Creating value is essential to any business. Therefore, understanding how your business creates value is a vitally important factor in running your business.
Today, 80% of an organisation’s value is in intangible assets – that is 80% of organisations’ value that is largely not recognised by current financial accounting standards.
At a time when many of the practices and processes that account for a company’s assets do not adequately capture value, we urgently require a reality check for business reporting.
What is integrated reporting?
Integrated Reporting (<IR>) is a new corporate reporting initiative which helps businesses report on what matters. An integrated report tells the story of an organisation, based on information which is much broader, more interconnected and more forward-looking.
An integrated report should:
- Make the allocation of capital more efficient and productive through improvements in the quality of information available to providers of financial capital.
- Identify and communicate the full range of financial and non-financial factors that materially affect the ability of an organisation to create value over the short, medium and long term.
- Recognise the importance of a broad range of capitals financial, manufactured, intellectual, human, social and relationship and natural) to a thorough understanding of the organisation’s business model.
- Focus on the core concept of the business model to support integrated thinking and decision making with a view to sustainable value creation.
Adopting the principles underlying <IR> not only helps organisations to effectively tell their value creation story but crucially also promotes more holistic, long term thinking and decision making and as a consequence promotes value creation itself.
Integrated reporting leads to integrated thinking
Effective integrated reporting has a number of benefits, the foremost of which is it creates integrated thinking across the organisation. Through a firm focus on strategy, business model and value creation it helps to break down silos, reduce duplication and create greater cohesion and efficiency.
A thorough understanding of the business model supports better integrated thinking and decision making – leading to better governance, better performance management and better reporting; in other words, better business.
Ultimately, integrated thinking helps organisations and their stakeholders to make better business decisions for sustainable success.
Want to learn more about integrated reporting and integrated thinking?
The CGMA briefing Integrated thinking: the next step in integrated reporting provides further information on the benefits of integrated reporting and how it will lead to better decision making in business.
The report Tomorrow’s Business Success provides research to help chairmen, CEOs, CFOs and other members of boards and executive committees to lead discussions within their organisations focussing on the benefits of <IR> to support long term business success. A ‘tool-kit’ accompanying the guide draws on insights from the research and provides questions to help those charged with governance to judge how <IR> can help organisations both create value and tell their story effectively.