Guidelines Principles for Integrated Reporting Framework. CMA Exam

In this video, we explain guidelines principles integrated reporting framework as covered on the CMA exam.

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Guidelines and Principles of the Integrated Reporting Framework

The Integrated Reporting (IR) Framework provides a set of guidelines and principles for businesses to follow when preparing their reports. Its aim is to communicate a comprehensive picture of an organization’s strategy, governance, performance, and future prospects, while focusing on value creation over time.

Here are the core guidelines and principles of the IR Framework:

1. Strategic Focus and Future Orientation
This principle emphasizes the importance of linking an organization's strategy to its ability to create value over time. Integrated reports should explain how the organization’s strategic goals align with long-term value creation and how it manages risks and opportunities to achieve these goals.
Key Focus:
Clearly explain the company’s strategic direction and how it impacts future financial and non-financial outcomes.

2. Connectivity of Information
Integrated reporting encourages the integration of financial and non-financial information to present a cohesive and holistic view of how various elements of the business work together. This includes how the organization’s resources (six capitals) interrelate to create value.
Key Focus:
Show the links between strategy, governance, performance, and how these impact the use of the six capitals (financial, manufactured, intellectual, human, social and relationship, natural).

3. Stakeholder Relationships
An integrated report should highlight the nature and quality of the organization’s relationships with stakeholders and how it responds to their legitimate needs and interests. This includes customers, employees, investors, regulators, and communities.
Key Focus:
Address how stakeholder engagement influences decision-making and value creation over the short, medium, and long term.

4. Materiality
The report should focus on the most significant matters that affect an organization’s ability to create value. It should address material issues that impact the organization’s performance and long-term sustainability.
Key Focus:
Identify and disclose material information, concentrating on the key risks, opportunities, and challenges that impact value creation.

5. Conciseness
The IR framework emphasizes clarity and brevity. The report should provide essential information in a clear and concise manner, avoiding unnecessary detail while covering critical aspects of value creation.
Key Focus:
Present information concisely, highlighting key performance drivers and how they contribute to long-term value.

6. Reliability and Completeness
An integrated report must present a balanced and complete view of the organization’s performance, including both positive and negative aspects. Information must be trustworthy, consistent, and reliable to provide stakeholders with a comprehensive understanding of the business.
Key Focus:
Disclose both successes and challenges, ensuring the information is accurate and free from bias.

7. Consistency and Comparability
The IR framework promotes the use of consistent reporting methods over time to allow stakeholders to compare performance year-on-year. Comparability helps stakeholders understand progress and evaluate the organization relative to its peers.
Key Focus:
Ensure the use of consistent metrics and methodologies to allow for clear performance comparisons over different periods.
The Six Capitals in Integrated Reporting
The IR Framework is structured around the six capitals—financial, manufactured, intellectual, human, social and relationship, and natural. These capitals provide a broad view of the resources businesses use to create value.

Financial Capital: Monetary resources like equity, debt, and retained earnings.
Manufactured Capital: Physical assets such as buildings, machines, and infrastructure.
Intellectual Capital: Intangible assets like patents, trademarks, and knowledge.
Human Capital: Employees’ skills, expertise, and experience.
Social and Relationship Capital: Relationships with customers, suppliers, and the broader community.
Natural Capital: Environmental resources such as air, water, and biodiversity.
These capitals are interconnected, and an integrated report should explain how an organization manages and utilizes them to create long-term value.

Conclusion
The Integrated Reporting Framework provides guidelines and principles to ensure that organizations present a clear, concise, and holistic view of their strategy, governance, and value creation process. By focusing on strategic relevance, stakeholder relationships, material issues, and the six capitals, integrated reporting offers a comprehensive tool for companies to communicate their sustainability and long-term value creation to stakeholders.

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