Integrated reporting (IR) is one of the most hotly debated topics in the field of accounting and business reporting. Advocates for this reporting method argue it’s the wave of the future, while opponents suggest it’s unnecessary and time-consuming for businesses. This guide answers the question, “What is integrated reporting?” It tells you about integrated reporting pros and cons, how IR compares to sustainability reporting, and how integrated reporting can benefit your small business.
What is Integrated Reporting in Accounting?
Integrated reporting is a holistic reporting method used by Chartered Professional Accountants (CPA) that shows how businesses create value in the short-, medium-, and long-term. IR combines elements of several other existing business reports. These reports address the value of capital that businesses consume or create, including financial, human, intellectual, natural, and social capital. With this approach, you find new types of information in corporate financial statements that address a company’s positive and negative economic, environmental, and social impacts. An integrated report for your enterprise examines and discusses these factors and the connections between your business’ strategic objectives, performance, and risk. In order for your CPA to create the reports accurately, you have to understand and provide information about all your performance areas, not just your short-term financial data.
Integrated Reporting Pros and Cons
Supporters of IR offer two major reasons for adopting the reporting method. First, IR reports reflect shifting social and cultural values. Supporters believe that businesses should learn to think more responsibly about their social and environmental impact. Second, they feel that integrated reporting is the best model for showing a company’s long-term ability to create and sustain value. When firms produce reports including integrated reporting, the results show a lot more than the company’s previous year’s financial results. These reports show the substance of the business. The International Integrated Reporting Council (IIRC) has argued that companies should adopt a series of standards to express value, which would be helpful to lenders and investors.
In responding to the IIRC, the Chartered Professional Accountants of Canada has suggested that the concept of IR is fine, but that most organizations aren’t equipped to meet the new standards in a cost-effective way, and investors and lenders don’t demand such reporting. In other words, they’ve argued against requiring IR, saying it’s an unnecessary and expensive change and that most businesses don’t have the time to comply with it.
Another argument against IR is that while international financial reporting standards are accepted globally, there’s no generally accepted IR framework and one isn’t likely anytime soon. If your company doesn’t have a standard for what to report, you might decide to report what’s good for you instead of facing reality. Lack of standards is an issue that crops up in sustainability reporting, too.
Integrated Reporting Is Not Sustainability Reporting
Integrated reporting may seem similar to sustainability reporting, since both reporting styles acknowledge environmental and governance issues are important in business. However, it’s wise to avoid confusing the two. Sustainability reporting contains data that relates to value but generally, it doesn’t produce information you can act on for a direct financial purpose. Integrated reporting focuses primarily about reporting relevant to investors, business owners, and executives. IR is oriented toward evaluating how effectively your company is achieving its mission and goals. You can take specific actions based on information from integrated reporting.
How Integrated Reporting Can Help Your Small Business
Integrated reporting is not just for big corporations and nonprofits. Your small business can benefit from starting voluntary integrated thinking and reporting. Gathering and providing information to your CPA firm so they can produce these reports can help make it easier to communicate with your suppliers, lenders, or clients. Integrated reporting helps you and your stakeholders see the big picture and be more future-oriented. Sharing these reports within your company might give your management team and employees a clear understanding of your goals for business performance and a better road map for getting there.
Integrated reporting can give you a broader perspective and fresh insight on your business and help you manage it better. Want a better way to manage your business finances? 5.6 million customers use QuickBooks. Join them today to help your business thrive for free.