Is It Time for Integrated Reporting

in Small and Medium-Sized

Enterprises? Reflections on an
Italian Experience
Chapter 9
Dharganie Bathan
Introduction Companies today are publishing corporate
social responsibility or sustainability reports
to supplement their annual report.
However, the presence of different financial
reporting and several standards for non-
financial reporting have made the process
of report integration difficult. Studies and
empirical research in this area have mainly
focused on large enterprises and neglected
the integrated reporting of small and
medium-sized enterprises (SMEs).
Research design can be develop into two approaches, namely:
1. Deductive approach - based on an analysis of the literature
regarding financial and non-financial reporting and on
integrated reporting, and is aimed at describing the
theoretical framework.
2. Inductive method -  based on the analysis of a research case
focused on an Italian small-sized enterprise and,
specifically, on the motivations for adopting the integrated
report, the process of implementation, the standard used, as
well as the benefits, the criticality and aspects of
improvement.
Financial Reporting and its Limitations

In traditional systems of financial reporting, weak points seem to remain despite the
tightening of regulations. Furthermore, there has been an intense efforts made by
national and international organizations in improving the quality of information
contained in the financial report. 
The inadequacy of traditional systems of financial reporting in answering requests for
information has been revealed in: 
• a loss of trust in the reliability of information presented in the financial report; 
• too much of a focus on economic performance; 
• and an insufficient consideration of financial, operational, strategic and
reputational risks 
The financial reporting represents a limited response in this
sense, as it does not allow for a complete vision of economic,
financial, social and environmental performance and is therefore
considered an insufficient tool for guiding corporate and
stakeholder decisions. Furthermore, it is limited in expressing
judgment on resources which determine prospects of future
performance and on intangible resources.
CSR is a concept whereby companies integrate social
and environmental concerns in their business operations
and in their interaction with their stakeholders
voluntarily. 
There are many different ideas, concepts and practical
techniques that have been developed under the umbrella
of CSR research, including 
• corporate social performance; 
• corporate social responsiveness; 
• corporate citizenship; 
• corporate governance; 
• corporate accountability; 
• sustainability and triple bottom line and corporate
social entrepreneurship. 
The concepts of CSR and sustainability are linked with the transparency toward stakeholders.
Recently, there has been a substantial increase in corporate awareness of environmental and
social performance and a desire to publicly report such results. Companies do this in order to
comply with regulations; to reduce the cost of future compliance; to comply with industry
environmental codes; and to improve the relations with the stakeholders.
Moreover, reasons of social and environmental reporting are related to expected improvements in
competitive advantage, in company’s legitimacy and reputation and are connected to a sense of
social responsibility and desire to adhere to societal standards. As a result, companies, and
especially multinational corporations, are increasingly adopting CSR and sustainability reporting
practices. 
The need to recognize financial and non-financial information explain the
increasing need for new tools and methods of accounting (social reports,
environmental reports, sustainability reports, codes of conduct and ethical
codes, intellectual capital reports)
Different frameworks have been proposed on how to use non-financial
information to supplement financial reporting. Examples:
• Balanced Scorecard – which was developed mainly for internal
management and reporting purposes, although it is relevant for external
reporting as well. 
• Sustainability report guidelines developed by the GRI - provide
stakeholders with relevant information on a company’s economic,
social and environmental performances
• Value Reporting Framework developed by PwC. - PwC Value
Reporting Initiative or the so-called Corporate Reporting was focused
on identifying information in which analyst, investors, and chief
financial officers were interested in making investment decisions that
went beyond the required financial information. 
Initially the need to make available information essential for responsible
management capable of contributing to the creation of corporate value favored the
start of complementary accountability systems in the form of environmental and
social reports.
The environmental report accounts for the company’s sustainability over time and
represents in a linked form economic, social and environmental performance. On
the other hand, social report aims at offering a representation of intangible
resources available to the company. The intangibles are the main value drivers and
are referred to the concept of intellectual capital (IC) which embraces human,
organizational and relational capital.
Subsequently these two documents came together to form a single statement
seeking a homogenous vision of economic-financial, environmental and social
results and played a part in the development of sustainability reports.
Non-Financial Non-financial information comprises three main
categories: 
Information
• intangible assets (intellectual capital and other
intangibles); 
• key performance indicators, and 
• environmental, social and governance (ESG)
parameters. 
Non-financial information is strictly related to
accountability intended as the duty to provide an
account (by no means necessarily a financial
account) or reckoning of those actions for which
one is held responsible. Accordingly, companies
can adopt sustainability or social reporting. 
 Sustainability Reporting
• Sustainability reporting is the practice of measuring, disclosing, and
being accountable to internal and external stakeholders for organizational
performance toward a goal of sustainable development. Sustainability
reporting is driven by a growing recognition that sustainability related
issues can materially affect a company’s performance, demands from
various stakeholder groups for increased levels of transparency and
disclosure, the need for companies, and, more generally, for the business
community, to appropriately respond to issues of sustainable
development (socio environmental, socio-economic and eco-efficiency
performances). 
Social & Environmental Accounting and
Reporting
Social & Environmental Accounting and Reporting (SEAR or SER) is widely used
to refer to corporate accounting and self-reporting processes through which
quantitative and qualitative information about social and environmental effects are
accounted and disclosed.  
A proliferation of competing sustainability-related frameworks, principles, codes
and management systems has arisen. Beyond the GRI guidelines, the list includes:
• the Accountability (AA) 1000 for managing and reporting and reporting
sustainability performance; 
• Social Accountability (SA) 8000 for managing labor practices; 
• International Standards Organization (ISO) 26000 on sustainability
management. 
In the scientific field, a vast literature has developed several strands of research including:  
• (1) those studies which have examined mainly motives and drivers for the initiation
and/or sustainment of social and sustainability reporting; 
• (2) research exploring the contextual and internal factors (including managerial attitudes)
which influence the nature and extent of social and environmental reporting and might
contribute or limit change in organizations;
• (3) studies which have focused on its and to stimulate some kind of organizational
change in practices, structures, performance and/or values; and 
• (4) studies which have specifically analyzed the managerial perceptions and views about
social, sustainability and environmental reporting and related practices. 
Thank you!