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Bao 3309 The Financial Statements Assessment Answer

In December 2016, CPA Australia issued the following report, “AN EXPLORATION OF THE INFORMATION NEEDS OF SELECTED STAKEHOLDERS OF INTEGRATED REPORTING” (CPA, 2016). This report provided a summary of research undertaken which explored the information needs of company stakeholders and their perspectives on integrated reporting (CPA, 2016). The objectives of the study were: 1. to explore what stakeholders claim they need and expect from an integrated report; 2. to assess the level of alignment between stakeholders’ expectations information needs; and 3. to understand the usefulness of integrated reporting to their decision-making (CPA, 2016). This report is available from the following link:

As explained in the CPA Australia report, the integrated reporting framework was developed by the International Integrated Reporting Council (IIRC). Further information about the IIRC is available from their website:

Required

  1. With reference to the IIRC website and the relevant accounting literature, explain the role of the the International Integrated Reporting Committee (IIRC)
  1. With reference to the research findings of the CPA report and the relevant accounting literature, explain the existing and potential roles of integrated reporting with regards to:
    1. Providing information that is relevant to stakeholders;
    2. Stakeholder engagement;
    3. Comparability of reporting;
    4. Quality of reporting;
    5. Usefulness of reporting; and
    6. Users of reporting
  2. Compare and contrast the findings of the CPA report with the following guiding principles that underpin integrated reporting:
    1. Stakeholder relationships;
    2. Materiality;
    3. Conciseness;
    4. Reliability and completeness; and
    5. Consistency and comparability
  3. Identify and explain the similarities and differences between :
    1. The definition and objective of the International <IR> Framework with the definition and objective of general purpose financial reporting (GPFRs) as contained in the IASB / AASB conceptual framework (IASB CF);
    2. The identification of the users of an integrated report and the identification of the users of GPFRs;
    3. The integrated report concept of materiality and the IASB CF concept of materiality; and
    4. The integrated report concepts of reliability, completeness, consistency and comparability and the IASB CF concepts of reliability, completeness, consistency and comparability
  4. Compare and contrast the integrated reports of four companies that appear in the examples database of the integrated reporting website (see below)

 with respect to  any four of the <IR> Guiding Principles as discussed in your answer to part 3

  1. Discuss the factors that may explain the similarities of differences that you identified in your analysis in part 5. 

References

Adams, S. and Simnett, R. (2011), Integrated Reporting: An Opportunity for Australia's Not-for-Profit Sector. Australian Accounting Review, 21: 292–301. doi:10.1111/j.1835-2561.2011.00143.x

Brown, J. and Dillard, J. (2014) " Accounting, Auditing & Accountability Journal, Vol. 27 Issue: 7, pp.1120-1156,

 de Villiers, C., Rinaldi, L. and Unerman, J. (2014) , Accounting, Auditing & Accountability Journal, Vol. 27 Issue: 7, pp.1042-1067, 

García-Sánchez, I.-M. and Noguera-Gámez, L. (2017), Institutional Investor Protection Pressures versus Firm Incentives in the Disclosure of Integrated Reporting. Australian Accounting Review. doi:10.1111/auar.12172

Lodhia, S. and Stone, G. (2017), Integrated Reporting in an Internet and Social Media Communication Environment: Conceptual Insights. Australian Accounting Review, 27: 17–33. doi:10.1111/auar.12143 

Stubbs, W. and Higgins, C. (2014)  

Tweedie, D., Nielsen, C. and Martinov-Bennie, N. (2017), The Business Model in Integrated Reporting: Evaluating Concept and Application. Australian Accounting Review. doi:10.1111/auar.12196 

Submission requirement

  1. Assignment submission
    1. Submission of this assignment by due date is compulsory for the successful completion of the subject.
    2. The Turnitin Similarity Report should be no more than 20%. 
    3. Late submission without the extension approval from your local lecturer will be penalised at two marks (out of 20) per calendar day (including weekend).
    4. Completed extension application form must be submitted to your tutor at least three days in advance of the due date.
    5. Students are responsible to protect their work and save data by making necessary backup. Loss of data due to a computer or storage devices problems will not be considered a legitimate reason for an extension. 
  1. Referencing and style
  • Assignment must be typed using Word document, with double alignment, and 1.5-lines space.
  • Assignment is required to use Harvard referencing .
  • Assignment without proper referencing (in text and end of text) will be subject to substantial deduction of marks. This may result in the assignment being marked zero. 
  1. Preventing plagiarism

3.1 Academic Honesty and Preventing Plagiarism Policy

Plagiarism is defined as ‘The practice that involves use of another person’s intellectual output and presenting it (without appropriate acknowledgement) as one’s own’.

Examples of plagiarism:

  • Word-for-word copying of sentences/paragraphs in an assignment without acknowledgement or with insufficient or improper acknowledgement;
  • Downloading essays or assignments from the web and presenting these for assessment;
  • Presenting another student’s work or research data as the student’s work;
  • Copying out parts of any text without acknowledging the source(s). This may be written text, structures within texts, diagrams, formulae, sound files, still photographs, audio-visual material (sound and image files), graphics/animations/multimedia objects, other computer based material, mathematical proofs, art objects, products and others. This can be done as verbatim copying or paraphrasing.
  • The use of someone else’s concepts, experimental results, experimental conclusions or conclusions drawn from analysing evidence or arguments without acknowledging the originator of the idea(s) or conclusion(s). 

3.2 Students are responsible for:

  • Understanding and respecting the University’s policies and procedures regarding plagiarism, collusion, and other forms of academic misconduct, and as such should only submit work for correction or academic credit that is their own or that properly acknowledges the ideas, interpretations, words or creative works of others;
  • Avoiding the lending or making accessible original work to others;
  • Being clear about the appropriate referencing rules that are applicable to their field of study;
  • Refusing to be a party to another student’s efforts to undermine the academic integrity of the University.
  • Seeking assistance with their learning and assessment tasks if they are unsure of appropriate forms of acknowledgement.

Answer:

The financial report is issued to the public on the regular intervals so as to make them aware about the working and the operations of the company. The public includes not only the general public but also the users of the financial statements including the stakeholders of the company. These are the main users of the financial statements of the company as they are the persons who will invest in the company and help the company in carrying out their functions in the smooth and effective manner. The users of the financial statements of the company along with the financial position and the financial performance require more information so as to take an informed and the well defined decision. The financial report only contains the director’s report, the audited financial statements along with the auditor’s report and the remuneration report but the users requires more information with regard to the functioning of the company.

This information is commonly covered under the head of the integrated reporting. The report has been started with the role of the International Integrated reporting Committee. Then the findings of the CPA report has been detailed with regard to the existing and the potential roles of the integrated reporting and that too with respect to the stakeholder engagement, quality of the reporting and the users of the reporting and many other criteria. After that the comparison has been made of findings of the CPA report with respect to the different concepts – materiality, reasonableness, completeness and other similar concepts.

After making the comparison, the contrast has been made between the general purpose financial reporting frameworks and integrated reporting framework.  The details of the four companies have been discussed in detail with regard to the usefulness of the integrated reporting and the proper and due analysis have been made thereon. The report has then ended with the conclusion and the recommendation. The data for the report has been collected from the reliable sources. 

ROLE OF THE IIRC

  • The International integrated reporting committee comes into the existence i

    n the month of August year of two thousand and ten. In the month of November of two thousand and eleven the name of the International integrated reporting committee is changed to international integrated reporting council. Its origin has come into place from the period when the global financial crisis have occurred and that too in the year of the mid of the two thousand and seven. It has lasted till the end of the two thousand and nine. This has resulted in the formation of the committee which bring the useful information to the shareholders and other stakeholders of the company (Abeysekera, 2013). The committee has been formed with the association of not only the regulators and the standard setters of the accounting procedures and the treatment but includes majorly the investors, accounting professionals and the stakeholders and also the NGO’s. This council has helped the companies in communicating the information about the value creation of the companies and it is considered as the step next to the close of the financial reporting as envisaged by the financial report of the companies.

Following are the roles of the International Integrated Reporting Council (Adams, 2015):

  • It helps in improving the quality of the information as reported to the providers of the capital of the company in order to ensure to the stakeholders that the company is allocating the capital in an efficient and effective manner.
  • It focuses on the factors that have the material effect on the capability of the organization in order to create the value in the activities and the working.
  • It emphasizes the importance of the base of the integrated reporting which includes the human resources, intellectual, financial and the natural resources. It makes each bases understanding and interdependencies thereon.
  • It supports the decisions which may be short term, long term or medium term and thinking which help in the generation of the value of the organization over the specified time as long, short or medium.
  • It is to provide the guiding principles as to how the report is required to the presented including the content of the report and the source from where the data will be collected
  • It is to provide the three fundamental concepts as to how the integrated reporting will be underpinned. These concepts are value creation, information of the financial capital and the process of creating the value of the organization.
  • It is to provide the objectives and the uses of the integrated reporting so formed.

Thus, in this manner the international integrated reporting council has the defined roles and performs its roles accordingly.

ROLE OF INTEGRATED REPORTING

The integrated reporting has been laid down by the International integrated financial reporting and it says that the integrated report is the communication about the organization in the very concise and clear manner. It focuses on the following:

  • What the strategy of the Organization is
  • How the governance function is being performed by the organization and whether the same complies with the requirements of the stakeholders of the company
  • What has been the performance of the company not only in terms of the net profit and the earnings per share but also with regard to how far the business of the company has grown and as to how the organization will have the prospects in future so as to have the survival of the company in the near future.

The all the above items have been focused in detail as to how the above will help in creating the value of the organization over the time. This time may be of shorter term or of longer term or of the medium term.

The above has detailed that an integrated reporting is the

  • representation of the performance of the company in regard to the financial figures
  • as well as the other information for the value creation of the company

With reference to the report of CPA, the following has been the existing and the potential roles of integrated report with respect to the following aspects:

  1. Providing information that is relevant to the stakeholders – Existing role of the integrated reporting in providing of information to the stakeholders is to determine as to what are the requirements of the financial stakeholders, civic stakeholders and the environmental stakeholders. It is because it is the first step of the integrating reporting to determine the needs. In general also the first step of preparation of every report is to analyze the needs of the readers of the report. Then accordingly the integrated report is prepared and presented to the stakeholders. The potential role is to understand the mismatch between the understanding and the expectation of the different stakeholders from the integrated report and the information they have when it is made available for its use.  
  2. Stakeholder engagement – It has the very important role in the integrated reporting. It is in the sense that the council which has given the integrated reporting has engaged the stakeholders in their group so as to provide the more meaningful information. The existing role is that to consider the each and every need of the stakeholder by keeping them in the group and the potential role is to bridge the gap between the expectation and the actual results from the point of view of stakeholders (Adams, 2017).
  3. Comparability of Reporting – This aspect deals with the aspect of as to how the reporting will facilitates the comparison of the reporting of different companies. The existing role of the integrating reporting is to facilitate the comparison of the different companies with regard to the reporting and the potential role is that the integrated reporting will enhance its features so as to facilitate not only the inter company comparison but also the intra firm comparison.
  4. Quality of Reporting – The quality of reporting is another aspect which will help the readers to have the meaningful information and useful decision thereon. The existing role of the integrated reporting is that the information so provide shall be of qualitative in nature and shall be reliable, relevant and accurate for the better decision making and potential role is to further increase the quality of the reporting in accordance with the stakeholder needs.  
  5. Usefulness of reporting – The reporting shall be useful for the different stakeholders of the company. The existing role will be that the report so prepared shall be useful in terms of the relevancy in decision making and the potential role is that the integrated reporting shall be useful not only in terms of  relevance but also in terms of the reliability and confidentiality.
  6. Users of Reporting – The users play a very important role in the reporting. The existing role is that the reporting is serving only the needs of the financial stakeholders and the potential role is to serve the needs of the civic as well as the environment stakeholders.

Thus, in this manner, the integrated reporting has the existing and the potential roles.  

COMPARISON AND CONTRAST OF FINDINGS OF CPA REPORT

The CPA report has come up with the new facts and figures which have informed the advantages of the integrated reporting on the one hand and disadvantages on the other hand. The facts have been summed up in the following headings that have been detailed below:

  • Stakeholder Relationships – There is direct relation between the shareholders and the integrated reporting. In accordance with the report of the CPA, it has been observed that with the increase in the relationship with the stakeholders the information that is required to be embedded in the integrated report will increase. It is because with inclusion of the stakeholders in the council, more information will be required (Cheng, 2014). It is one of the advantages but there has been the disadvantage also. It is because the stakeholders are still not satisfied with the information as provided in the integrated reporting. The stakeholders – civic, financial and environment have the different expectations from the report which the CPA report findings have failed to provide (Eccles, 2011).       
  • Materiality – It has laid down that the integrated report has considered the material items to some extent and does not equip with all the material items which is happened in the company rather. Apart from this fact the CPA report has identified the materiality in terms of the different strategies as adopted by the company.    
  • Conciseness – The principle of conciseness has also been followed in the CPA report and has detailed that the integrated report has provided the information of the company in the very short and the concise manner.
  • Reliability and Completeness – The report of CPA is reliable and complete in the sense that it has covered and has detailed all the requirements of the stakeholders of the company and on the other hand it has not been found complete as there are still expectations from the stakeholders which have not been answered by the integrated report (Frías-Aceituno, 2013).
  • Consistency and Comparability – It states that the integrate report enhances the comparability and ensures the consistency in the application of the rules and regulations.

Thus, CPA report in this manner has helped in explaining the requirements.

SIMILARITIES AND PROBABLE DIFFERENCES

  1. The international integrated reporting framework is defined as the structure which will help in disclosing that information which is related to the value creation of the company. On the other hand the general purpose financial reporting framework is defined as the framework where the financial statements are prepared in accordance with the needs of the users to enable them to take an informed decision.

The objective of the former framework is to provide the value creation information whereas the objective of the latter framework is to provide the financial information which shall be relevant, reliable and complete in all the aspects (Sierra?García, 2015). 

  1. The users of the integrated reporting framework are required to be identified in accordance with the needs of the stakeholders. For instance the financial information will be required by the financial stakeholders and the environmental information is required by the environmental stakeholders.

The users of the latter framework is usually all the stakeholders of the company including the shareholders, the banks, the financial institutions and the employees (Thomson, 2015). 

  1. Materiality has been defined very separately in the integrated reporting and the general purpose financial reporting. In the integrated reporting the materiality has not covered all the items as the areas which are associated with the risks have not been considered whereas in the general purpose financial reporting all the items which have the associated risks have been classified as the material items (Eccles, 2014).
  1. The concepts of the reliability, completeness, consistency and the comparability has been followed by both of the integrated reports and the general purpose reports but the framework which has detailed the same has been the latter. It is because the general purpose reports ensures the reliability in the financial information provides, completeness with the auditor’s report, consistency in the adoption of the accounting policies and the comparability in terms of the inter and intra company (De Villiers, 2014).

Thus, in this manner, the integrated reporting and the general purpose financial reports are similar and different.

COMPARISON AND CONTRAST OF INTEGRATED REPORT – FOUR COMPANIES

Four companies that have been chosen for the purpose of the analysis are ABN Amro, Aegon, Achmea and ABSA. All these companies are from the financial services industry only. The major difference between all the companies is that all the companies have detailed the material items in their own manner whether it is the first company or the fourth company. Aegon has disclosed its strategy as the most material item which will affect the decision of the users of the statements of the company. On the other hand ABN Amro has disclosed the reporting of the non performing assets as one of the most material items in the integrated reporting. It details that all the companies are not consistent in assessing the materiality level of the items which are required to be disclosed in the annual report of the company and also in the integrated report. In this manner the comparison has found as useful (Simnett, 2015).

The contrast has been made in the presentation of the integrated report to the users of the report which includes different types of the stakeholders of the company. The integrated report considers not only the financial stakeholders but also the environmental and the civic stakeholders whereas the general purpose financial reports considers only the financial stakeholders and for the environmental and civic stakeholders company usually prepares the sustainability statements. 

 FACTORS OF SIMILARITIES AND DIFFERENCES

The following are the similarities that have been adopted by the companies while forming the integrated reporting are:

  • Strategy – All the companies have detailed the strategy in their integrated reporting and have also detailed as to how the particular strategy will help the company to cope up with the future.
  • Background – The integrated reporting details the background of the company as to how the company has been evolved from the earlier years and how the company has started generating the revenue.

The following are the differences that have been adopted by the companies while forming the integrated reporting are:

  • Identification of the Stakeholders – All the companies has identified the different stakeholders in the different manner in the sense that the stakeholder’s relevant information shall be modified.
  • Industry specific – Although all the companies belong to the financial industry, the disclosure relating to all the companies have been different. The stakeholders needs will be varying in accordance with the information that has been produced by the reports and the working of the companies (Jensen, 2012). 

CONCLUSION

The integrated reporting is the extension of the financial or the annual report of the company. The financial report of the company though is very useful for the different stakeholder of the company but for the persons who have invested in the company to have the higher returns it is necessary to have the more useful information and that information has been clubbed under the head of the integrated reporting. The role of the body that has formed this reporting has been discussed and the detailed evaluation of the report of CPA has been made with respect to the different criteria and that too with the roles of the integrated reporting and the guiding principles of the integrated reporting. The report has also compared the integrated report with the general purpose financial reporting and has discussed the integrated reporting of four companies – with regard to the usefulness. In order to conclude the report, the integrated reporting is the need of the current world.

It is recommended for each and every company to have the integrated reporting in its framework so as to provide the necessary and useful information to the stakeholders of the company. Further it is recommended to have the strict adoption of the guiding principles and the fundamental concepts of integrated reporting.

REFERENCES

Abeysekera, I., 2013. A template for integrated reporting, Journal of Intellectual Capital, 14(2), pp.227-245

Adams, C.A., 2015. The international integrated reporting council: a call to action. Critical Perspectives on Accounting, 27, pp.23-28

Adams, C., 2017. Understanding integrated reporting: The concise guide to integrated thinking and the future of corporate reporting. Routledge.

Cheng, M., 2014. The international integrated reporting framework: key issues and future research opportunities. Journal of International Financial Management & Accounting, 25(1), pp.90-119

De Villiers, C., 2014. Integrated Reporting: Insights, gaps and an agenda for future research, Accounting, Auditing & Accountability Journal, 27(7), pp.1042-1067

Eccles, R.G., 2014. The integrated reporting movement: Meaning, momentum, motives, and materiality. John Wiley & Sons

Eccles, R.G. and Saltzman, D., 2011. Achieving sustainability through integrated reporting, Stanf Soc Innov Rev Summer, 59

Frías-Aceituno, 2013, Is integrated reporting determined by a country's legal system? An exploratory study, Journal of cleaner production, 44, pp.45-55

Jensen, J.C., 2012. Determinants of traditional sustainability reporting versus integrated reporting. An institutionalist approach, Business Strategy and the Environment, 21(5), pp.299-316

Sierra?García,L., 2015. Stakeholder engagement, corporate social responsibility and integrated reporting: an exploratory study. Corporate Social Responsibility and Environmental Management, 22(5), pp.286-304

Simnett, R., 2015. Integrated reporting and assurance: where can research add value?. Sustainability Accounting, Management and Policy Journal, 6(1), pp.29-53

Thomson, I., 2015. ‘But does sustainability need capitalism or an integrated report’a commentary on ‘The International Integrated Reporting Council: A story of failure’by Flower, J. Critical Perspectives on Accounting, 27, pp.18-22.

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