Integrated Reporting and Positive Accounting Theory

Integrated Reporting & Positive accounting theory

Integrated reporting

According to IIRC 1.18-1.20, there is an ideal of seamless integration between all competing perspectives that is honored by the integrated reporting perspective. However, despite the strengths of this concept, the notion of a truly seamless presentation of competing data remains elusive. It is true that for a long time, the profession of accounting has been criticized for placing undue emphasis on short-term financial data when evaluating the performance of an organization. This can make it difficult for investors to comprehend the state of health of an organization and make wise decisions with their money. The integrated reporting framework was designed to address this and "is organized around the concept of reporting on 'capitals,' including financial, manufactured, intellectual, human, social and relationship, and natural capital. Under each of these headings are a series of disclosures that a company might make" (Cohn 2013). The presumption of the integrated reporting framework is that the financial health of a company cannot solely be measured in profits; rather it must also be evaluated in terms of the company's future potential to grow and develop. There is also a concept that 'ethics' must play a role in the evaluation of a company, given the extent to which ethical problems can impact the health of the organization in the long-term. For example, "Clorox highlighted its environmental efforts in a 2010 sustainability report that was timed to coincide with the release of its annual report," in response to environmental groups that accused it of greenwashing, resulting in a more favorable assessment of the company (Cohn 2013).

However, creating a truly integrated approach can be extremely difficult. First and foremost, the paradigms of the different disciplines (financial vs. environmental or social) can be very difficult to truly integrate. Secondly, evaluating concepts such as human capital and sustainability can be very subjective and can vary in importance from industry to industry. Having innovative ideas are essential in IT but may be less so in the case of discount retail companies, for example. Regarding, concepts like 'social good,' the methods of evaluation can be so varied that the presumption that there is a single, agreed-upon standard like a financial metric seems impossible to truly realize.

Q5. Three reasons why integrated reporting may not be achievable

A positive accounting perspective, versus a theoretical accounting perspective, stresses how the accounting profession functions in the real world of the 'here and now' versus in the abstract. There are three very practical problems with implementing the ideal of the integrated reporting paradigm. First and foremost, there is a lack of standardization of the format of integrated reporting. The Sustainability Reporting Guidelines ('GRI Guidelines') by the Global Reporting Initiative (GRI), "which is by far the most-used sustainability reporting framework…is a voluntary standard and lacks any regulatory mandate at this time" (Integrated reporting, 2011, Deloitte). It is arguable that an ideal that lacks uniform and universal adherence is useless, given that it limits the ability of the integrated report of one organization to be compared against the report of another.