ACCA P3 考官文章 INTEGRATED REPORTING

Integrated reporting (IR) has been developed and promoted by the International Integrated Reporting Council (IIRC), a global coalition of regulators, investors, companies, standard setters, the accounting profession and non-governmental organisations. IR has been introduced to the syllabuses of many of the Professional level papers. This article aims to show how the idea of integrated reporting is relevant to the Paper P3 syllabus.

Exhibit 1 shows a summary of the definition, aims, guiding principles and contents of an integrated report. If you are not familiar with these you should read through that summary before going on. Note that the IR framework is principles-based with the aim of achieving a balance between flexibility and prescribing strict headings and contents.

RELEVANCE TO PAPER P3

The emphasis of Paper P3 has changed since it was first examined in December 2007 and now contains more material on costing, contribution analysis, regression analysis, time series, investment appraisal, project management and information technology. Despite these accretions, the Paper P3 syllabus can still largely be looked at as:

• Strategic analysis
• Strategic choice
• Strategic implementation

Although business analysis can be used retrospectively to see where things went wrong, a more important use is to plan for the future so that the business can identify suitable strategies that promise sustained competitive advantage. It is also important to analyse how changes can be implemented through examining business change processes and project management.

You will see that IR has many elements which easily relate to Paper P3. The definitions of IR is:

• A concise communication of an organisation’s strategy, governance and performance.
• Demonstrates the links between its financial performance and its wider social, environmental and economic context.
• Show how organisations create value over the short, medium and long term.

It is useful to imagine yourself investigating a company about which you know nothing to decide whether or not you want to invest in it. Going to the latest annual report and financial statements would probably be your starting point, but you will be left with many unanswered questions – certainly if the company shows the minimum information required by law and the accounting and financial reporting standards. You will learn relatively little about the company’s business activities (though segmental reporting helps), their competitors, their future plans or how they intend to achieve sustainable competitive advantage. IR aims to fill the gaps so that existing or prospective investors better understand the company.

An article entitled 'ACCA embeds integrated reporting' (see 'Related links') suggests that the following IR Content Elements are particularly relevant to Paper P3:

• Organisational overview and the external environment
• Opportunities and risks
• Strategy and resource allocation
• Business model
• Future outlook

Let's add some detail and examples to these elements:

ORGANISATIONAL OVERVIEW AND THE EXTERNAL ENVIRONMENT

What does the organisation aim to do? Who are the major stakeholders? Where is it located? How is it structured? What external events will affect if most?

Fairly obviously the organisation’s mission, stakeholder analysis, organisation chart and a PESTEL analysis would be relevant to this section of the IR. Think of this section as setting the context of the organisation and providing some background detail.

OPPORTUNITIES AND RISKS

These must cover both internal and external matters. The traditional SWOT analysis usually categorises opportunities and threats (risks) as external, but it is essential to also look internally. A weakness (for example arising from gaps in new product development) is a risk to future revenues. Similarly a strong brand name creates greater opportunities for future revenue streams. Historically, the board of companies would tend to emphasise a company’s opportunities, but investors cannot make an informed decision about an investment without an appreciation of the associated risk. Some risks can be quantified (for example, by sensitivity analysis) but it is unlikely that quantified amounts would appear in an IR. A qualitative indication should be provided about both internal and external risks. The report should also mention how the risks are being managed and mitigated.

STRATEGY AND RESOURCE ALLOCATION

Does the organisation intend to develop new products, set up new factories or expand to new markets? Perhaps it intends to move up-market to escape the fierce competition it currently faces at the lower end. This section of the IR can make extensive use of Porter’s generic strategies, Ansoff’s Matrix and the value chain. In the UK at the moment many supermarket chains are having to reassess their long term strategies in response to cheaper foreign supermarkets that have opened. In addition there is a change of shopping habits because many more customers now prefer to go more frequently to local stores rather than once a week to a very large store on the edge of town. It would be valuable to investors to be told how their company is going to respond to these changes in the market, how much it might cost to achieve the new strategies and by when the strategic shifts should be achieved.

BUSINESS MODEL

An organisation’s business model is 'its system of transforming inputs, through its business activities, into outputs and outcomes that aims to fulfil the organisation’s strategic purposes and create value over the short, medium and long term' (IIRC). The value chain is particularly relevant here: it explicitly sets out inputs, processes and outputs and requires organisations to understand how value is added so that profits can be made. If a company does not understand where it adds value then the company is existing in a temporary state of good fortune. It is making profits now, but does not understand why, so chance of continued success must low.

Inputs are the major inputs such as raw material or human resources. Outputs are the key products and services. The business activities include not just the manufacturing process, but also how the company innovates, carries out its marketing, what its after-sales services are, how it delivers its goods and how it acquires, trains and retains staff.

FUTURE OUTLOOK

An integrated report should answer the question: What challenges and uncertainties is the organisation likely to encounter in pursuing its strategy, and what are the potential implications for its business model and future performance? (IIRC)

PESTEL and a five forces analysis are likely to be particularly relevant here. For example, if you were a stakeholder in a conventional television company you should want to know how the company will address challenges from internet-based companies such as Netflix.

EXAMPLES FROM THE ACCA’S INTEGRATED REPORT

Here are some relevant extracts from ACCA's Integrated Report 2013–14 (see 'Related links') demonstrating some of the reporting of the elements set out above. Remember, the IIRC guidelines are principles based and organisations can change element headings and groupings.

EXTERNAL ENVIRONMENT

• We are seeing new economies and sectors emerging and developing at faster rates
• In the post-recession world, there is a greater demand for and understanding of the importance of financial stability as an underpinning for economic stability
• Consumers are more sophisticated and demanding, with an increasingly tech-savvy audience expecting a personalised and tailored experience
• The competitive environment is much broader, with more and different players and with technology enabling greater international competition

RISKS [INCLUDE]:

• Market risks: trade protectionism, global economic stagnation, loss of UK audit recognition.
• Operational: exam process issues, worldwide legislative complexity, pricing decisions, cybercrime and data protection.

The impact of each risk is assessed and mitigation measures are explained. For example, on cybercrime and data protection:

• Impact: Potential corruption or loss of organisational data which could lead to legal liability and reputational damage as more ACCA services are provided on-line
• Mitigation: ACCA’s Information Security Officer monitors and advises on data security. Policies in place to address data security risks which are regularly reviewed, monitored and tested.

BUSINESS MODEL

• Key resources [include]: market offices supported by global headquarters, people, partners, intellectual property and brand, suppliers, IT infrastructure, financial capital.
• Key value-adding activities: creating global networks, qualifying and regulating professional accountants to high standards, maintaining and developing a global brand that attracts students around the world, generating globally-relevant technical insight with public interest at its heats, digitally-enabled developments for an online, self-service world.
• Key outputs [include]: professional, ethical accountants, widespread recognition, best-in-class products and services.
• Key outcomes [include]: support and opportunities for members, joint initiatives, global mobility for our members, customer satisfaction.
• Societal benefit: Businesses in all sectors that are run efficiently and responsibly, that help grow economies sustainably and safeguard the interests of the public and society.

STRATEGY

ACCA’s strategy map shows the relationships between 12 outcomes from four perspectives:

• the governance perspective, asking what council wants [example of an outcome: sustainable growth, measured by gross operating surplus]
• the members’ perspective, asking what drives members to invest in the ACCA Qualification [example of an outcome: accountancy qualifications which are required by employers, measured by member retention]
• the process perspective, asking what ACCA must excel at in order to meet the expectations of its key stakeholders [example of an outcome: development of relevant products, services and brand, measured by student and member satisfaction]
• the innovation perspective, asking what ACCA needs to learn and develop to continue creating value for its stakeholders [example of an outcome: technology-enabled, Integrated and efficient global infrastructure, measured by % of IT service-level agreements met]

CONCLUSION

The inclusion of IR in the Paper P3 syllabus should not cause major difficulties for students. In many ways it is corporate reporting catching up with what is in the Paper P3 syllabus, which has always recognised that there’s much more to appraising organisations than simply looking at their financial results.

Ken Garrett is a freelance lecturer and writer

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