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benchmarx academy

BHAVIK CHOKSHI
(CA (Final AIR 41), CS (CSFC AIR 21),
CFA (USA), DIP IFRS (ACCA)

FINANCIAL REPORTING

INTEGRATED REPORTING

CONTACT US – 9082810221/ 7977299310

www.benchmarxacademy.com

Attempt Marks
May 22 6
Jan 21 6

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INTEGRATED REPORTING

I. INTERNATIONAL INTEGRATED REPORTING COUNCIL (IIRC)

In 2010, IIRC was set up which aims to create the globally accepted integrated reporting
framework. It is the body which has prescribed Integrated Reporting (IR) Format. IIRC is
a global coalition of: Regulators, Investors, Companies and Standard setters

II. INTEGRATED REPORTING

Integrated Reporting will integrate both financial and non- financial information. It is
based on showing value creation on an overall basis for 6 measures of capital. Integrated
Reporting suggests detailed disclosures for six capitals (Financial, Manufacturing,
Intellectual, Human, Social, Natural) that should guide an organization’s decision-
making and long-term success.
The primary purpose of an integrated report is to explain to providers of financial
capital how an organization creates value over time.

III. SALIENT FEATURES OF INTEGRATED REPORTING FRAMEWORK

• Principle Based Approach:; Lays down broad principles, it does not set standard
format for reporting
• Targets the Private Sector or Profit Making Companies: But it can also be
applied, adapted as necessary, by public sector and not-for-profit organizations
• Identifiable Communication: May be either a standalone report or be included as
in annual report
• Financial and Non-financial Items: Reporting for six forms of capital
• Value Creation: Value created by an organization over time is reflected in the
changes of the capitals caused by the organization’s business activities and outputs.

IV. THE CAPITALS

The capitals are stocks of value that are increased, decreased or transformed through
the activities and outputs of the organization. The Framework has categorise the capital
into 6 main forms.
• Financial Capital: The pool of funds available to an organization for use in the
production of goods or the provision of services eg: debt, equity
• Manufactured Capital: Manufactured physical objects that are available to an
organization for use in the production of goods or the provision of services eg:
Building, plant

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• Intellectual Capital: Organizational, knowledge-based intangibles eg: Patents,

Copytights
• Human Capital: People’s competencies, capabilities and experience, and their
motivations to innovate
• Social and Relationship Capital: The institutions and the relationships within and
between communities, groups of stakeholders and other networks.
• Natural Capital All renewable and non-renewable environmental resources and
processes that provide goods or services that support the organization eg: Air, water

V. GUIDING PRINCIPLES FOR PREPARATION AND PRESENTATION OF INTEGRATED

REPORT

One of the distinguishing features of Integrated Reporting is that in contrast to compliance

based reporting, there can be no model report. Every report must be built around the
unique business model of the preparer. Few Guiding Principles are:
1. Strategic focus and future orientation
2. Connectivity of information
3. Stakeholder relationships
4. Materiality
5. Conciseness
6. Reliability and completeness
7. Consistency and comparability

VI. CONTENTS OF INTEGRATED REPORTING

• Organisational Overview and External Environment

Explain what does the organisation do and what are the circumstances under which
it operates
• Governance
Explain how the organisation’s leadership structure supports its ability to create
value
• Business Model
Explain the Inputs, processes and Outputs generated
• Risks and Opportunities
Explain the specific risks and opportunities that affect the organisation’s ability to
create value and how is the organisation dealing with them (Risk management
policy)
• Strategy and Resource Allocation
Explain where the organisation wants to go and how does it intend to get there
• Performance
Explain to what extent has the organisation achieved its strategic objectives for the
period and what are its outcomes in terms of effects on the capitals

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• Outlook
Outline the challenges and uncertainties is the organisation likely to encounter in
pursuing
its strategy, and what are the potential implications for its business model and ture
performance
• Basis of Preparation and Presentation
Explain how the organization determines what matters to include in the integrated
report and how such matters are quantified or evaluated

VII. SEBI Regulations

SEBI vide its circular dated February 6, 2017 has advised top 500 companies [to whom
Business Responsibility Report (‘BRR’) have been mandated under SEBI Regulations to
adopt Integrated Reporting on a voluntary basis from the financial year 2017-18.
The listed entities are advised to adhere provide Integrated Report in the annual
report separately or by incorporating in Management Discussion & Analysis or even by
preparing a separate report and giving reference of the same in the Annual Report.

Question 1 (ICAI Study Material)

State the categories defined in the International IR Framework for capitals. Comment
whether an organisation has to follow these categories rigidly.

Solution

Various categories of capital are:

 Financial
 Manufactured
 Intellectual
 Human
 Social and Relationship
 Natural
Organizations preparing an integrated report are not required to adopt this categorization
or to structure their report along the above lines of the capitals.

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Question 2 (ICAI Study Material)

Can a Not-for Profit organisation do the Integrated Reporting as per the Framework?

Solution

The Framework is written primarily in the context of private sector, for-profit companies
of any size but it can also be applied, adapted as necessary, by public sector and not-for-
profit organizations.

Question 3 (ICAI Study Material)

Can an Integrated reporting be done in compliance to the requirements of the local laws
to prepare a management commentary or other reports?

Solution

An integrated report may be prepared in response to existing compliance requirements.

For example, an organization may be required by local law to prepare a management
commentary or other report that provides context for its financial statements. If that
report is also prepared in accordance with this Framework, it can be considered an
integrated report. If the report is required to include specified information beyond that
required by this Framework, the report can still be considered an integrated report
if that other information does not obscure the concise information required by this
Framework.

Question 4 (ICAI Study Material)

Does an integrated report need to be a stand-alone document?

Solution

No. An integrated report can be either a stand-alone report or included as a distinguishable,

prominent and accessible part of another report or communication. For example, it may
be included at the front of a report that also includes the organization’s full financial
statements.

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Question 5 [ICAI Paper May 22 Q.4 (b)]

What is Integrated Reporting? Discuss any 5 salient features of Integrated Reporting

Framework

Solution

Definition: Integrated reporting is a concept that has been created to better articulate
the broader range of measures that contribute to long-term value and the role
organizations play in society. Integrated Reporting is enhancing the way organizations
think, plan and report the story of their business. Central to this is the proposition
that value is increasingly shaped by factors additional to financial performance, such
as reliance on the environment, social reputation, human capital skills and others.

The five salient features of Integrated Reporting Framework are as follows:

1. Principle Based Approach: This Framework identifies information to be included

in an integrated report for use in assessing an organization’s ability to create value.
It does not set benchmarks for such things as the quality of an organization’s
strategy or the level of its performance.
2. Targets the Private Sector or Profit-making Companies: This Framework is
written primarily in the context of private sector, for-profit companies of any size
but it can also be applied, adapted as necessary, by public sector and not-for-profit
organizations.
3. Identifiable Communication: An integrated report may be prepared in response
to existing compliance requirements and may be either a standalone report or be
included as a distinguishable, prominent and accessible part of another report or
communication. An integrated report is intended to be more than a summary of
information in other communications (e.g., financial statements, a sustainability
report, analyst calls, or on a website); rather, it makes explicit the connectivity of
information to communicate how value is created over time.
4. Financial and Non-financial Items: The primary purpose of an integrated report
is to explain to providers of financial capital how an organization creates value
over time. It, therefore, contains relevant information, both financial and other.
5. Value Creation: Value created by an organization over time manifests itself in
increases, decreases or transformations of the capitals caused by the organization’s
business activities and outputs. That value has two interrelated aspects – value
created for:
• 
The organization itself, which enables financial returns to the providers of
financial capital
• Others (i.e., stakeholders and society at large)

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Question 6 [ICAI Paper Jan 21 Q.4 (b)]

With respect to Integrated Reporting, state whether following statements are true or
false with reason for your answer:

(i) An integrated report is necessarily to be a stand-alone report;

(ii) The framework of Integrated reporting is written primarily for private
companies;
(iii) A report prepared as required by local law containing a management
commentary or other report that provides context for its financial statements
can serve the purpose of Integrated reporting; and
(iv) An integrated report should include only positive material matters.

Solution

• False. An integrated report may be prepared in response to existing compliance

requirements and may be either a standalone report or be included as a distinguishable,
prominent and accessible part of another report or communication.
• True. The Framework is written primarily in the context of private sector, for-profit
companies of any size but it can also be applied, adapted as necessary, by public
sector and not-for-profit organizations.
• True. If the report is required to include specified information beyond that required
by this Framework, the report can still be considered an integrated report if that other
information does not obscure the concise information required by this Framework.
• False. An integrated report should include all material matters, both positive and
negative, in a balanced way and without material error. Both the increases and
reductions in the value of the important capital should be reflected. Where the
information is not perfectly accurate, estimates should be used and appropriate
processes should be in place to insure that the risk of material misstatement is
reduced.