The importance of the integrated reporting continues to grow in the MENA region, which is home to some of the largest emerging markets in the world. This article covers everything you need to know about integrated reporting in Saudi Arabia and beyond.
What is Integrated Reporting?
Integrated reporting is a modern, forward-looking reporting framework that combines financial and non-financial information in one document to paint a clearer picture of a company’s performance and prospects. This new, more comprehensive reporting standard is an alternative to traditional accounting practices. Integrated Reporting is based on a framework developed by the International Integrated Reporting Council (IIRC), which is an international body comprising over 200 members representing the accounting, audit, investor, and business communities. The framework includes a set of five “information pillars” that are summarized as follows: Financial Reporting: Measurement, Analysis, and Disclosures; Strategic Report: Strategy and Governance; Social and Environmental Reporting; Corporate Responsibility; and Company Profile.
Integrated Reporting in Saudi Arabia
Saudi Arabia is in the midst of a transformation from an oil-based economy to one driven by private investment and innovation. Integrated reporting holds promise as a catalyst for change by encouraging companies to more proactively communicate with stakeholders through narrative, non-financial information. It is a likely candidate to become the standard in Saudi Arabia and other MENA countries as they modernize their financial reporting practices.
Benefits of Integrated Reporting in KSA and MENA
Companies that implement integrated reporting are expected to experience several benefits, including: Improved investor relations: Investors are becoming increasingly interested in non-financial metrics, such as customer and employee satisfaction and product impacts.
Integrated reporting helps companies communicate performance in these areas by including non-financial information in the financial report. Improved management decision making: Management decision making is based on a wide range of information, including both financial and non-financial metrics. Improving cash flow and profitability alone is not enough: Managers also need to know how the business affects society, customers, and employees.
Integrated reporting allows companies to consolidate all of this information into one document. Increased transparency: If done right, integrated reporting can be used to increase transparency around company operations.
Why does Integrated Reporting matter?
Integrated reporting can help companies around the world increase their profits, enhance their credibility, and attract investors. It is expected to be the dominant financial reporting approach by 2030. The IIRC estimates that the adoption of integrated reporting could generate an additional $2.2 trillion in equity value for companies around the world.
How does Integrated Reporting work?
Integrated reporting is a process rather than a one-time activity. It requires companies to proactively gather information and plan how to present it in their financial reports. Integrated reporting is not a substitute for traditional financial reporting, but a supplement in which companies present financial data together with other information. Integrated reporting is not a one-size-fits-all approach: Companies are expected to customize the framework to suit their needs.
What are the challenges of integrated reporting?
One of the challenges of integrated reporting is that it can be hard to quantify. Is an increase in revenue really a success if it was achieved without increasing customer satisfaction? What if the increased revenue was generated by cannibalizing existing customers? How many new customers were acquired? Is it better to focus on revenue growth instead of customer acquisition costs?
Another challenge is that some companies may not have a clear idea of what they want to achieve in the first place. They may start by evaluating each individual metric and trying to optimize it, without looking at the big picture. If you don’t know what your goals are, you can’t possibly measure whether you’re meeting them or not.
Integrated reporting also requires a significant time investment from both the organization and leadership teams. For example, it can be challenging for stakeholders outside of finance, such as marketing or sales, to understand the financial metrics being used internally.
It’s also important for leaders to ensure alignment across departments and align their goals with those of their stakeholders.
Finally, integrated reporting has its fair share of skeptics who argue that there is no silver bullet for improving performance in any organization. Even though integrated data analysis can be powerful in helping organizations identify trends and make strategic decisions, it can’t solve all their problems.
While both integrated reporting and sustainability reporting are important parts of corporate social responsibility, they are not the same thing. Integrated reporting is a set of standard practices that companies can use to show how their impact on the environment and society is improving over time. Sustainable reporting is a set of tools that companies can use to document their progress toward sustainability goals.
Sustainability reporting covers three main areas: impact measurement, stakeholder engagement, and transparency and disclosure. Impact measurement involves quantifying the ways in which your company’s products or services affect the environment. Stakeholder engagement involves engaging with stakeholders in order to understand what they expect from your company and how you can meet their needs. Transparency and disclosure involves providing information to investors and the public about your company’s environmental impact and its efforts to address it.
Financial reporting is largely about reporting on the past. Integrated reporting, on the other hand, is about preparing for the future.
Financial statements are an important component of financial reporting, providing users with standard industry measurements of a business’s financial performance and position. The Financial Reporting Framework (FRF)’s integrated reporting framework emphasizes using accounting information to measure corporate performance and share this information with stakeholders. Integrated reporting goes beyond disclosing financial data to provide insight into a company’s strategy and how it affects its performance. It also helps users understand how company leaders plan to keep the business successful in the future. Integrated reporting improves transparency of non-financial performance indicators; preparation of integrated reports is not mandatory but it is encouraged in order to help investors get a better understanding of a company’s risks, opportunities and potential future scenarios.