Integrated Reporting: A Review of Developments and their Implications for the Accounting Curriculum

Abstract

Integrated reporting (IR) is a major development in a number of sustainability-related accounting initiatives and, if widely adopted, will require significant developments in professional and university accounting curricula. These will include: a strategic rather than operational or transactional focus; longer- rather than short-term outlook; prospective rather than retrospective analysis; qualitative commentary as well as quantitative information; and reports on wider business performance metrics rather than on narrower external financial reporting data or audit compliance. This paper reports on ACCA's support of and response to the latest initiatives in IR, in particular the impact this will have on the education and training of accountants in order to reflect these new principles to prepare the twenty-first-century accountant for a much more challenging role in the near future. These developments can only be in the wider public interest of improving the relevance of information for decision-making, for all stakeholders, and allow greater efficiency in the allocation of financial and other resources and in adding public value.

Keywords:

• Integrated reporting
• one report
• ACCA
• sustainability
• social responsibility
• stakeholder engagement

1. Introduction

Leading professional accountancy organisations, advisory bodies and business leaders have provided impetus and support for a new type of corporate reporting, known as integrated reporting (IR). These include the World Business Council for Sustainable Development, the World Resources Initiative, the United Nations Conference on Trade and Development (UNCTAD), the Global Reporting Initiative (GRI), the International Corporate Governance Network, the International Federation of Accountants (IFAC), the International Integrated Reporting Committee (IIRC), the Federation of European Accountants (FEE), and large global accountancy firms such as Deloittes, Ernst and Young, KPMG, and PwC. Organisations that have already adopted an integrated approach to financial reporting include BASF, Bloomberg, BT, Phillips, Novo Nordisk, United Technologies Corporation (UTC) and American Electric Power (AEP). The Association of Chartered Certified Accountants (ACCA) has also produced its first integrated report for the 2011–2012 period (ACCA, 2012a).

The above and other organisations are expressing the view that integrated reports may provide a more holistic, multi-dimensional and lucid representation of the business than the current reporting model, which has a greater focus on detailed historical financial information.

In a news release (ACCA, 2011), Richard Martin (Head of Financial Reporting at ACCA) commented on the aspirations that critics of the current model have expressed, as follows:

Many critics of the current reporting framework have called for change which encourages companies to give readers of their accounts “the bigger picture” of how they are doing and better quality information about how they are achieving value and managing the challenges they face over the long term as well as the short term.

IR has been defined in several source documents, but it is defined by the IIRC as follows:

Integrated Reporting brings together the material information about an organization's strategy, governance, performance and prospects in a way that reflects the commercial, social and environmental context within which it operates. (IIRC, 2011, p. 3)

IR has also been referred to as ‘One Report’ (Eccles and Krzus, 2010). This name implies that IR provides information on financial and non-financial performance in a single document, showing the relationship between financial and non-financial performance and how these inter-related dimensions are creating or destroying value for shareholders and other stakeholders.

The above organisations and business opinion leaders suggest that IR may provide a richer picture of the organisation. This would be achieved by drawing from a wider range of sources of information than the current reporting model, which would include both qualitative as well as quantitative data to offer a clearer insight into a business, about how well the organisation is managed, and whether it is performing sustainably.

The increased prominence and recognition of IR globally could have significant implications for accounting education, both for professional qualifications and university accounting curricula. These implications may include changes to the traditional structure of accounting programmes and how they are assessed. More prominence may be given to certain subject areas (such as strategy, governance, risk and performance, and financial management) and a greater emphasis may be required on the synthesis of some of the key accounting disciplines. As far as assessment is concerned, more extensive use may need to be made of the integrated case study approach and of other integrated approaches to assessment. Finally, a greater emphasis may need to be given to strategic, qualitative and non-financial considerations in the assessment and reporting of corporate performance and business outlook.

2. Structure of the Paper

This paper is structured in the following way.

•	Section 3 will begin with a discussion of the origins of IR from The Corporate Report and the emergence of corporate social responsibility (CSR) and such related concepts as ‘green’ accounting, sustainability reporting, environmental accounting and triple bottom line accounting (TBL).
•	Section 4 focuses on the recent developments and initiatives specifically relating to IR, starting with Accounting for Sustainability (A4S), the Global Reporting Initiative (GRI) and guidance within the FEE Fact Sheets.
•	Section 5 focuses on publications underpinning the main proposals for IR. These include: the IFAC consultation paper Competent and Versatile: How Professional Accountants Drive Sustainable Organizational Success; the IFAC Sustainability Framework 2 (2011) discussion paper; the IFRS Management Commentary (IASB, 2010a); and the International Auditing and Assurance Standards Board (IAASB) discussion paper (2011).
•	Sections 6 and 7 explore in more detail the main content of two key papers on IR; the IIRC report Towards Integrated Reporting – Communicating Value in the 21st Century and the South African discussion paper (2011) A Framework for Integrated Reporting and the Integrated Report published by the IRC, both of which include recommendations about the key elements to be addressed in an integrated report.
•	Section 8 then considers the implication of a greater emphasis on IR for professional and university accounting education and on the content and structure of the accounting curriculum in the twenty-first century. This leads to a synthesis of the main recommendations contained within the key reports on IR into six key outcomes or elements, to be included within a modern professional accounting curriculum.
•	Section 9 of the paper examines how ACCA, as a longstanding global sponsor and supporter of sustainability and CSR, embeds outcomes relating to the wider reporting responsibilities of the IR model within its qualification curriculum.
•	The final section (Section 10) suggests where possible future accounting curriculum development may be focused, to ensure professional and university accounting qualifications remain fully aligned with IR requirements beyond 2012.

3. Origins of Integrated Reporting

IR is not an entirely new approach. As long ago as the 1970s, a more integrated and balanced approach to corporate reporting was recommended. The landmark publication, The Corporate Report, published by the UK Accounting Standards Steering Committee (1975), questioned the narrow shareholder and stewardship perspective taken at that time by accountants and directors in reporting the performance of companies. The Corporate Report emphasised the need for a ‘user’ perspective rather than the ‘shareholder’ or financial ‘stewardship’ perspective that emerged as the traditional agency model for limited companies. This was originally highlighted by Smith (1776), on the basis that the operation of a limited company entails a separation of ownership and control:

The directors of such [joint-stock] companies, however, being the managers rather of other people's money than of their own, it cannot well be expected, that they should watch over it with the same anxious vigilance with which the partners in a private co-partnery frequently watch over their own. (Smith 1776/1937, p. 700)

The Corporate Report, however, implied as early as the 1970s that the board of directors should act as the ‘agents’ of and be accountable to a wider range of principals than shareholders, who were traditionally the main focus under the narrower ‘stewardship’ perspective as envisaged under the agency perspective considered by Adam Smith. The Corporate Report therefore recommended a wider view of accountability where lenders, employees, customers, suppliers, the local community and even the general public were recognised as having legitimate rights to published information.

Gray, Owen and Adams (1996) argued that there is a range of positions that companies, or, more specifically, their directors, can take to accountability and more specifically to CSR. These move from a ‘pristine capitalist’ view, which regards the company as only having a responsibility to maximise shareholder wealth, to ‘deep ecologists’, which assert that the company has no intrinsic ownership rights over any resources and that it should operate sustainably and be future-oriented. They explained that the degree of CSR and the type of reporting that supports this depends mainly on the agency perspective that the business (specifically its directors) takes towards its responsibilities and obligations. They suggested that corporate reports needed to adopt a wider position on responsibility and accountability and move away from one based on a narrow fiduciary perspective, where the scope of the reporting function would be limited to the preparation of financial reports, relating mainly to the recognition and measurement of shareholder income and wealth.

Such a view suggests that ‘separation of ownership and control’, where the view of agency is broader, needs to be re-phrased. Under a broader agency position it may be more relevant to consider the separation of ‘stakeholder claims’ and ‘corporate responsibility for resources and their potential economic, social and environmental impacts’.

Mendelow (1991) and Mitchell, Agle and Wood (1997), amongst others, have since attempted to map these stakeholder groups or ‘users’ according to varying degrees of power and interest in the business, taking into account the legitimacy and urgency of the stakeholders' claims on the organisation. Such an analysis can also assist preparers of integrated reports to decide who needs to know what and by when. An example of this was a case study undertaken by Gray et al. (1997) of Traidcraft, a small company that encouraged fair trade between developing and developed nations and prepared a ‘social account’ as part of its corporate report, based on an analysis of stakeholder rights and interests, identified and prioritised according to their needs and importance.

The process of stakeholder mapping or prioritising is inevitably dependent upon the social, political and economic priorities and perspectives of the organisations producing corporate reports. In considering the prioritisation of stakeholder power and interest further, Cooper and Owen (2007) analysed a framework for examining the relationship between CSR and organisational financial performance. Their paper suggests that some ambiguity in any empirical research findings may arise from the varying ability and motivation of managers to prioritise their social responsibility initiatives for stakeholders with power, urgency and legitimacy, and the relative ability of these stakeholders to reward or punish the entity based on their evaluations of the entity's activity or impacts.

In terms of how standard setting agencies have viewed financial reporting obligations, some regulatory bodies have promoted the reporting of more qualitative and forward-facing information rather than relying too much on ‘historical’ quantitative information. In 1993 the UK Accounting Standards Board (ASB) recognised the need for recommendations relating to more narrative information as contained in an operating and financial report (OFR) as part of the Directors' Report. OFR regulations were passed into company law in the UK in 2005 and published Reporting Standard 1 (2006a), which required companies to give a broad view of the performance and impact of a company's activity. However, the statutory requirement for the OFR and RS1 was withdrawn in the UK later in that year, although the ASB later introduced a Reporting Statement of Best Practice (2006b) as guidance on what to include in such a report. The main components suggested for such a report were a review of the nature, objectives and strategies of the business, the current and future development, and performance, resources, risks and uncertainties, relationships and financial position. The guidance also included recommendations about the reporting of key performance indicators and other useful measures.

During the 1970s, 1980s and 1990s, other approaches to financial reporting were proposed and supported. These included CSR, ‘sustainability’ accounting, (Unerman, Bebbington and O'Dwyer, 2007), environmental or ‘green accounting’ (Owen, Gray and Bebbington, 1997), and Triple Bottom Line (TBL) accounting (Elkington, 2004). The term ‘sustainability accounting’ has often been used interchangeably with CSR and the TBL headings of economic viability, social responsibility and environmental responsibility.

Under sustainability accounting the economic impact reported in a sustainability report might include the impact on local employment and living standards as a consequence of the organisation's operations. The social impact might include employee terms and conditions or the level of social investment or interaction between the company and the community. The environmental impact might include the quality of waste water discharged or the level of greenhouse gas emissions from operations.

While environmental considerations are often the main focus of attention in sustainability reports, the TBL definition of sustainability is a broader concept. In addition to preservation of the physical environment and stewardship of natural resources, sustainability considers the economic and social context of doing business and also encompasses the business systems, models and behaviours necessary for long-term value creation, while preserving or maintaining capital as defined from economic, social and environmental perspectives.

Specifically, TBL suggested that companies should prepare three different (and quite separate) bottom lines, based on the three Ps: a traditional ‘profit account’; a ‘people account’ of how socially responsible an organisation is; and the company's ‘planet account’, or how environmentally responsible it has been.

While environmental, ‘green’, sustainability or TBL accounting focus on both the external accountability mechanism (financial reporting) and on providing an assessment and managing the social and environmental costs and impacts of the company's operation (management accounting), other aspects, such as strategic outlook, governance issues and key risk analysis, were much less prominent in such reporting models.

4. Recent Integrated Reporting Initiatives

In December 2009, the Prince of Wales sponsored an Accounting for Sustainability forum (A4S), which convened a high level meeting of investors, standard setters, companies, accountancy bodies, and UN representatives. These organisations collaborated with the GRI, founded in 1997, and supported by the United Nations Environment Programme (UNEP), to promote economic sustainability. This collaboration resulted in the creation of a completely new body, known as the International Integrated Reporting Committee (IIRC), which was formally announced in August 2010.

This body was tasked with building upon the GRI framework to develop proposals for an IR framework that was to be taken to the G20 meeting held in November 2011. A discussion paper was also been published in South Africa, entitled A Framework for Integrated Reporting and the Integrated Report, in January 2011.

The GRI framework developed four sets of guidelines relating to IR. The GRI issued a G3 Sustainability Reporting Framework (2006), drawing upon principles included in the IFAC Conceptual Framework for Financial Reporting (2010), widening its application to include sustainability issues. GRI are currently developing a G4 or 4th generation of guidelines, planned for publication in 2013.

The GRI G3 guidelines include principles to define report content regarding stakeholder inclusiveness, sustainability context and completeness. There are also qualitative characteristics relating to report quality, such as balance, comparability, accuracy, timeliness, reliability and clarity. Finally, there is guidance on how to set the report's boundaries in terms of reporting on the basis of materiality of impact and the level of influence, or control, over reporting entities.

These guidelines expect company reports to include coverage of business strategy objectives, the company profile, the management approach, and a list of key performance indicators.

Following from the publication of these guidelines, The Federation of European Accountants (FEE) issued an updated fact sheet (2012), which contains key messages in response to the IIRC. According to the FEE Fact Sheet (2012), the principles underpinning integrated reports are that they should be about taking a holistic approach to enable investors and other stakeholders to understand how an organisation is really performing, addressing the wider as well as the longer-term impact of decisions and actions.

The Fact Sheet suggests that there should be connectivity and linkage between information reported on and information required about the impact of resource usage and emissions on core business and sustainability along the business value chain. The commentary should include a considered and well-supported view of prospective performance, taking into account strategic environmental and market issues to allow a meaningful comparison of plans with achievements. Consistent with principles of TBL (Elkington, 2004), integrated reports should therefore use much more from internal management information as a basis for the external reports. It is also crucial that information produced in an integrated report should be trustworthy, reliable and capable of being independently verified.

This requirement introduces additional challenges for auditors, as will be discussed in the next section.

The FEE Fact Sheet also recommends that integrated reports should be flexible, to allow them to evolve, reflecting changes in reporting requirements, and should ultimately act as a catalyst for behavioural change within the business.

5. IFAC Background Papers on Integrated Reporting

Building on the broad principles within the IFAC Conceptual Framework (2010), and as background to more specific work on IR models published by other bodies subsequently, the IFAC has issued several background papers on the framework and practice of sustainable financial reporting. These refer to both accounting and auditing issues and implications. To place IR in a wider context, IFAC issued a consultation paper (2010), which identified the roles of professional accountants in business and then identified eight drivers of sustainable organisations that should be reported upon. The accountants' roles were described as creators of value, enablers of value, preservers of value and reporters of value. These labels summarise the role of the accountant as sustainably creating, supporting and reporting value for the business. The eight key drivers of sustainability relating to these roles were identified as follows:

•	customer and stakeholder focus;
•	effective leadership and strategy;
•	integrated governance, risk and control;
•	innovation and adaptability;
•	financial management;
•	people and talent management;
•	strategy execution; and
•	effective and transparent communication.

As can be seen from this list, the drivers widen the scope of financial reporting to include long-term sustainable performance and other factors such as strategy and innovation, governance, risk and control and stakeholder relationship management, in addition to financial performance appraisal.

To complement the above consultation paper, IFAC's International Accounting Standards Board (IASB) published a Practice Statement (2010b), which provided a framework for the presentation of management commentary. This statement outlined the purpose, principles and presentation of such information. The main elements of this paper included commentary on the nature of the business, objectives and strategies, resources, risks and relationships, results and prospects, and performance measures and indicators. The International Auditing and Assurance Standards Board (IAASB) of IFAC also produced a discussion paper (2011), which dealt with the audit implications of increased subjectivity introduced in IR. This, they argued, increases through a potential ‘blurring of boundaries’ as more narrative and prospective information is included and through the inclusion of much more qualitative rather than quantitative information.

Following the above publications, IFAC also produced a Sustainability Framework 2.0 (2011), which focused on three broad perspectives for IR: the business strategy perspective; the operational perspective; and the reporting perspective. Within the strategy perspective the suggested content of integrated reports includes such areas as vision and leadership, stakeholder engagement, goal setting and risk management. The operational perspective focuses on performance management and sustainability issues, including waste management and carbon footprinting. Finally, the reporting perspective addresses organisational reporting strategies, sustainability impacts, and enhanced transparency through additional narrative reporting, within materiality thresholds.

All of the above statements, discussion papers, guidelines and frameworks effectively recommend the inclusion of more strategic, forward-facing and relevant information for decision-making or support purposes, as compared with the traditional stewardship reporting model.

To emphasise the decision-support role of integrated financial reporting, and the broader base of stakeholders for whom IR is intended, the concept of the ‘greatest shareholder’ as a user of such reports is described in the IFAC framework paper as follows:

The greatest shareholder today is no longer the wealthy family, but it is the individual via his or her financial institution and pension fund. The same individual is also the employee of the company; the customer who chooses between the products of company A or company B; the voter for the government of the day and for the trustee of the pension fund. In addition, the individual is also a citizen of a country who expects his or her neighbor to act as a decent citizen, and as a consequence today, the individual citizen expects the corporate citizen to act as a decent citizen. (Mervyn King, Chairman, International Integrated Reporting Committee)

6. Towards Integrated Reporting

In 2011 the International Integrated Reporting Committee (IIRC) brought together world leaders from the corporate, investment, accounting, securities, regulatory, academic, civil society and standard setting sectors to develop a new IR framework, with clear proposals for the content of such reports.

As a result of this, and drawing upon material within the background papers included in the previous section, the IIRC published a discussion paper, Towards Integrated Reporting: Communicating Value in the 21st Century.

Figure 1 shows the main components of an integrated report, as taken from the IIRC (2011) paper.

Figure 1. An international integrated reporting framework.

The six main components shown in the IIRC Framework are underpinned by five guiding principles, which are that the reports should have a strategic focus, that there should be a connectivity of information, that the information presented should be future-oriented, based on responsiveness and stakeholder inclusiveness and concise, reliable and material.

As can be seen from Figure 1, the main headings and principles in this framework overlap considerably with many of the headings used within earlier work, notably the OFR and RS1, the IFAC Sustainability Framework, the IFRS Practice Statement and the other discussion papers. All consistently contain references to such elements as future outlook, strategic objectives, high-level operating context, stakeholder engagement, opportunities and risk assessments, governance issues and business performance indicators or metrics.

7. Framework for Integrated Reporting and the Integrated Report – Discussion Paper (South Africa)

Another key report, published prior to the IIRC discussion paper, was the King Discussion Paper (2011), issued by the Integrated Reporting Committee of South Africa (IRC). This paper drew upon the King III Code of Governance Principles for South Africa (2009), which suggested that companies should adopt IR as a fundamental shift in the way companies and directors act and organise themselves.

This report led to the introduction, in March 2010, of a comply or explain policy relating to the preparation of published integrated reports for listed companies in South Africa. The discussion paper identifies the main objective of an integrated report as enabling stakeholders to assess the ability of an organisation to create and sustain value over the short-, medium- and long-term. The IRC discussion paper also regarded a key purpose of IR as assessing the ability of the entity to create and sustain value without depleting the capital assets of the business: financial, human, and environmental.

Underpinning this objective is a strong appreciation that the success of organisations is inextricably linked with three interdependent sub-systems: society, the environment, and the global economy.

The discussion paper also points out that an integrated report is not simply an amalgamation of the financial statements and the sustainability report, which confirms that IR amounts to much more than TBL accounting.

The IRC (2011) discussion paper suggests several key elements to be included in an integrated report. These are as follows:

•	a concise overview of the organisation's structure, including governance and its main activities;
•	a description of material risks and opportunities, based on a review of financial, social, environmental, economic, and governance issues;
•	a description of the strategic objectives of the business as influenced by an assessment of the external environment and internal resource constraints; and
•	an account of the organisation's performance based on its strategic objectives in terms of key performance and risk indices.

The key concerns of stakeholders in the IRC discussion paper are therefore seen to include the ability of business leaders to strategically assess the opportunities, threats and key risks facing the company and to responsibly govern and manage the available resources entrusted to them in the delivery of sustainable performance.

The discussion paper also suggests that, to scrutinise the board of directors effectively, stakeholders need a much wider range of performance metrics and risk indices than previously used, and expect much greater accountability from management about how the business sets and meets its objectives.

As IR has been effectively mandatory in South Africa since 2010/2011, a summary of the findings of how reporting has changed between pre-IR in 2009 and post-IR in 2011 has been published from a detailed comparative report of 10 South African companies (ACCA, 2012b), illustrating the considerable impact that this initiative has had in South Africa, particularly on widening the focus of the report on a wider range of stakeholders and metrics such as risk and environmental impact.

8. Implications of the Wider Adoption of Integrated Reporting for Accounting Education

Essentially, for accounting curricula to properly align with the stated principles of IR, they must assess candidates' knowledge and understanding of the business more holistically. The main implication for professional accounting educators is an explicit signal that the accounting curriculum must draw from a broader range of business disciplines than included currently. It must incorporate more affective as well as technical competences, including ethics and professional values, and become more integrated or connected in its approach to learning and assessment.

Traditionally, the accounting curriculum has been focused mainly on the transactional rather than on the tactical or strategic levels of the business because the focus of the traditional report has been mostly about recognising, measuring and valuing assets, liabilities, income and expenditure. Because of this it has tended to concentrate more on shorter-term financial performance metrics through its focus on the periodic recording, processing, summarising and reporting of financial information for shareholders. IR, however, takes a longer-term and more sustainable view of the business and its ability to affect and be affected by its environment. As the literature reviewed in this paper demonstrates, an IR perspective requires a greater synthesis of both quantitative and qualitative information to provide a richer picture of the organisation's position, performance and prospects.

It is clear that, over many years of curriculum development in professional accounting provision, the traditional accounting curriculum, which revolved around the ‘stewardship’ or ‘fiduciary’ function of accounting as a process of retrospection or review for the shareholder, has gradually widened. Increasingly, the accounting curricula for many institutions include more content around prospective decision-making or decision-support functions, applicable for a much wider range of internal, external and connected stakeholders. A number of accounting curricula were mainly aimed at accountants in practice rather than at the corporate sector, or the financial services industry. Understandably, such curricula placed greater emphasis on the financial accounting and reporting functions and less emphasis on the more strategic and sustainable performance and business management functions of the organisation. There was also more focus on external audit rather than on developing proactive systems of governance, internal control or risk management. These curricula focused more on compliance and meeting rules-based legal and regulatory requirements than on principle-based approaches to financial reporting, or behaving in accordance with professional or corporate codes of ethics.

IR, and the principles behind it, therefore suggests to qualification developers that a modern accounting curriculum must include learning outcomes that relate to the key suggested elements of an integrated report as proposed consistently in the various discussion papers and frameworks highlighted in this paper, particularly within the King IRC discussion paper, the GRI, IFAC and the IIRC Frameworks.

Following from the above review and analysis of the key contributions to the debate on IR, it is possible to synthesise the recommendations and guidance issued to date to prepare a defined set of high-level outcomes that could form the high-level structure for a twenty-first-century accounting curriculum. However, two components contained within the IIRC framework (future outlook and strategic objectives) are combined under one heading in the list below, as they can be considered to be synonymous. An additional component, separately identified in the King (IRC) Discussion Paper, is the need for a review of the alignment of directors' remuneration to the performance of a company. In the other frameworks, this heading is subsumed under the governance element, but in the current economic and political climate, where such issues are of such prominence and of much greater public interest, it is recommended that this is included as a separate heading.

The outcomes of IR as a basis for an accounting curriculum, and for a twenty-first-century financial reporting model, can therefore be summarised as follows.

a.	Review the organisation, its governance structure, its core activities and business model, and how it creates and adds value for stakeholders.
b.	Assess risks and opportunities, as identified from an evaluation of financial, social, environmental, economic and governance issues.
c.	Identify and evaluate an entity's strategic objectives as informed by (a) and (b) above, taking into account sustainability issues.
d.	Evaluate the organisation's core competences to achieve these objectives sustainably in (c) above, and justify how achievement of these objectives is monitored and controlled, using short-, medium- and longer-term key performance indicators.
e.	Account for the sustainable performance of the organisation, using financial and non-financial key performance measures of its material social, environmental, economic, and financial impacts on key stakeholders.
f.	Explain the alignment of remuneration policy relating to senior executives and evaluate their performance in relation to (e) above.

The potential impact of mainstream business entities widely adopting the principles of IR are significant, for both professional and university education, and for the accounting curriculum.

Such developments should encourage curriculum developers to consider the overall structure, design and approach to delivering and assessing accounting as a discipline. It is important for the business and accounting employment sector that professional accounting bodies and university accounting departments re-design their curricula consistently with each other, to prepare modern accountants for their new challenges, regardless of where they have obtained their higher education. This is particularly important when IR and sustainability principles become mainstream reporting models rather than abstract or aspirational academic concepts.

The main changes that the above accounting reforms will require are a review of the prominence given to the overall number of subjects that need or should be taught within a programme, or whether, under IR principles, greater synthesis of certain previously discretely taught accounting disciplines could be achieved. For example, it might be sensible to combine principles of performance management with elements of strategy, risk, governance and finance, including selected material on internal audit and control principles. More qualitative reporting and assessment of entities could be introduced, based on ‘substance over form’ rather than the current transactional emphasis on detailed accruals-based financial adjustments.

A greater focus on more holistic value-based financial reporting models may be required, such as economic value added (EVA)^© (Stewart, 1991), Shareholder Value Added (Rappaport, 1986) and free cash flow accounting (FCF) as underpinned by fundamental economic and risk-based models such as portfolio theory and the capital asset pricing model (CAPM).

As far as the content of curricula is concerned, more emphasis on business strategy, governance and agency will be required so that accountants develop a greater sense of corporate social responsibility and ethics, and become more aware of their obligations to stakeholders and the wider public interest.

The balance of emphasis on external financial reporting in the narrower sense may well diminish in the future and in its place a more holistic approach to reporting, based on internal management accounting information and performance management and finance based metrics and measurements, could emerge. Therefore, in the future, it is likely that there may be fewer modules called financial reporting and more with general titles such as ‘corporate reporting’ or even ‘integrated reporting’, in which the syllabuses focus much more on the qualitative and the prospective aspect of external reporting than on presenting detailed historical data.

The accounting curriculum will also need to contain more emphasis on performance and financial management at all levels of the organisation and on the link between performance management, strategy and external reporting.

Corporate reports will include more information on business outlook and strategy by presenting long-term plans and even broad budgetary information (taking into account information sensitivity analysis). The new emphasis in such reports will mean that syllabuses will need to include analysis of high-level variance and exceptions analysis in financial and performance management terms. This will be necessary to hold directors more accountable for discrepancies between actual performance and impacts, compared with forecasts already published, and to recommend performance improvements in the future.

Assessment strategies will need to adapt to meet IR's needs in the accounting curriculum at universities and within professional accounting qualifications. As formerly distinct subject areas are increasingly delivered in a more holistic and integrated way, the style and character of assessment will need to become more case-based and scenario driven. For example, final-level assessments may become fewer in number, more integrative and cross-functional in nature. Such assessments will be more of the open-book, pre-released information mode than the traditional closed-book, unseen examination.

Learners will therefore need to demonstrate higher-level synthesis and evaluation skills. They will need to analyse more unstructured information, financial, quantitative and qualitative, from a greater variety of sources, to present a more rounded evaluation of the position, performance and impacts of an entity. The focus of such assessments under the IR model of reporting will tend to become more strategic and tactical rather than transactional. Learners will therefore need to become more adept at business rather than purely financial analysis. They will need to appreciate the value of using information for its predictive capability, for prospective evaluation and for its remedial and corrective purposes, rather than from the more passive stewardship perspective.

9. How ACCA Embeds Principles of Sustainability and Integrated Reporting in the Professional Qualification Curriculum

The ACCA Qualification has been designed to meet its key stakeholders' needs and the structure of the qualification reflects the needs of employers, regulators, learning providers, ACCA members and students.

The Qualification was re-structured in December 2007 and updated in June 2011 on the basis of a major consultation and from the analysis of competency surveys and their findings. The competency surveys asked the key stakeholders what they considered to be the most important capabilities and competences of professional accountants. The ACCA curriculum and syllabuses were developed on the basis of these findings. The key stakeholder groups ACCA uses in the regular evaluation of competency needs in the profession include: a range of key employers, ACCA members, regulatory and advisory bodies, such as IFAC; professional oversight boards, such as the UK Professional Oversight Team (POT); and national educational or occupational frameworks, professional codes and standards developed for the accounting profession. Surveys of such groups and organisations, supported by the opinions of selected focus and visioning groups made up of key individuals in business, practice and learning, also contributed to the development process. Such stakeholders are regularly surveyed and it is proposed that ACCA will survey these groups explicitly on recent integrated reporting proposals and on how the ACCA Qualification structure, content and assessment will need to adapt.

In addition, ACCA has developed a competency framework for the qualification based on employer research carried out by a team of consultants. The initial findings of this research conclude that nine of the 10 main headings closely match those competences that are most prominent within the integrated reporting framework.

These include:

•	corporate reporting;
•	leadership and management;
•	strategy and innovation;
•	financial management;
•	sustainable management accounting;
•	audit and assurance;
•	governance, risk and control;
•	stakeholder relationship management; and
•	professionalism and ethics.

Underpinning these headings, the range of subjects currently included in the ACCA Professional Qualification, as influenced by stakeholders in their feedback, also tend to reflect the principles of IR fairly closely.

Figure 2 shows the ACCA qualification structure as at January 2012.

Figure 2. ACCA Professional Qualification Structure 2012.

10. How Integrated Reporting and Sustainability is Embedded within the ACCA Qualification

Using the main outcomes as summarised from the key discussion papers and frameworks discussed in this paper, it can be seen that ACCA's curriculum aligns quite closely with the key IR principles in its structure and coverage.

Within the Diploma in Accounting and Business level, ACCA introduces a gateway examination called ‘Accountant in Business’, which sets accounting in the wider business context, introducing the student to the business, how it is structured and interacts with its environment, covering stakeholder relationships, the role of corporate governance and of the accountant within business as communicator, manager and leader. This paper clearly spells out that the accountant is the link between many aspects of the business at all levels. Diploma holders also have to complete a ‘Foundations in Professionalism’ module, which introduces students to such concepts as fundamental principles of ethical behaviour and the duties and responsibility of accountants.

Elsewhere at the Diploma level and at the Advanced Diploma level, there is a strong emphasis on examining performance and financial management, including references to sustainability in such papers as F5, Performance Management, F7, Financial Reporting, and the assessment and management of risk in F9, Financial Management and within the F8, Audit and Assurance examination. These papers focus upon both qualitative and quantitative information.

ACCA has a Professional Level examination, P1, Governance, Risk and Ethics, which is heavily focused on key principles of IR. The governance section of the syllabus specifically addresses directors' responsibilities relating to strategy development, audit and internal control, remuneration and risk. Identification and control of risk are included in two other sections of the syllabus. There is a whole section within the syllabus devoted to professional and corporate ethics.

ACCA students also have to successfully complete an online Professional Ethics module before they are admitted to ACCA membership.

In addition, 11 of 16 of ACCA's examination syllabuses embed ethical and sustainability principles and examiners are encouraged to introduce ethical and environmental dimensions to support technical requirements to examine candidates' values and judgement as well as their knowledge. The audit examinations also cover governance aspects related to the audit and assurance functions including risk management, internal audit and internal controls.

In other syllabuses (such as management accounting, performance management, financial management and business analysis), many outcomes underpin the key principles of IR. These relate to organisational structure and strategy covered in P3, Business Analysis, which examines the ability of the candidate to analyse business opportunities and threats (or risks) and evaluate strategic objectives based on internal strengths and weaknesses and resource constraints. This syllabus is about examining how a candidate assesses the position and prospects or ‘outlook’ of a company, as well as its past performance.

The financial management examinations in the Skills Module and at the Professional Level further examine the understanding of financial risk and the main methods of responsibly mitigating exposure to such risks. The Management Accounting and Performance Management syllabuses address and examine issues related to performance measurement, planning, control and feedback, all of which are key to effective IR.

ACCA students also have to complete practical experience requirements, which include demonstrating specific performance objectives relating to principles underlying integrated reporting. These include three mandatory Performance Objectives, PO-1, Demonstration of the application of professional ethics, values and judgment, PO-2, Contribute to the effective governance of an organisation, and PO-3, Raise awareness of non-financial risk. The Options performance objectives, which include specific technical competences, also include content relating to elements of integrated reporting mainly in the areas of financial performance, performance measurement, financial management and management accounting.

11. Conclusions

IR has been heavily promoted in recent years, as this paper has demonstrated, but it must be recognised that the concept is not entirely new. IR has evolved from CSR as addressed in The Corporate Report, published over 35 years ago, and is a natural extension of many principles of environmental or ‘green’ accounting, sustainability reporting and TBL accounting, all of which have come to prominence at various times over many years.

Assuming that the main IR principles identified in the more recent documents reviewed in this paper become widely adopted, there are a number of key developments that may need to take place in professional and university accounting curricula to meet these changes.

It is likely that accounting curricula will need even more of a strategic rather than operational or transactional focus. They will need to adopt a longer rather than short-term outlook; present more prospective rather than retrospective analysis; include more qualitative commentary as well as quantitative information; and report on wider business performance metrics rather than on narrower external financial reporting data or audit compliance.

Modern accounting syllabuses will also need to contain more content on business risk, integrated into a range of syllabuses, rather than located in a single discrete syllabus. This content will include both financial and non-financial risk and will be mainly aimed at the strategic and tactical rather than operational levels, although this may vary depending on the subject covered.

ACCA strongly supports the latest initiatives in IR and the objectives of the IFAC, the IIRC and the IRC Frameworks, and recognises that the quality of financial reporting can only be improved by such initiatives. It is also to be welcomed that such developments may lead to an increase in accountability and transparency in corporate reporting. ACCA's CEO (Helen Brand) is a member of the strategic steering committee of the International Integrated Reporting Committee (IIRC). ACCA supports the thinking behind, and development of, the IR initiative, and will also continue to research other models as part of its focus on the future of corporate reporting (ACCA, 2011).

Such developments and improvements in the quality and lucidity of financial reporting will also provide greater insights into the performance and progress of the business and more closely hold accountable the leaders and management of such businesses. It will also require the education and training of accountants to reflect these new principles to prepare the twenty-first-century accountant for a much more challenging role in the near future.

These developments can only be in the wider public interest of improving the relevance of information for decision-making for all stakeholders, thereby allowing greater efficiency in the allocation of financial and other resources, and in adding public value.

Notes

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