Stand-alone Reports Relevant to Social and Environmental Activities are Non-Integrated

Discuss about the Compliance Of Integrated Reporting.

The business entities having subsidiaries often face complications in preparation of financial statements. This is because of the fact that parent company and its subsidiaries are distinct legal entities and thus have the responsibility of maintaining their individual bookkeeping. In this context, the stand-alone statements developed by a parent company treat each business entity separately and thus provide two ways of analyzing the financial performance of an entity. However, the stand-alone reports are not able to evaluate the integrated financial performance, strategy and potential value creation for stakeholders and thus faced criticism. In this context, the present report critically discusses the role of integrated reporting by identifying the issues faced in traditional financial reporting. Also, the reports analyses the compliance of integrated reporting by the ASX listed entities through selection of a business entity for the purpose.

The IAS 27 standard of IFRS has outlined the accounting policies and products regarding the development of separate financial statements. The stand-alone financial reports are the financial statements developed by a parent company with joint control of its associates or subsidiaries as per the IFRS standards (IAS 27 — Separate Financial Statements, 2011). However, the stand-alone reports have faced the criticism of not adequately meeting the quality of non-financial reporting of business entities. The business entities have the obligations of not only meeting the shareholders needs but also of its overall community. The major drawback of stand-alone reports in this regard is that provide non-integrated information related to the social and environmental performance of a business entity and thus not capable of disclosing all the relevant non-financial information to its stakeholders. As such, the stand-alone reports are not able to adequately depict the business performance, strategy and potential for value creation to all of its stakeholders. The sustainability reports developed through the use of stand-alone methods lacks the qualitative aspects of completeness, accuracy, reliability, relevancy and transparency.

This is due to the fact that social and environment reporting done by the business entities through the use of stand-alone method does not follow the internationally accepted guidelines for non-financial reporting. The stand-alone method of financial reporting discloses the non-financial information in discrete sections thus making it difficult to be understood by the end-users. Thus, it can be said that stand-alone reporting method has largely failed in its purpose of providing useful non-financial information to its stakeholders. In the light of above deficiencies present in the stand-alone reporting system, there exist a high need for the firms to improve their quality of sustainability reporting through adopting an improved method of non-financial reporting (Wild and van Staden, 2013).

Role of Integrated Reporting by Identifying the Problems Associated with Traditional Financial Reporting

The business entities have adopted the method of integrated reporting for disclosing the non-financial information to its different type of stakeholders in the recent years. This was done mainly to overcome from the problem associated with traditional method of stand-alone reporting. As per the International Integrated Reporting Council (IIRC), the main objective of integrated reporting is to provide complete and reliable information about the strategy, governance and performance of a business entity. The adoption of integrated reporting framework within the business enterprises was largely emphasizes after the occurrence of global financial crisis for meeting the varied needs and demands of all its stakeholders. The method of integrated reporting overcomes the problems associated with stand-alone reports prepared by businesses for disclosing their non-financial information by making compliance to the social and environmental performance of different business units of a parent company. The integrated reporting has enhanced the quality of non-financial reporting of business entities by disclosing their initiatives and performance in relation to environment and social activities (Bernardi, 2015).

The scope of integrated reporting extends beyond the non-financial reporting and is largely sued by businesses during preparation of their financial reports. The integrated method of reporting has stated the principle of consolidation for preparation of financial statements of a business entity having different business units. The consolidated financial statements developed through the use of integrated reporting framework presents the overall business activities of a company under a single report. Thus, the integrated reporting framework system helps in overcoming the potential problem of traditional method of financial reporting under which the financial performance of an entity is presented in discrete sections (Wild and van Staden, 2013).

Woolworths, a retail giant of Australia listed on ASX, effectively complies with the integrated reporting framework through developing and publishing its integrated reports as per the IFRS standards. The company has maintained that the main objective of developing integrated report is to create value for all its stakeholders by disclosing them all the relevant financial and non-financial information. The integrated report depicts the overall performance of the group by incorporating all the information related to its subsidiaries and associates. As per the IIRC framework, the integrated report of the Woolworths has depicted the method through which the Group creates value through effective use of six capitals that are, financial, manufactured, intellectual, human, social and natural capital. The integrated report of the Group has illustrated its business model for describing the process adopted by it for creating sustainable value for its stakeholders through optimum utilization of resources available. In addition to this, the integrated report of the Group also presents the consolidated statement of financial position by integrating the financial results of all its subsidiaries into a single economic entity (Woolworths Holdings Limited 2016 Integrated Report, 2016).

Conclusion

Thus, from the overall discussion helps in the report it can be inferred that integrated method of reporting is much better system of presenting financial statements of business entities having different operational units as compared to stand-alone reporting method. The integrated reporting system helps in depicting an interconnection between the financial and non-financial performance drivers of a business entity.

1. The above financial statements are prepared as per accounting policies defined under Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. (AASB 101) (Accounting Standards, 2017)
2. The financial statements are presented in Australian Dollars and all the figures are presented in actual denominations.
3. Our financial statement successfully complies with the International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (AASB 101) (Accounting Standards, 2017).
4. Any changes to the accounting standards have been successfully incorporated while preparing the financial reports. (AASB 101)
5. Revenue Recognition: All the revenue received or to be received have been recognized at fair value and these are presented net of sales return and any rebates.
6. Costs of sales are measured at the cost incurred on them. Other incomes are recognized for the respective period and any outstanding or advances are recorded properly (Bull, 2007).
7. Fixed assets are recognized at their cost less accumulated depreciation. All the methods and procedures prescribed in AASB 116 have been followed to check the balances of fixed assets (Accounting Standards, 2017).
8. Depreciation has been calculated at the rate prescribed by the management and has been charged to the profit and loss account for the current period. There are mainly three assets with company, namely land, building and vehicle.
9. Land is not the depreciable assets, so no depreciation has been charged to this asset. Depreciation has been charged at rate of 5% on building and 10% on vehicle (Drake and Fabozzi, 2012).
10. The contingent liabilities of the company have been recognized and measured on the basis of AASB 137 accounting standard.
11. The fixed assets of the company are recognized and measured through the use of fair value accounting method as per the AASB116 accounting standard.
12. The company had also maintained effective provisions for measuring and recording its contingent liabilities and assets as per the AASB standards and Corporations Act 2001.
13. The company has calculated and recognized its income taxes on the profit realized after subtracting all the expenditures such as selling cost and operating expenses. This is done as per the AASB 112 standard.
14. The company has incurred a change in the income tax rate from the beginning of the year July, 2017 to 42% from 39%.
15. The compensation structure of the executive and non-executive directors of the company is developed on the basis of Corporations Act 2001 accounting policies and practices.

References

Accounting Standards. 2017. [Online]. Available at: https://www.aasb.gov.au/Pronouncements/Current-standards.aspx [Accessed on: 6 September, 2017].

Bernardi, C. 2015. The transparency of environmental, social and governance disclosures, integrated reporting, and the accuracy of analyst forecasts. [Online]. Available at: https://www.business.uq.edu.au/sites/default/files/events/files/bernardi_and_stark_i_august_2015_final.pdf [Accessed on: 7 September 2017].

Bull, R. 2007. Financial Ratios: How to use financial ratios to maximise value and success for your business’. Elsevier.

Drake, P. P. and Fabozzi, F. J. 2012. Analysis of Financial Statements. John Wiley & Sons.

IAS 27 — Separate Financial Statements. 2011. [Online]. Available at: https://www.iasplus.com/en/standards/ias/ias27-2011 [Accessed on: 7 September 2017].

Wild, S. and van Staden, C. 2013. Integrated Reporting: initial analysis of early reporters – An institutional theory approach’, paper presented at the 7th Asia Pacific. Interdisciplinary Research in Accounting Conference.

Woolworths Holdings Limited 2016 Integrated Report. 2016. [Online]. Available at: https://www.woolworthsholdings.co.za/downloads/2016/WHL-Integrated-Report-2016.pdf [Accessed on: 7 September 2017].