding of the six capitals, the eight content elements, and practical strategies for building reports that are transparent, credible, and focused on long-term value creation. What's even better is that you can complete the course at your own pace and from the comfort of your own home while you earn CPE credits!
Nathan Liao, CMA
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Nathan Liao, a Certified Management Accountant, educator, and influential business figure in the accounting industry, has dedicated over a decade to supporting more than 82,000 accounting and finance professionals in their pursuit of the CMA certification. As the visionary founder of CMA Exam Academy and CPE Flow, Nathan is committed to delivering premier online training solutions for the next generation of accounting and finance professionals.
