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Abstract
While companies continue to prepare and present their financial statements under generally accepted accounting principles (GAAP), users of financial statements have continued to rely on these statements while making their informed economic decisions. But every time something goes wrong makes the users trust the financial statements less, with growing internal understanding for sustainability that questioned the accountability failures of corporate giants and the global financial crisis of 2008,which questioned the sudden fall out of companies which prepared financial statement under the generally accepted accounting practice, a new phenomenon that seek to identify outcomes and how reports can be used to build trust on investors and other users have been developed. With globalization, rapid change of technology, population growth and increase in consumerism there has been an increase impact on quality, availability and prices of resources including water, food and energy. As a result more pressure is also on ecosystem that is essential to the economy and the society. With these changes reporting is argued to keep pace, hence the traditional reporting model that include only the financial information has left in gaps that need to be fulfilled although it plays a valuable role in stewardship of financial capital. These gaps have prominently tried to be filled through increasing information through management commentary, reporting on governance and standalone sustainability reports. Today users of financial information have learnt the importance of non-financial information and find the same to be material for decision making. According to Kings Code of Governance, 2009 also known as King III report, today strategies, risk, performance and sustainability have become inseparable. Companies need to communicate their actions and level of commitment to incorporate sustainability so as to build more trust and transparency to investors through an integrated report. Anintegrated report is a single document that presents and explains a companys financial and non-financial environmental, social and governance performance. The main reason behind integrated report is to produce one report that connects material financial and sustainability information. This paper therefore compliment the concept of one report (integrated reporting) and hence support the idea that purport bringing assured transparency and win stakeholders trust ,companies should integrate both financial and non-financial performance reports in one report. For the same this paper explores the supporting literatures which cover the state of financial reporting today, the drivers of one report, the benefits and challenges of integrated reports, suggestions of how it could be applied in curriculum of business schools to enhance capacity building and why it should be mandated, standardized and backed by clear enforcement

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Contents
Abstract .......................................................................................................................................................... i Introduction .................................................................................................................................................. 2 The State of Corporate Reporting Today ...................................................................................................... 3 Integration of Non-Financial and Financial Information............................................................................... 4 How is Integrated Reporting Different?........................................................................................................ 5 The Drivers of One Report ............................................................................................................................ 6 The Benefits and Challenges of Integrated Reports ..................................................................................... 7 The Foundation For Preparing an Integrated Report ................................................................................... 8 Why Non-financial Information should be Mandated, Standardized and Backed by Clear Enforcement . 12 Questions for further discussions and thoughts ......................................................................................... 14 References: ................................................................................................................................................. 14

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Introduction

Recent Corporate scandals have highlighted that a companys management of environmental, social and governance(ESG) issues can have significant impact on financial performance and thus shareholders value(ACCA,2011).Traditional reports had failed due to its short sightedness as it focused mainly on the past and thus limit the stakeholders from determining the companys long term financial picture. Many value creation and sustainability questions that stakeholders questionon financial reports cannot get clear answers.With globalization, rapid change of technology, population growth and increase in consumerism there has been an increase impact on quality, availability and prices of resources including water, food and energy. As a result more pressure is also on ecosystem that is essential to the economy and the society. With these changes reporting is argued to keep pace, hence the traditional reporting model that include only the financial information has left in gaps that need to be fulfilled although it plays a valuable role in stewardship of financial capital. These gaps have prominently tried to be filled through increasing information through management commentary, reporting on governance and standalone sustainability reports. Today users of financial information have learnt the importance of non-financial information and find the same to be material for decision making. According to Kings Code of Governance, 2009 also known as King III report, today strategies, risk, performance and sustainability have become inseparable. Companies need to communicate their actions and level of commitment to incorporate sustainability so as to build more trust and transparency to investors through an integrated report. An integrated report is a single document that presents and explains a companys financial and non-financial environmental, social and governance performance. The main reason behind integrated report is to produce one report that connects material financial and sustainability information. The concept of integrated reporting has arisen to address the rest of the story untold by the financial reports. Integrated reporting aims to give a holistic view of the organization by putting its performance and strategy in the context of its relevant social and environmental issues.Importanly integrated reporting include forward looking information to allow stakeholders to make a more informed assessment of the future of the company, as well as how the organization is dealing with sustainability risks and opportunities(SAICA,2012).

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The State of Corporate Reporting Today

The objectives of general purpose financial reporting is to provide financial information about the financial position, change in financial position and performance ,ACCA F7 Study text 2013.The objectives of corporate reporting are met by corporations after having prepared a. The main financial statements (statement of financial position, statement of comprehensive income, statement of cash flow and statement of change in equity and b. Supporting notes to the accounts, which provide additional details. Today all listed companies are mandated to issue at least one annual basis financial performance report. These reports are prepared on some set of standards; typically IFRSs (International Financial Reporting Standards).Financial information has played key roles in decision making. It has been helpful to corporations while making their resource allocation decisions, similarly financial information has been of great use to other stakeholders, customers, suppliers, employees and the government. Despite different organs regulating the preparation and presentation of financial statements that made it a trustful information .Financial information prepared based only on the GAAP has been criticized on different grounds, its complexity that make it hard to be understood by people who have limited knowledge in accounting and the difficulties of finding the most relevant information by some users ,the time lag of issuing the reports, the paucity of information about the risk being taken by firms to create value for shareholders and many others just to mention have raised different concerns. Eccles, Robbert and Saltzman(2011) questions about whether a financial report present a true and fair view, and concluded that it cannot be adequately be answered because the reports do not contain the information on non-financial performance that can determine a companys long financial picture. Eccles, Robbert and Saltzman believe due to these critics, many companies today are voluntarily producing non-financial information to support the financial information. Today many companies produce information about the environment (to include for example energy, water and waste emmisions),social(to include for example labor turnover, labor trainings and labor practices) and governance(to include for example independence of the board, availability and power of audit committee).To make integrated reports reliable, relevant and comparable the biggest challenge that remain to be settled are the frameworks and standards of this supplement information
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Integration of Non-Financial and Financial Information

With advancement of technology, globalization, rapid population growth and increase in consumerism, there has been an increasing impact on quality, availability and prices of resources, including water, food and energy, as a result more pressure is also on ecosystem that are essential to the economy and the surrounding society. With these changes businesses are forced to react quickly to remain successful and or develop new models to overcome the same. With these changes reporting is ought to keep pace ,hence the traditional reporting model that include only financial information has left in gaps that need to be filled, although it continues to play a valuable role in the stewardship of financial capital. Some Companies have tried to fill in these gaps prominently through increasing information to their reports by adding management commentary, reporting on governance and through writing a standalone sustainability report. Today Investors, companies, policy makers and the society at large have learnt the importance of integrated reports and find the same to be material for informed decisions.(Carrol School of Management,2008;Arnold.V et al,2009;Financial Services Council,2011;Haigh.M and Shaphiro M.A,2011).According to the consolation Profit of Internationalintegrated reporting integrated thinking is the active consideration by an organization of the relationship between its various operating and functional units and the capitals that the organization uses and affects. Integrated thinking can be contrasted with traditional Silo thinking it takes into account the connectivity and interdependencies between the range of factors that have a material effect on the organization ability to create value over time, including: a. The capitals the organizations uses and effects, and the critical interdependencies including tradeoffs between them. b. The capacity of the organization governance structure to assess resilience against short term disruptions and to respond to stakeholders legitimate needs, interests and expectations. c. How the organization tailors its business mode and strategy to respond to the opportunities and risks it faces, as well as major changes in its external environment. d. The organization value drivers, activities, performance (financial and other), and outcomes in terms of capitals past present and the future.

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IIRC (International Integrated Reporting council in their international integrated reporting framework suggest the center to one report to be organizations business model. Accordingly this model is a process which organizations may seek to create and sustain value. The business model of value creation is not created by the organization alone neither is it created within the organization itself, but is. a. Implemented by some other external factors such as social, economic and technological issues that present risks in which the organization operates. b. Co-created through relationship with others, to include employees, partners, supplies and customers. c. Dependent on the availability,affordability, quality & management of various resources or capital (financial, manufactured, human, intellectual natural and social).

How is Integrated Reporting Different?

Towards integrated reporting (Communicating Value in the 21 stCentuary), an international integrated reporting framework provide the key differences between an integrated reporting and traditional reporting. Thinking in Silos as a distinction point The IIRC suggest that while traditional reporting encourages thinking in Silos because it occurs in Silos. Integrated reporting is different as it supports integrated thinking monitoring, managing and communicating the full complexity of the value creation and it contribute to success over time. Stewardship as a distinction point As traditional reporting provide stewardship to management team on the financial capitals. Integrated reports provide stewardship on all forms of capitals (manufactured, human, intellectual, natural and social capital including the financial capitals)

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Focusas a distinction point As traditional reporting provides information about the past, an integrated report provides both past and future information that can be used to link different strategic objectives to create and sustain value in the future. Timeframe as a distinction point Much of the media and regulatory attention to the financial crisis has focused on short -termism as one contributory factor. Although solving such problems in short term is important, placing them in context of short, medium and even long term consideration is essential. Trust as a distinction point With narrow mandated disclosure, the tradition reports have provided narrow information and or issuer. By putting more emphasize on transparency that covers broader range of issues and disclosing the positive and negative, integrated reporting helps to build trust in comparison to the traditional reports.

The Drivers of One Report

Stater& Gilbert, 2004 as quoted by Azam Z. (2011) suggest that, there are certain forces that have been driving this wave of transformation in corporate reporting. Accordingly Slater & Gilbert suggest the drivers to consist of a variety of diverse deeds, liabilities and competencies. Azam Z. (2011) suggests one of the most important and influential force is growing internal understanding and support for sustainability. He added that employees, suppliers, partners , competitors, customers, clients, governments, Not-for-Profit organizations, NGOs and many independent institutions are forcing companies to develop sustainable business policies. White (2005) suggest the Driving force behind one report to be the accountability failures of United States and European corporate giants financial reports that call for non-financial information into annual financial reports.

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Farris et al (2010) as quoted by Azam Z. (2011) suggest that the current reports do not assist investors with information that are intangible in nature. The One Report hence the emerging of integrated report will restore trust as it will provide information for both tangible and intangible assets.

The Benefits and Challenges of Integrated Reports

Main N. &Hespenheide E. (2011) believes that as the world moved steadily towards the adaptation of international financial reporting standards, so the progression towards integrated report is inevitable. The only challenge that remains unanswered is the certainty of time for its global adoption and development. Main N. &Hespenheide believe that, despite of how the timing plays out, many companies have put integrated reporting on their agenda now, as the benefits of being ahead of the carve may be significant. Main N &Hespenheide argue that one such advantage may be market place advantage, where organizations that report on the full spectrum of issues may be seen as more advanced than those that restrict their reporting to traditional financial information. According to Eccless integrated reports will not demonstrate the linkage between an organization strategy, governance and financial performance and the social environmental and economic context within which it operates as the IIRC defines, but it is also an integrator of sustainability into companies core business. Parris et al, 2010 as quoted by Azam Z. (2011) believes that, as concrete data relating to both financial and non-financial will be performance metrics will be available, a much better decisions by the stakeholders can be made. Azam Z. (2011) believes that, as integrated reports will provide more information that will enhance accountability, reputational risks will decrease which in turn will grab the attention of not only investors but of customers as well. Due to much information provided, that will require deeper engagement and growing commitment that will ensure that organizations approach in adjusted towards customers and communal desires this will in turn increase the probability that an organization is sustainable for lasting period of times (Azam Z., 2011).

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The Foundation for Preparing an Integrated Report

The IIRC in their international integrated reporting framework clearly explain the Building Blocks of an integrated report. According to the draft international integrated framework, the guiding principles that underpin the preparation of an integrated report, informing the content of the report and how information to be presented includes the following characteristics. a. Strategic focus and future orientation b. Connectivity information c. Stakeholder responsiveness d. Materiality and conciseness e. Reliability and completeness f. Consistency and comparability

The Guiding Principles and Content Elements

Figure 1: The Guiding Principles and Content Elements. Adopted from the Consultation Draft of the International <IR> Framework Pg 7

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Strategic focus & future orientation According a one report (integrated report) should be prepared in a manner that will help to provide insight into the organizations strategy and how the same relates to its ability to create value in the short medium and long term. Connectivity of Information An integrated report should show a combination, interdependencies between the components that are material to organization ability to create value Stakeholder responsiveness An integrated report should provide insight into the quality of the organizations relationships with its key stakeholders and how and to what extent the organization understand, takes into account and responds to their legitimate needs, interests and the expectations of the stakeholders. Materiality & Conciseness An integrated report should provide concise information, that is material to assessing the organizations ability to create value in the short, medium and long term. Reliability & Completeness An integrated report should include all material matters, both positive and negative, in a balanced way and without material error. Consistency & Comparability The information should be presented on a basis that is consistent over time and in a way that enables comparison with other organizations to the extent it, s maternal to the organizations own value creation story. To enrich the above objectives characteristics of an integrated report, an integrated report should include the following content elements. a. Organization overview that external environment b. Governance
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c. Opportunities & risks d. Strategies & resources allocation e. Business model f. Performance g. Future outlook It should be noted out that the content element are linked to each other and are not mutually exclusive. (a) Organization overview and external environment. An integrated report in this content is expected to identity the organization mission and vision to include: Culture ethics and values Ownership + activities Market positioning (market share, threat of new entrants, substitute customers and suppliers and intensity of competition. Number employees Number of countries in which the organization operates External environmental factors thataffect directly or indirectly the organization to include legal, commercial, social environment and political context that affect the organization ability to create value (eg. Interest of stakeholders, macro and micro economic conditions, market forces, change in population, human rights, health, poverty education system, environmental changes and political environment in which the organization operates). (b) Governance An integrated report should be able to answer the question,how does the organizations governance structure support its ability to create value in the short, medium and long term.To provide more insight into the matter the following elements are included. The organization leadership structure to include skills and diversity of those changed with governance. Whether the organization is implementing list governance practice or not. The responsibility of those charged with governance.

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How incentives and remuneration are linked to value creation.

(c) Opportunities & Risks An integrated report should be able to identify the opportunities and risks that affect the organization ability to create value over the short, medium and long term. To attain the same the following elements can be included. The specific source of risks and opportunities that may be either internal or external. Organization assessment of the likelihood that the opportunity or risk will be realized. Specific steps being taken to create value from key opportunities and to mitigate key risks.

(d) Strategies + Resources Allocation An integrated report should be able to answer the question where does the organization want to go and how does it intend to get there for the same.For this case an integrated report identifies. The organizations short, medium and long term strategic objectives. The resources allocation plans it has in place, orintends to put in place. The strategies it has in place to achieve these strategic objectives. How it will measure achievements.

(e) Business Model An integrated report should answers the question what is the organizations business model and to what extent is it resilient? For the same an integrated report identifies. Key inputs and how they relate to the capital from which they are derived. Key business activities. Key outputs, explaining the products and services that the organization places in the market. Key outcomes in terms of the capital including both internal and external outcomes.

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(f) Performance An integrated report should answer the question,to what extant has the organization achieved its strategic objective and what are its outcomes in terms of effects on the capitals? In this case an integrated report that includes both financial and non-financial information about performance should include. Quantitative indication with respect to targets, value driven, opportunities & risks. The organizations effects on the capitals. The state of key stakeholder relation and how the organization has responded to stakeholder legitimate needs. The linkage between past and current performance and between current performance and future outlook. (g) Future Outlook An integrated report should answer the question. What challenges and uncertainties is the organization likely to encounter in pursuing its strategy and what are the potential implications for its business model and future performance? To attain the same or answer the question the following elements are included under future outlook. The expectation of senior management and those changed with governance about the external environment the organization is likely to face. How that will affect the organization. How the organization is currently equipped to respond to the critical challenges and uncertainties that may arise.

Why Non-financial Information should be Mandated, Standardized and Backed by Clear Enforcement
Author such as Wiley &Eccles (2010) believe standardizing non-financial information is inevitable. Many companies have taken the option of preparing and presenting integrated reports in their system to include world largest chemical company (BASF) of Germany, one of the largest electronics company, United
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Technologies Corporation (UTC), Dernmark Nordisk, Amercan Electric Power (AEP) and Philips (Azam Z. 2011). Denmark was the first country which made integrated report mandatory for all companies to issue an integrated report (Azam Z. who quoted Danish Ministry of Trade and investment, 2006). Johannesburg Stock Exchange (JSE) was also made mandatory for public companies to publish one Report. (Azam Z. 2011). Eccles (2013) believes that, pursuing integrated reporting is optional, and one that any companies have yet not chosen to pursue. Eccles (2013) believe that when a company is forced to report on the resources it consumes, wastes it creates, the human capital it uses and develops, the way it manages risks and the communities it helps or disrupts will have the potential to be a mechanism for not just articulating actions more clearly but for spurring them too. Some other reasons that make Eccles to believe that integrated report must be backed by clear enforcement include (a) Most of the integrated reports are window dressed, than substance hence do not clearly make companies resource allocation decision effective. (b) At present there is no one single organ that oversees non-financial reporting. In the domain of accounting standards it can be argued that, the presence of IFRS (international Financial Reporting Standard) and the US-GAAP (Generally Accepted Accounting Principles) enforce the application of these standards while preparing financial information. The present international integrated reporting committee is just there to formulate the framework but neither to make the standards nor to oversee them. (c) Eccles believes the present practice on the one report is almost a guerilla score carding in a way. GRI, SASB and IIRC are social entrepreneurs who are devoted to formulate frameworks for preparation of non-financial information. Eccles believe because the government isnt doing it and the private sector isnt doing it so it ends up as a civil society thing, that you could say it is a guerilla activity. (d) Without standardizing the non-financial information, it will be difficult to attain comparative information that can help the final users of the report, hence mandating and standardizing nonfinancial information is inescapable.

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Questions for further discussions and thoughts

The biggest challenge that remain today in one report is the creation of non-financial standard. Some of the challenges as thought by Eccles include. (a) Who is the Primary audience one report? (b) How do you make them universally applied? Or institutionally legitimate? (c) Should integrated reports have integrated audits, to ensure their quality?

References

Arnold.V.,Bedard,C.Philips,J, and Sutton,S.,(2009), Understanding Professional and Non-Professional Investors, Information Requirements. Azam,Z, (2011), One Report: Bringing Change in Corporate Reporting through integration of Financial and Non-Financial Performance Disclosure, Vol 1.No 1 Boston College Caroll School of Management, (2008), The Use of Non Financial Information; What do Investors Want? Eccles, R, G., & Krzus, M. (2010). Integrated Reported for Sustainable Strategy. Financial Exacutive, 29-32. Eccles, R, G., & Krzus, M. (2010), One Report: Integrated Reporting for a sustainable Strategy, (1st ed.). New Jersey, USA: Wiley. Eccles, R, G (2013), Trying to create reporting standards that integrate environmental, social and governance performance along with financial information Eccles,R and Saltzman,(2011), Achieving Sustainability Through Integrated Reporting Stanford Social Innovation Review

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Farris, P. (2010), Marketing Metrics: The definitive guide to measuring marketing Performance (2nd ed.). Upper-saddle River, New Jersey, USA: Author. Financial Services Council and the Australian Council of Superannuation Investors, (2011), ESG Reporting Guide for Australian Companies, Building the Foundation for Meaningful Reporting. Haigh,M and Shaphiro M.A,(2011), Financial Institutions; taking greenhouse gases into account. Climate disclosure standard board for the department of environment, food and rural affairs, UK. IIR, (2013), Consultation Draft of the International Framework-Integrated Reporting International Integrated Reporting Council Institute of Directors South Africa, (2009), King Code of Governance for South Africa Main,N&Hespeinheide.E, (2011), Integrated reporting. The new big picture Delloitte Review Slater, A., & Gilbert, S. (2004), The evolution of Business Reporting: Make Room for Sustainability Disclosure. Environmental Quality Management, 41-48. White, A. (2005),New Wine, New Bottles: The Rise of Non-Financial Reporting. Businesswire. Woolf,E (2013), Financial Reporting Paper F7 ACCA Study text, Emile Woolf International Publishing

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