Critical Analysis of Integrated Reporting as the Future of Corporate Reporting

Critical Analysis of Integrated Reporting as the Future of Corporate Reporting


The 21st Century has witnessed a rapid increase in the debate about the ability of the tradition model of reporting to show the actual performance status of a firm (Kang and Gray, 2011, pp.403). That is the cased especially now that most of the investors, governments, customers, suppliers, Non-Governmental Organizations and the community, in general, are persistently demanding from the available companies to depict both their financial and corporate social responsibility performance. It has become evident that the current reporting model is not in any position to meet these demands and new trends that are existing in the current business environment (Kang and Gray, 2011, pp.404). Integrated Reporting is now being considered as one of the most effective and reliable reporting innovations that are being expected to transform the usefulness of corporate reporting across the world (Krzus, 2011, pp.274). In its latest report, the “Institute of Chartered and Accountants in England and Wales” has indicated that Integrated Reporting is now the best hope of effective corporate reporting in the future (Walker, 2011, pp.187). Integrated Reporting is viewed as a comprehensive holistic approach of communicating the strategy employed, performance and governance of a company and has the ability to enhance the corporate values (Krzus, 2011, pp.275). It is also defined as a comprehensive reporting strategy that signals the general recognition of the current growing need of maintaining a comprehensive reporting practice on financial and corporate social responsibility measures and which meets the information requirements of stakeholders (Atkins and Maroun, 2015, pp.200).  This research paper sets to critically discuss how Integrated Reporting is gradually becoming the future practice of corporate reporting through analysing a variety of academic journals including the CW article that is provided in the course work.

Critical Analysis of Integrated Reporting

Although it is a legal requirement for the existing corporations operating in Europe and across the world to provide reports that have adequate amount of data related to corporate sustainability performance, most of the data that is given these entities has been found to be presented in a way that does not link it to economic drivers, social and environmental impacts (Kang and Gray, 2011, pp.407).  Sustainability reporting has emerged under the umbrella of corporate social responsibility concepts and has been enabling the companies to measure their performance, change their ineffective operational methods and set new targets for sustainable economic growth (Jensen and Berg, 2012, pp.299). However, the sustainability reports have been found to lack the full capacity to allow the stakeholders of an organisation to make informed decisions as they require sufficient financial statement data. According to Jensen and Berg (2012),  this shortcoming has facilitated the need of establishing new innovative ways which can be employed hence leading to Integrated Reporting being put into consideration as one of the possible solutions (Jensen and Berg, 2012, pp.301). Companies have started to realise the importance of integrated reporting which is now becoming part of the regulatory requirement in the effort of enhancing their competitive advantage.

Roth, (2014) argues that the traditional forms of financial reporting have failed to adequately address various information requirements of the stakeholders given the fact that these parties depend on the data provided during financial and non-financial reporting to make informed decisions (Roth, 2014, pp.65). For instance, investors have started demanding more information from the companies regarding how they have strategised themselves in the attempt of creating long-term value. The data reported to these investors through the financial statements have greatly determined their decision on whether to invest or not (Roth, 2014, pp.66). There is an increased need for the companies especially those with the intentions of expanding internationally to reconsider practices such as accounting for internally generated intangible assets since they make up three-quarter or more of their total market value (Roth, 2014, pp.67).

The current financial reporting system has proven to be very weak in meeting the present financial and non-financial reporting needs of the companies. For instance, the balance sheet only displays the debt coverage of the available assets rather than exhibiting their value to the company. That has limited the ability of most of the organisations to make informed decisions.

Cheng et al., (2014), claim that corporate reporting has in the 21st century become an essential element of showing the level of accountability of a given company since it enables it to communicate its position and performance to all its stakeholders (Cheng et al., 2014, pp.92). Integrated reporting is now being considered by most of the people as one of the ways of supplementing corporate reporting. For instance, organisations such as Stockland, Lend Lease, Australia Post, National Australia Bank and Vic Super that are based in Australia have already started adopting the integrated reporting principles (Cheng et al., 2014, pp.92). In the current digital world, there are high expectations that integrated reporting will become the global norm for most of the local and global organisations. Moreover, the past three decades have witnessed a rapid increase in the demand for sustainability reports that describe the non-financial performance of the companies whereby about 93% of the G250 companies and approximately 75% of the N100 firms have been issuing corporate social responsibility reports to their key stakeholders (Goicoechea, Gómez-Bezares and Ugarte, 2019, pp.3). However, despite corporate responsibility reporting being standard practice for most of the companies across the world, there are claims that these reports are often static and disconnected hence reducing their value and usefulness during the decision-making process (Goicoechea, Gómez-Bezares and Ugarte, 2019, pp.3).

According to Goicoechea, Gómez-Bezares and Ugarte, (2019), the issue about the need for harmonising sustainability information, non-financial information and integrated reporting has received numerous interest in the last four years. For instance, most of the stock exchange markets such as Singapore, Sao Paulo, Copenhagen and Kuala Lumpur have started to urge the companies to report information about social, governance and environmental issues that are facing them (Goicoechea, Gómez-Bezares and Ugarte, 2019, pp.4). The emergence of directives such as EU Guidelines 2017/C215/01 has made a legal requirement for companies operating within those countries that are members of EU to publish non-financial statements in each of their fiscal years. Moreover, the majority of the firms that are operating in the South Asian region have also started to move towards integrated reporting as the new business norm (Goicoechea, Gómez-Bezares and Ugarte, 2019, pp.5).

By setting off from the driving force of sustainability reporting, integrated reporting has proven to be capable of bringing in new features that can transform both financial and corporate social responsibility reporting in a meaningful way (Jensen and Berg, 2012, pp.303). Thus, integrated reporting has now become a new trend of reporting that has all the relevant data that relates to both annual and sustainable reports and help in creating a reliable link between the two (Jensen and Berg, 2012, pp.307). Integrated reporting is structured in such a way that it accurately reports all the required financial and sustainability information that is requested by the stakeholders such as suppliers, customers, government, employees and local governments (Jensen and Berg, 2012, pp.310). Integrated reporting is now becoming a common trend in most parts of the world (Morros, 2016, pp.338). For instance, as parallel to the global progress, integrated reporting in Turkey has been gaining momentum at an alarming rate. The “Institutional Administration Association” of Turkey and the “Association of Sustainable Progress” have gotten into partnership with the “International Integrated Reporting Council” (IIRC) to establish a common platform for integrated reporting that will assist in comprehensively addressing the Turkish business world (Morros, 2016, pp.341).

Moreover, the European Union Commission has also started evaluating whether the external reporting framework that is used across Europe as part of the Sustainable Finance Action Plan is still valid or there is the need of introducing integrated reporting as an innovation in the accounting sector (Morros, 2016, pp.344). Morros (2016) claims that IIRC closely works and conducts joint studies with leaders in various organisations such as “Financial Accounting Standards Board” (FASB), “International Accounting Standards Board” (IASB) and “American Institute of Certified Public Accountants” to form new structures of institutional reporting (Morros, 2016, pp.348). Both the integrated reporting and IIRC were established following the 2007-2009 global financial crisis which increased the need of rebuilding trust in the capital markets and enhancing financial stability across the world (Morros, 2016, pp.351).

According to the findings in the study of Atkins and Maroun, South Africa was among the first countries across the globe to make it a legal requirement for all listed firms to adopt integrated reporting (Atkins and Maroun, 2015, pp.198). In other countries, companies are voluntarily adopting the International Integrated Reporting Framework as the new accounting and financial reporting practice due to the numerous advantages that it is bringing to them. As firms strive to embrace changes that have been caused bythe new integrated reporting systems, both the IIRC and Integrated Reporting Committee of South Africa (IRCSA) acknowledge that effectively integrated reporting is likely to take longer before being fully embraced.  According to Atkins and Maroun (2015), limited research has been carried out to explore the opinions of different stakeholders such as customers and investors regarding the new integrated reporting requirement that has been introduced in South Africa (Atkins and Maroun, 2015, pp.198). That has been the case despite such stakeholders being part of the primary users of the integrated reports and who have a significant influence on how companies within the country tend to communicate both their financial and corporate sustainability information to the public.

Atkins and Maroun (2015) have tried to critically examine the key drivers of integrated reporting. For instance, there is a substantial shift in the attitude of the investors towards Environmental, Social and Governance (ESG) issues that are faced by majority of the investment communities within South Africa and across the world and lastly the various obstacles that companies tend to encounter while developing high quality integrated reports (Atkins and Maroun, 2015, pp.198). One of the recent developments in the attempt of enhancing effective communication with the stakeholders is the creation of the globalintegrated reporting framework which took place in 2013 (Atkins and Maroun, 2015, pp.199). The primary reason as to why IIRC introduced this framework was to make integrated reporting a corporate reporting norm. This objective would only be achieved through ensuring that there is increased acceptance of integrated thinking worldwide and that this practice in incorporated within the existing mainstream business practice across all the sectors that is, both public and private (Atkins and Maroun, 2015, pp.199). This framework emphasis on the maintenance of accountability and stewardship concerning social, financial, intellectual, natural and manufactured capital. It also outlines the significance of creating a cohesive yet multidimensional reporting which is capable of communicating the factors that influence organisational value in the long run (Atkins and Maroun, 2015, pp.199).

Further studies have confirmed that there exists a close relationship between integrated reporting and integrated thinking. Moolman, Oberholzer, and Steyn, (2016) argue that integrated reporting is enhancing integrated thinking within organisations especially when it comes to disclosure of various opportunities and risks that a firm encounters in the course of its operations (Moolman, Oberholzer, and Steyn, 2016, pp.608). The tendency of companies in countries such as South Africa to increasingly devoted towardsaddressing the risk and opportunities aspects within the business environment as stipulated in the IIRC framework has the potential of improving risk-related disclosures and promote maximisation of the existing opportunities. Thus, integrated thinking has significantly increased integrated thinking within forms that have embraced this business practice, and this has contributed to substantial improvement in performance. De Villiers, Rinaldi and Unerman, (2014), have in their study identified integrated thinking as one of the ultimate aims of integrated reporting (De Villiers, Rinaldi and Unerman, 2014, pp.1044). Integrated thinking results to effective management of businesses both in the public and private sector by enabling firms to meet their long term visions and goals and at the same time facilitate proper prioritisation of operations and business activities of an organisation (De Villiers, Rinaldi and Unerman, 2014, pp.1047). Majority of the companies are now paying more attention to issue of risk management which is facilitated by integrated thinking hence improving their risk mitigation capabilities. Integrated thinking is enabling the firms produced mixed reports which can be used to make informed decisions.

According to Atkins and Maroun, (2015), integrated thinking has become a vital growth aspect and an essential factor in influencing the continued shift in mindsets of corporate reporting as it critical explains the existing metrics that are associated with financial and sustainability performance of the organisations (Atkins and Maroun, 2015, pp.199). In South Africa, several vital drivers have facilitated the establishment of the current integrated reporting practice. For instance, there has been a high demand for creation of a stakeholder model of both governance and accountability which require the formulation of a coherent reporting strategy that can enhance the ability of the firms operating within the country to effectively communicate to the stakeholders about their value creation and sustainability capabilities (Atkins and Maroun, 2015, pp.199). Secondly, the annual reports that are published by companies have been highly criticised for failing to adequately describe the existing relationship between financial performance, organisational strategy and key non-financial metrics (Atkins and Maroun, 2015, pp.200). Additionally, the sustainability reports that companies have been issuing have persistently been lacking the much-required focus on non-financial issues and have failed to comprehensively highlight the interconnectedness that exists between strategic objectives and ESG issues (Atkins and Maroun, 2015, pp.200).

According to the findings that they have obtained in their study, both Atkins and Maroun (2015) state that the investment sector in South Africa has begun to appreciate the importance of the ESG issues which have for a long time been considered as “soft” or “non-financial” hence the need of not incorporating them in financial analysis (Atkins and Maroun, 2015, pp.203). There is a need for managers and other stakeholders to ensure that there exists common acceptance of the existing importance of the ESG issues as one of the requirements of integrated reporting. The increase in the need of disclosing matters related toESG and the high demand for integrating it with the various reporting paradigms has become prevalent in the modern world of business. This situation has been supported by the increased need for responsible investment by essential constituents such as the local authorities (Atkins and Maroun, 2015, pp.204). Most of the investors are of the opinion that a successfully integrated report can only be produced when corporate strategy, decision making and reporting are all linked together. According to Atkins and Maroun (2015), a core element in integrated reporting is presence of a reliable link between environmental, social, governance and ethical issues and financial materiality which all play an essential role in emphasizing the need for embracing integrated reporting and enhancing sustainability management practices (Atkins and Maroun, 2015, pp.204).

Organisations realise various benefits from the continued use of integrated reporting practice. For instance, the integrated reporting is offering companies a more efficient and cohesive approach which they can apply in their corporate reporting (Steyn, 2014, pp.482). Secondly, integrated reporting increases the credibility of the companies hence giving them access to more funds and loans from financial lenders since integrated reports provide an accurate reflection of the company’s performance. Moreover, integrated reporting has shown to have the capability of providing higher share price to the shareholders, significantly reduce the costs that firms incur in raising capital and also helps in creating a stable long-term investor base (Steyn, 2014, pp.484). Steyn (2014) claims that firms can make better resource allocation decisions by embracing integrated reporting practice as part of their reporting culture (Steyn, 2014, pp.487). Assessment of the value realised cannot be regarded as a primary reason behind companies deciding to compile integrated reports nor is encouraging sustainable product development and reconsidering firm’s business model perceived to be the tangible outcome of implementing integrated reporting (Steyn, 2014, pp.492). These benefits have proven to be practically essential growth drivers for both the Small and Medium Size Enterprises and large corporates.

It is also evident that despite integrated reporting providing an excellent ground on which corporate reporting is going to be carried out in the future, there still exits some limitations that companies will face on the way and which need to be addressed urgently. For instance, there still lacks generally acceptable global standards which can be used to determine the level of financial and sustainability performance of the firms (Frías-Aceituno, Rodríguez-Ariza, and García-Sánchez, 2013, pp.48). Frías-Aceituno, Rodríguez-Ariza, and García-Sánchez (2013), argue that absence of standards that are similar to those regulating financial reporting such as International Financial Reporting Standards (IFRS) have enabled companies conceal some of the crucial information regarding how they are undertaking their corporate social responsibilities hence making it hard for stakeholders such as the investors and customers to make informed decisions (Frías-Aceituno, Rodríguez-Ariza, and García-Sánchez, 2013, pp.49). An excellent way to handle this challenge would be standardising the non-financial information hence making it sufficiently comparable and meaningful to the stakeholders (Eccles and Krzus, 2010, pp.36). Eccles and Krzus, (2010) state that establishing clear standards on which the non-financial information can be reported to all the concerned stakeholders will enable the auditors to give their opinions and also enhance the integrated reporting practice across the world (Eccles and Krzus, 2010, pp.38).

Some authors have pointed out the possibility of critically assessing integrated reporting practice as one of the ways of “opening up” and “broadening out” a productive debate about how accounting and reporting standards can be transformed especially in the current business world that is full of competition hence fostering business practices that are sustainable in the long run (Brown and Dillard, 2014, pp.1123). Brown and Dillard (2014) claim that although integrated reporting is being recognised in most of the countries across the world following its first introduction in South Africa, both its meaning and design are still far from getting stabilised (Brown and Dillard, 2014, pp.1125). There is an increased need for broadening out proposals for polylogic or dialogic accountings and facilitate a comprehensive analysis of the value that is likely to be realized after incorporating integrated reporting as one of the essential initiatives of change that is capable of fostering better business practices (Brown and Dillard, 2014, pp.1129).


Conclusively, this research paper has provided evidence-based findings and discussion on how integrated reporting is slowly becoming the future of corporate reporting across the globe. Just like most of the companies listed in Johannesburg Stock Exchange have embraced integrated reporting as their new business norm and corporate reporting practice, other firms worldwide should also start embracing integrated reporting due to the numerous benefits that it is bringing to the companies and its ability to transform and improve business practices. As illustrated in this essay, there exists a close interconnectedness between the company’s financial and sustainability measures as they facilitate improvement in performance. This paper has also provided substantial evidence on the limitations that are present in the traditional corporate reporting practices which have increased the need of adopting integrated reporting as a new strategy of enhancing performance improvement of the companies and informed decision making by the concerned stakeholders.




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