A.1. Integrated and External Reporting

Question 1

What is integrated reporting?

Answer 1

The process of incorporating non-financial information with financial information in corporate reports to show how financial information is influenced by non-financial information over the short, medium, and long term.

Question 2

What is the purpose of reporting non-financial information?

Answer 2

To address the perception that corporations prosper at the expense of the broader community and to focus on long-term value creation for both shareholders and society.

Question 3

Define:

Shared Value

Answer 3

The creation of economic value for a company and its shareholders in a way that also creates value for society.

Question 4

What is the stakeholder theory?

Answer 4

It posits that business can be understood as a system of creating value for all stakeholders, not just maximizing value for shareholders.

An organization’s stakeholders are all those who are affected by its actions and include its employees, managers, owners (shareholders), customers, suppliers, society, government, and creditors.

Question 5

What are the two concepts that emerged related to non-financial reporting?

Answer 5

• Corporate social responsibility
• Sustainable development

Question 6

What is ISO 26000?

Answer 6

An international standard providing guidance on social responsibility, including stakeholder relationships and community impacts, introduced in 2010.

Question 7

What is the purpose of the International
< IR > Framework?

Answer 7

It introduces the concept of reporting non-financial information as an integral part of the annual report that may be read by all stakeholders.

Question 8

What is the primary purpose of an integrated report?

Answer 8

To explain to providers of financial capital and other stakeholders how an organization creates, preserves, or erodes value over time.

Question 9

What are the goals of integrated reporting?

Answer 9

• Improve the quality of information available to providers of financial capital
• Promote a cohesive and efficient approach to corporate reporting
• Enhance accountability and stewardship for the broad base of capitals
• Support integrated thinking, decision-making, and actions that focus on the creation of value over the short, medium, and long term.

Question 10

What is integrated thinking?

Answer 10

The active consideration by an organization of the relationships between its various operating and functional units and the capitals the organization uses or affects.

Question 11

What is a positive externality?

Answer 11

A positive consequence of an economic activity that is received by unrelated third parties that are external to the transaction, such as the effect on the productivity of a company of a well-educated labor force in the community.

Question 12

What is a negative externality?

Answer 12

A negative consequence of an economic activity that is paid for by unrelated third parties that are external to the transaction, such as when pollution emitted by a factory affects nearby residents.

Question 13

What are the six capitals used in the value creation process?

Answer 13

• Financial
• Manufactured
• Intellectual
• Human
• Social and relationship
• Natural

Question 14

What role does governance play in value creation?

Answer 14

It includes all the means by which an organization is directed and controlled, including the rules, regulations, processes, customs, policies, procedures, institutions, and laws that affect the way the organization is administered.

Governance involves creating an oversight structure that supports the organization’s ability to create value.

Question 15

What should an integrated report include about the external environment?

Answer 15

Information about significant factors affecting the external environment and the organization’s response to it.

Question 16

What are the elements of an integrated report?

Answer 16

• Organizational overview and external environment
• Governance
• Business model
• Risks and opportunities
• Strategy and resource allocation
• Performance
• Outlook
• Basis of preparation and presentation

Question 17

What is the principle of materiality in integrated reporting?

Answer 17

The information disclosed should be about material matters, that is, matters that substantively affect the organization’s ability to create value.

Question 18

What are the benefits of adopting integrated reporting?

Answer 18

• Greater clarity about the relationship between financial and non-financial performance and how value creation is affected
• Improved internal decision-making
• Enhanced internal measurement and control systems
• Greater employee engagement
• Lower reputational risk
• Better communication with stakeholders
• By communicating a company’s vision of the future and how it addresses non-financial challenges and opportunities, it can enhance confidence of long-term investors in the company’s leadership and its ability to build sustainable value.

Question 19

What challenges are associated with adopting integrated reporting?

Answer 19

• Requires board and CEO support
• Lack of established standards for non-financial information
• Difficulty in determining what are material issues
• Need for assurance opinion
• Internal controls over non-financial data are not as effective as controls over financial data.
• Investment in new systems and processes necessary

Question 20

What is the importance of stakeholder relationships in integrated reporting?

Answer 20

An integrated report should provide information about the nature and quality of the organization’s relationships with its key stakeholders.