The Value Creation Process
Inputs
Business Model
Business Activities
Outputs
Outcomes
Fundamental Concepts of Integrated Reporting
The main purposes of IR is to show how an organization creates value overtime.
Fundamental Concepts:
1. Capitals
2. Value Creation Process
3. Value Creation
Cost incurred under IR
- Collecting and analyzing new types of data.
- Setting up new data sets.
- Hiring people with the proper analytical skills.
- Setting-up new internal control systems.
- Assurance on the Integrated report.
- Disclosing true information, sometimes negative or complete
The benefits of IR
- Linking financial and non-financial information.
- Better decisions making and resource allocation.
- Better relationships with stakeholders.
- More employee engagement.
- Lower reputation risk.
- More committed customers.
- Better measurement and internal control systems for non-financial information.
- Breaking down silos withing organization.
- Lower cost
The six capitals
- Financial
- Manufactured
- Social & Relationship
- Human
- Natural
- Intellectual
Financial capital
Is that available pool of funds
Natural capital
Consist of the renewable and non renewable environmental resources and process that provide good or services that support the organizations prosperity.
Manufactured capital
Consists of Manufactured tangible objects.
Intellectual capital
Is the intangible knowledge of the organization.
Human capital
Refers to employees’ competencies, abilities and experience.
Social and relationship capital
Is the relationship of the organization with the environment in which it operates.
Three major Concepts to understand IR
- Integrated thinking
- Integrated report
- Value creation
Integrated reporting
A process founded on Integrated thinking that results in a periodice Integrated report by an organization about value creation overtime and related communications regarding aspects of the value creation.
Integrated thinking
Is a process of decision making, management and reporting. It is based on the connectivity and inter dependencies among the organization.
- Specific factors that affect the organizations ability to create value over time.
Integrated report
The product of IR and Integrated thinking is the Integrated report. Provides a holistic view for all relevant stakeholders. The Integrated report concisely communicates how strategy, governance, performance and prospects lead to value creation over the short, medium and long-term.
Purposes of the Integrated report
The main goal of an organizations Integrated report is to give providers of financial capital more information about how the entity creates, preserves, or erodes value overtime.
Social license to operate
The outcome(connectivity) of selling products to customers, an organization is operating within a social environment.
Externalalities
Are the positive and/or negative effects on the capitals not owned by the organization itself.
Challenges of adopting Integrated reporting
- Materiality
- Data quality
- Assurance
- Lack of universal standards
- Tone at the top
Overview of content elements
Each Integrated report should contain the nine content elements.
- Organizational overview and external environment
- Governance
- Business model
- Risk and opportunities
- Strategy and resource allocation
- Performance
- Outlook
- Basis of preparation and presentation
- General reporting guidance
Guiding principals and content elements
- Strategic focus and future orientation
- Connectivity of information
- Stakeholder relationships
- Materiality
- Conciseness
- Reliability and completeness
- Consistency and comparability
