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Financial Accounting Theory Assignment
This financial accounting theory assignment integrated reporting is the most common approach in today’s corporate world.It is acceptable on a global basis by the organisations for their reporting system. An organisation’s overall performance in the market doesn’t depend solely on its financial accounting performance. It includes other factors also like social values, ethical considerations etc. IIRC is responsible for issuing the guidelines for the value creation of the organisation. The sustainability of the organisations can be maintained with the help of analysis of a number of factors. The decision making system of the organisation is also supported with the help of integrated reporting approach.
How would you explain the International Integrated Reporting Committee’s change of focus in relation to integrated reporting? When constructing your answer use one or more theories to explain the reason(s) for IIRC’s change of focus.
The long term planning of the International Integrated Reporting Committeeis to facilitate the providers of financial capital with all the qualitative information of the organisation in which they are supposed to invest their money. The capital structure of the organisation would be more effective with the help of integrated reporting system. It enables the financial help providers to assess the actual position of the organisation in the market.Its main focus is to generate value for the success of the organisation in the market. It considers short term and medium term success factors also. It elaborates the basic idea behind the generation of value of the organisation and its procedure. It is a major change in the financial reporting criteria for the correct assessment of organisation’s financial stability.A report prepared on integrated basis includes the exhaustive list of all kind of relevant and crucial information, rather than only information on its financial statements (IIRC, 2013).
The IIRC is accused of changing its focus as it was built for establishing a sustainable environment in the market. Its main motive is to develop a framework in which natural resources are preserved for further use by the future generations.It is to be acceptable on a global basis on which all the organisations are motivated to cooperate in the integrated reporting system for the better presentation of financial information along with natural resources preservation report. The social values and economic conditions are also taken into account for the reporting criteria. Irrelevant information is not to be included in the reports. The report should be very clear and comprehensive. It includes all the information regarding past, present and future needs of the organisation for the maintenance of sustainable environment.
Every public company is required to form an annual report which describes the overall company’s performance along with its financial information. IFRS (International financial reporting standards) should be considered for the preparation and preparation of financial statements (KPMG, 2014). The organisations are supposed tomaintain their accounts in such a way that it also includes the organisation’s contribution in the management and preservation of natural resources.
Price water house Coopers (PWC) has followed the integrated reporting approach in its working environment. It enables for assessing the future growth opportunities and capturing them for the success of the enterprise in this competitive environment. New and skilled partners can be attracted with better environmental conditions. Innovative technologies are used for the production of the better goods and services. The risks factors can be reduced to a minimum level with the help of collaborative working and inter – dependent links between the members of the organisation. The risk of economic failure and global changes can be managed properly with the help of integrated working. Talented and highly efficient employees and investors can be attracted to the organisation (PWC, Integrated reporting, 2015).
PWC has clearly stated that during the financial crisis, it is identified that the weak reporting system is one of the major factors responsible for it. The investors should be provided more information about the performance of the organisation. Only financial statements are not enough to assess the viability of the business of the organisation.A clear picture of the overall position and capability of the organisation is to be presented to the stake – holders of the company. All the factors which might affect the performance of the organisation from short run to long run should be clearly indicated in the reports (PWC, Implementing integrated reporting, 2015). Theinternal management of the organisation would be very effective with the help of integrated working and thus builds trust among the stake – holders. The non-financial resources can be effectively managed and thus the investors can frame their opinions about the success of the enterprise in the long term effectively.
As per the publications of KPMG, it has given a brief overview about the corporate governance responsibility and integrated framework. GST needs to be adopted for the establishment of a common system for the recording of transactions related to goods in place of individual sales tax. The business operation would be effectively managed with the common knowledge of applicable tax laws. A report on corporate governance has clearly indicated the goal of the organisation and the procedure to achieve it. The positive and negative effects of the changes to be adapted can be analysed and evaluated for the purpose of decision making process (KPMG, 2014).
As per my opinion, integrated reporting would be the most important factor for the success of the organisation. A number of accounting firms have identified the importance of integrated approach and thus a common reporting criterion is adopted for the purpose of enabling the financial reports viewers to analyse it effectively. Flower has argued that the IIRC is not fulfilling its objective of maintain the sustainability in the business. Then, a famous author Adams has argued against the Flower’s opinion. It is clearly indicated that the IIRC has gained its objective of changing the accounting organisation’s ideology. A common platform should be established for the maintenance of reports on financial statements and social and economic factors. The investors or financial assistance providers and other stakeholders would be able to assess the financial performance of the organisation and its success can be measured in an easy manner (Lawrence, 2013). The reliability and adequacy of the information can be maintained on a global basis with the help of integrated report system.
Using an appropriate theory support the view that listed companies should focus on the information needs of financial capital providers over other stakeholders.
Listed companies require a large amount of capital for the running of business. It is necessary to gain the trust of the individuals and share- holders. The stakeholders of the company includes employees, key personnel, senior level managers, medium level managers, low level managers, financial advisors, experts and professionals and shareholders. Every stake holder requires different information for deriving an appropriate opinion about the management and performance of the organisation. The shareholders are the owners of the company, as they provide adequate finance to the companies for the management of working conditions. The production and other activities related to key components of the enterprise can better be regulated with the financial help by the investors. The goodwill and brand image of the listed entity is increased to a great extent as compared to the unlisted ones. Therefore, a number ofinvestors are attracted to invest their funds in the company.
The basic information needs of the financial capital providers are information about financial statements, capital structure, success opportunities, smart success achieving strategies etc. The IIRC has laid focus on the incorporation of non – financial performance indicators also in the report system of the organisation (IIRC, 2013). This would help the potential investors to acquire full knowledge about the financial stability of the organisation.A high amount of capital can be raised with the help of motivating the existing investors to invest more and gaining the attraction of the potential investors in the share market. The debenture holders are also attracted and they are paiddebenture interest at a fixed rateon their investments.
The main aim of IIRC of development of a sustainable environmentis not fulfilling as per the articles published by accounting journals. However, most of the organisations focus on the better presentation of financial statements only so as to attract new investors and encourage the existing ones to hold on (Adams, 2014).
As per my opinion, it is very important to provide adequate and reliable information to the financial capital providers so that they would be able to take right decisions regarding the investments in the capital structure of the organisation. The information needs of the investors should be assessed and a proper communicative environment should be established to maintain the relationship between the organisation and the stakeholders. An organisation would be able to create value in the market with the help of support of financial investors. The International integrated reporting committee has laid appropriate guidelines for fulfilling the information demands of the investors.Their funds should be invested at right places and adequate returns should be given to them for maintaining the sustainability of the business.
Critically examine the extent to which sustainability considerations are important or not important for the financial capital providers. Explain the information needs of the providers of financial capital.
The financial institutions focus primarily on the strong financial position of the company. They are basically short term investors. However, the investors who prefer to invest in the shares and other securities of the organisation prefer to gather complete knowledge about the financial sustainability and viability of the business. Thus it is recommended to provide adequate information to the investors and other financial institutions. The management of the organisation is responsible for formulating appropriate strategies for the achievement of the objectives of the business. One of the main objectives of the business is to satisfy the demands of the investors so as to maintain a strong capital support to the organisation (Muller, 2010). The information needs of the investors include all relevant information about social and ethical values. The environmental security is another aspect to be covered in the reporting system of the organisation.
The social and organisational aspects are to be covered for the maintenance of sustainability of the organisation. The organisational sustainability refers to theachievement of long term objectives of the organisation. The sustainability of the company should be focused for maintaining the goodwill of the organisation in the market. The recommendations of the financial advisers should be considered for maintaining the goodwill of organisation.It refers to encouraging the investors by providing them with the information related to financial viability of the business of the organisation. Social sustainability refers to the involvement of the social management and economic values in the report along with the financial matters. It also includes political factors and other environmental security factors. Development of the human resources, health related factors etc. should be the major priority of the businesses (Melloni, 2015).
The integrated report should include the sustainability aspects which will help in generating value of the organisation in the market. Flower has stated in his article that the IIRC has abandoned his sustainability objective. It is focusing solely on creating the value for investors. The social values and aspects are totally ignored for the purpose of reporting system. The people of the society should be taken care of and their rights and privileges should not be harmed. The integrated report system will affect the environmental conditions in a positive manner. Theinvestors would be able to assess the position of the company with its analysis.
It is expected from every listed company that it will fulfil its responsibilities towards the stake holders and society also. Appropriate financial management strategies should be formulated for maintaining the market share of the company. Focus on improving the profitability position is important, but the non-financial performance should also be measured to derive an appropriate opinion on the financial condition of the company. The employees should be provided healthy and hygienic environmental conditions for maintaining the decorum of the organisation in the market. The competition level in the market can also be assessed for gaining the competitive advantage. Future opportunities should be assesses for increasing the morale of the employees and adequate salaries and perquisites should be given to them.
The persons who are responsible for managing the function of the organisations are required to maintain the integrity of the report system.The social welfare should not be compromised by the business development organisations for accomplishing their highest profitability motive. The reporting system should be very transparent and concise that the report viewers do not find any difficulty in the assessment of financial performance of the company. The sustainability should be the main motive of the establishment of any organisation. The long run value should be focused for the benefit of the organisation (Muller, 2010).
As per my opinion, the value for investors should be created by providing them appropriate opportunities in the form of return on investments etc. They should be provided information about the future certainties also so that they will be motivated. The social value is also to be focused by the listed companies for the maintenance of the profitability of the business. A strong relationship between the operating activities and financing activities can be established with the help of integrated reporting system. The integrated reporting system will lay a significant impact on the financial performance of the organisation.
From the above report, it can be assessed that the integrated approach has laid a serious impact on the report procedure of the business organisations. The corporate governance framework can better be established with the help of this system. The social and economic considerations are some of the main aspects of the introduction of this approach. The information needs of the investors and other stakeholders are fulfilled by the management for maintaining the goodwill of the organisation in the market. Thus, it is recommended that the organisation should include both financial and non-financialperformance indicators in its report, so as to develop a healthy financial environment in the market
- Adams, C. A. (2014). The International Integrated Reporting Council: A call to action. Critical Perspectives on Accounting , 23-26.
- IIRC. (2013). Using the Framework. The International <IR> Framework , 7-13.
- KPMG. (2014). Developments in corporate reporting. CFOs driving corporate reporting reform agenda , 1-20.
- Lawrence, A. (2013). Individual investors and financial disclosure. Journal of Accounting and Economics , 130-147.
- Melloni, G. (2015). Intellectual capital disclosure in integrated reporting: an impression management analysis. Journal of Intellectual Capital , 661-680.
- Muller, R. (2010). Decision Making Process.
- PWC. (2015). Implementing integrated reporting. PWC's practical guide for a new business language , 1-32.
- PWC. (2015). Integrated reporting. Corporate reporting , 1-2.
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