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Integrated Reporting: Definition, Purpose & Framework

Instructor: Moses Muiga

Moses teaches finance and accounting. He holds undergraduate degree in finance, he is a certified accountant and studied general business at graduate school.

Integrated reporting provides information on how an organization creates value over time. The lesson defines integrated reporting and describes its purpose, defines the framework of integrated reporting and identifies the key components of the framework.

International Integrated Reporting Council (IIRC)

The International Integrated Reporting Council (IIRC) is a global organization formed by an alliance of members representing regulators, investors, companies, standard setters, accountants and non-governmental organizations (NGOs). IIRC promotes integrated reporting as a method for communicating how an organization creates value.

Integrated Reporting

Integrated reporting is a complete report of components involved in the creation of a company value over the short, medium and long term. Integrated reporting comprises communication of financial capital and non-financial capital contributing to the creation of organizational value. Financial capital and non-financial factors, such as human capital skills, intellectual capital, and social reputation, shape the value of an organization. Integrated reporting requires integrated thinking in order to identify interdependency between internal and external factors that contribute to the organization's value.

The integrated report can be included as part of the organization's regulatory compliant reports or can be presented separately as additional communication.

Purpose of Integrated Reporting

The main objective of integrated reporting is to explain to capital providers how an organization creates value over the short, medium and long term. The focus of integrated reporting is on providers of financial capital because they influence how capital is allocated. Other stakeholders who benefit from integrated reporting include employees, suppliers, customers, policymakers, regulators, business associates, and the local community.

Framework for Integrated Reporting

The framework for integrated reporting is the guiding principle of information that should be included in the integrated report. The framework for integrated reporting is flexible and accommodates the unique requirements of different organizations in order to enable comparability of information.

The purpose of the framework is to specify the information to be included in an integrated report. The information included helps stakeholders assess the organization's ability to create value. The framework is not a benchmark for evaluating the quality of organization, strategies or performance. Instead, it is a guideline for the necessary information.

The framework guideline is written for-profit companies of any size in the private sector but can be adapted by public companies and non-profit organizations (NGOs)

Key Components of the Integrated Report

Integrated reporting addresses the following key components.

Organizational View and the External Environment

This section addresses the organization structure and the operation condition of the organization. Identified information in this section includes mission and vision, key quantifiable information such as the number of employees, and the external environment affecting the organization.

Governance

This section addresses the organizational structure and how the structure supports the ability of the organization to create value in the short, medium and long term. The section links leadership, strategic decisions, organization culture, remuneration and incentives to the creation of organization value.

Business Model

This section addresses the organization's business model. The information reported in this area includes business activities, inputs, outputs, features that can be enhanced and information covered by other sections which are part of the business model.

Risk and Opportunities

This section identifies specific risks and opportunities affecting the organization's ability to create value and highlights the action the organization is taking in dealing with them. Reported information includes internal and external risk, probability of the risk happening and its magnitude and specific steps the organization is taking to address the risk.

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