9/5/2015

Integratedreporting|ACCAGlobal

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INTEGRATED REPORTING
RELATED LINKS
InternationalIntegratedReportingCouncil(IIRC)
ACCAembedsintegratedreporting
ACCA'sIntegratedReport201415
StudentAccountanthubpage
Integratedreporting(IR)hasbeendevelopedandpromotedbytheInternationalIntegratedReporting
Council(IIRC),aglobalcoalitionofregulators,investors,companies,standardsetters,theaccounting
professionandnongovernmentalorganisations.IRhasbeenintroducedtothesyllabusesofmanyofthe
Professionallevelpapers.Thisarticleaimstoshowhowtheideaofintegratedreportingisrelevanttothe
PaperP3syllabus.
Exhibit1showsasummaryofthedefinition,aims,guidingprinciplesandcontentsofanintegrated
report.Ifyouarenotfamiliarwiththeseyoushouldreadthroughthatsummarybeforegoingon.Notethat
theIRframeworkisprinciplesbasedwiththeaimofachievingabalancebetweenflexibilityand
prescribingstrictheadingsandcontents.

RELEVANCETOPAPERP3
TheemphasisofPaperP3haschangedsinceitwasfirstexaminedinDecember2007andnowcontains
morematerialoncosting,contributionanalysis,regressionanalysis,timeseries,investmentappraisal,
projectmanagementandinformationtechnology.Despitetheseaccretions,thePaperP3syllabuscanstill
largelybelookedatas:
Strategicanalysis
Strategicchoice
Strategicimplementation

Althoughbusinessanalysiscanbeusedretrospectivelytoseewherethingswentwrong,amore
importantuseistoplanforthefuturesothatthebusinesscanidentifysuitablestrategiesthatpromise
sustainedcompetitiveadvantage.Itisalsoimportanttoanalysehowchangescanbeimplemented
throughexaminingbusinesschangeprocessesandprojectmanagement.
YouwillseethatIRhasmanyelementswhicheasilyrelatetoPaperP3.ThedefinitionsofIRis:
Aconcisecommunicationofanorganisationsstrategy,governanceandperformance.
Demonstratesthelinksbetweenitsfinancialperformanceanditswidersocial,environmentalandeconomiccontext.
Showhoworganisationscreatevalueovertheshort,mediumandlongterm.

Itisusefultoimagineyourselfinvestigatingacompanyaboutwhichyouknownothingtodecidewhether
ornotyouwanttoinvestinit.Goingtothelatestannualreportandfinancialstatementswouldprobably
beyourstartingpoint,butyouwillbeleftwithmanyunansweredquestionscertainlyifthecompany
showstheminimuminformationrequiredbylawandtheaccountingandfinancialreportingstandards.
Youwilllearnrelativelylittleaboutthecompanysbusinessactivities(thoughsegmentalreportinghelps),
theircompetitors,theirfutureplansorhowtheyintendtoachievesustainablecompetitiveadvantage.IR
aimstofillthegapssothatexistingorprospectiveinvestorsbetterunderstandthecompany.
Anarticleentitled'ACCAembedsintegratedreporting'(see'Relatedlinks')suggeststhatthefollowingIR
ContentElementsareparticularlyrelevanttoPaperP3:
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Organisationaloverviewandtheexternalenvironment
Opportunitiesandrisks
Strategyandresourceallocation
Businessmodel
Futureoutlook

Let'saddsomedetailandexamplestotheseelements:

ORGANISATIONALOVERVIEWANDTHEEXTERNALENVIRONMENT
Whatdoestheorganisationaimtodo?Whoarethemajorstakeholders?Whereisitlocated?Howisit
structured?Whatexternaleventswillaffectifmost?
Fairlyobviouslytheorganisationsmission,stakeholderanalysis,organisationchartandaPESTEL
analysiswouldberelevanttothissectionoftheIR.Thinkofthissectionassettingthecontextofthe
organisationandprovidingsomebackgrounddetail.

OPPORTUNITIESANDRISKS
Thesemustcoverbothinternalandexternalmatters.ThetraditionalSWOTanalysisusuallycategorises
opportunitiesandthreats(risks)asexternal,butitisessentialtoalsolookinternally.Aweakness(for
examplearisingfromgapsinnewproductdevelopment)isarisktofuturerevenues.Similarlyastrong
brandnamecreatesgreateropportunitiesforfuturerevenuestreams.Historically,theboardof
companieswouldtendtoemphasiseacompanysopportunities,butinvestorscannotmakeaninformed
decisionaboutaninvestmentwithoutanappreciationoftheassociatedrisk.Someriskscanbequantified
(forexample,bysensitivityanalysis)butitisunlikelythatquantifiedamountswouldappearinanIR.A
qualitativeindicationshouldbeprovidedaboutbothinternalandexternalrisks.Thereportshouldalso
mentionhowtherisksarebeingmanagedandmitigated.

STRATEGYANDRESOURCEALLOCATION
Doestheorganisationintendtodevelopnewproducts,setupnewfactoriesorexpandtonewmarkets?
Perhapsitintendstomoveupmarkettoescapethefiercecompetitionitcurrentlyfacesatthelowerend.
ThissectionoftheIRcanmakeextensiveuseofPortersgenericstrategies,AnsoffsMatrixandthevalue
chain.IntheUKatthemomentmanysupermarketchainsarehavingtoreassesstheirlongterm
strategiesinresponsetocheaperforeignsupermarketsthathaveopened.Inadditionthereisachangeof
shoppinghabitsbecausemanymorecustomersnowprefertogomorefrequentlytolocalstoresrather
thanonceaweektoaverylargestoreontheedgeoftown.Itwouldbevaluabletoinvestorstobetold
howtheircompanyisgoingtorespondtothesechangesinthemarket,howmuchitmightcosttoachieve
thenewstrategiesandbywhenthestrategicshiftsshouldbeachieved.

BUSINESSMODEL
Anorganisationsbusinessmodelis'itssystemoftransforminginputs,throughitsbusinessactivities,into
outputsandoutcomesthataimstofulfiltheorganisationsstrategicpurposesandcreatevalueoverthe
short,mediumandlongterm'(IIRC).Thevaluechainisparticularlyrelevanthere:itexplicitlysetsout
inputs,processesandoutputsandrequiresorganisationstounderstandhowvalueisaddedsothat
profitscanbemade.Ifacompanydoesnotunderstandwhereitaddsvaluethenthecompanyisexisting
inatemporarystateofgoodfortune.Itismakingprofitsnow,butdoesnotunderstandwhy,sochanceof
continuedsuccessmustlow.
Inputsarethemajorinputssuchasrawmaterialorhumanresources.Outputsarethekeyproductsand
services.Thebusinessactivitiesincludenotjustthemanufacturingprocess,butalsohowthecompany
innovates,carriesoutitsmarketing,whatitsaftersalesservicesare,howitdeliversitsgoodsandhowit
acquires,trainsandretainsstaff.

FUTUREOUTLOOK
Anintegratedreportshouldanswerthequestion:Whatchallengesanduncertaintiesistheorganisation
likelytoencounterinpursuingitsstrategy,andwhatarethepotentialimplicationsforitsbusinessmodel
andfutureperformance?(IIRC)
PESTELandafiveforcesanalysisarelikelytobeparticularlyrelevanthere.Forexample,ifyouwerea
stakeholderinaconventionaltelevisioncompanyyoushouldwanttoknowhowthecompanywilladdress
challengesfrominternetbasedcompaniessuchasNetflix.

EXAMPLESFROMTHEACCASINTEGRATEDREPORT
HerearesomerelevantextractsfromACCA'sIntegratedReport201314(see'Relatedlinks')
demonstratingsomeofthereportingoftheelementssetoutabove.Remember,theIIRCguidelinesare
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principlesbasedandorganisationscanchangeelementheadingsandgroupings.

EXTERNAL ENVIRONMENT
Weareseeingneweconomiesandsectorsemerginganddevelopingatfasterrates
Inthepostrecessionworld,thereisagreaterdemandforandunderstandingoftheimportanceoffinancialstabilityas
anunderpinningforeconomicstability
Consumersaremoresophisticatedanddemanding,withanincreasinglytechsavvyaudienceexpectinga
personalisedandtailoredexperience
Thecompetitiveenvironmentismuchbroader,withmoreanddifferentplayersandwithtechnologyenablinggreater
internationalcompetition

RISKS [INCLUDE]:
Marketrisks:tradeprotectionism,globaleconomicstagnation,lossofUKauditrecognition.
Operational:examprocessissues,worldwidelegislativecomplexity,pricingdecisions,cybercrimeanddata
protection.

Theimpactofeachriskisassessedandmitigationmeasuresareexplained.Forexample,oncybercrime
anddataprotection:
Impact:Potentialcorruptionorlossoforganisationaldatawhichcouldleadtolegalliabilityandreputationaldamage
asmoreACCAservicesareprovidedonline
Mitigation:ACCAsInformationSecurityOfficermonitorsandadvisesondatasecurity.Policiesinplacetoaddress
datasecurityriskswhichareregularlyreviewed,monitoredandtested.

BUSINESS MODEL
Keyresources[include]:marketofficessupportedbyglobalheadquarters,people,partners,intellectualpropertyand
brand,suppliers,ITinfrastructure,financialcapital.
Keyvalueaddingactivities:creatingglobalnetworks,qualifyingandregulatingprofessionalaccountantstohigh
standards,maintaininganddevelopingaglobalbrandthatattractsstudentsaroundtheworld,generatingglobally
relevanttechnicalinsightwithpublicinterestatitsheats,digitallyenableddevelopmentsforanonline,selfservice
world.
Keyoutputs[include]:professional,ethicalaccountants,widespreadrecognition,bestinclassproductsandservices.
Keyoutcomes[include]:supportandopportunitiesformembers,jointinitiatives,globalmobilityforourmembers,
customersatisfaction.
Societalbenefit:Businessesinallsectorsthatarerunefficientlyandresponsibly,thathelpgroweconomies
sustainablyandsafeguardtheinterestsofthepublicandsociety.

STRATEGY
ACCAsstrategymapshowstherelationshipsbetween12outcomesfromfourperspectives:
thegovernanceperspective,askingwhatcouncilwants[exampleofanoutcome:sustainablegrowth,measuredby
grossoperatingsurplus]
themembersperspective,askingwhatdrivesmemberstoinvestintheACCAQualification[exampleofanoutcome:
accountancyqualificationswhicharerequiredbyemployers,measuredbymemberretention]
theprocessperspective,askingwhatACCAmustexcelatinordertomeettheexpectationsofitskeystakeholders
[exampleofanoutcome:developmentofrelevantproducts,servicesandbrand,measuredbystudentandmember
satisfaction]
theinnovationperspective,askingwhatACCAneedstolearnanddeveloptocontinuecreatingvalueforits
stakeholders[exampleofanoutcome:technologyenabled,Integratedandefficientglobalinfrastructure,measuredby
%ofITservicelevelagreementsmet]

CONCLUSION
TheinclusionofIRinthePaperP3syllabusshouldnotcausemajordifficultiesforstudents.Inmanyways
itiscorporatereportingcatchingupwithwhatisinthePaperP3syllabus,whichhasalwaysrecognised
thattheresmuchmoretoappraisingorganisationsthansimplylookingattheirfinancialresults.
KenGarrettisafreelancelecturerandwriter

Lastupdated:18Aug2015

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