AUDIT (Bsc Finance Sem IV)

Social Audit

• A social audit is a formal review of a company's endeavors, procedures, and

code of conduct regarding social responsibility and the company's impact on
society.
• A social audit is an assessment of how well the company is achieving its goals
or benchmarks for social responsibility.
• Ideally, companies aim to strike a balance between profitability and social
responsibility.

Understanding a Social Audit

Ideally, companies aim to strike a balance between profitability and social

responsibility. A social audit is an internal examination of how a particular business is
affecting society. The audit helps companies to determine if they're meeting their
objectives, which may include measurable goals and benchmarks. A social audit
serves as a way for a business to see if the actions being taken are being positively or
negatively received and relates that information to the company’s overall public
image.

In the era of corporate social responsibility, corporations are often expected to

deliver value to consumers and shareholders as well as meet environmental and
social standards. Social audits can help companies create, improve, and maintain a
positive public relations image. For many companies, a good public perception helps
foster a positive image of the company and ultimately reduce negative impacts on
earnings from bad press.

Items Examined in a Social Audit

The scope of a social audit can vary and be wide-ranging. The assessment can include
social and public responsibility but also employee treatment. Some of the guidelines
and topics that comprise a social audit include the following:

• Environmental impact resulting from the company's operations

• Transparency in reporting any issues regarding the effect on the public or
environment.
• Accounting and financial transparency
• Community development and financial contributions
• Charitable giving
• Volunteer activity of employees
• Energy use or impact on footprint
 • Work environment including safety, free of harassment, and equal
opportunity
• Worker pay and benefits
• Nondiscriminatory practices
• Diversity

There is no standard for the items included in a social audit. Social audits are
optional, which means that companies can choose whether to release the results
publicly or only use them internally.

The flexibility surrounding social audits allow companies the ability to expand or
contract the scope based on their goals. While one company might wish to
understand the impact it has on a particular town or city, other companies might
choose to expand the range of the audit to include an entire state, country, or
throughout the globe.

6 Types of Social Audits

1. Economic Audit: These audits examine the costs and benefits of a certain
project or practice, looking at resource allocation, where money is spent and
made. They also look at how externalities affect things like community
development, health care infrastructure and housing needs for people in
impoverished areas.
2. Environmental Audit: These are similar to economic audits but they also
consider the impact on the environment. Sometimes there may be heavy
pollution of soil, water or air that can affect human health. A social audit in
this area would look at how the project has affected these things and whether
or not it was done responsibly.
3. Social Risk Audit: This is where social audits assess the risk of various negative
consequences such as protest and violence, litigation and criminal activities.
They also look at specific impacts on people such as indigenous groups,
women and children and migrants.
4. Community Audit: These audits examine community-based projects that
provide services or employment to residents in a given area. They often help
these communities enhance their capacities so they can take more ownership
of these services or employment opportunities.
5. Human Rights Audit: These audits are often done by non-governmental
organizations, agencies and other third parties to check if human rights have
been abused in a certain area. Areas that are typically looked at include the
use of child labor, freedom of association and assembly, freedom from
discrimination and rights of the indigenous people.
 6. Contract Audit: These audits examine how projects or practices affect people
under contract with a company, for instance whether they are paid fairly,
treated humanely and allowed to organize themselves if needed. They also
look at accessibility to services such as medical treatment in case of injury on
the job.

Example of a Social Audit

Salesforce.com (CRM) is a Fortune 500 company and one of the largest enterprise
software companies in the U.S. As part of its social audit and assessment, the
company has strived to use 100% renewable energy globally. The company lists its
findings including an annual Stakeholder Impact Report on its website. Below is a
portion of the report from 2017. By continuously striving to meet and exceed their
social responsibility benchmarks, companies can improve their public perception
over time; social audits help companies achieve a balance between profits and
ethics. According to the company's website, Salesforce was one of the first cloud
companies to commit to powering all data centre operations with renewable
energy. Below is a graph from the company's stakeholder report showing where the
company stands in its goal of 100% renewable energy.
Social Responsibility Reporting
Businesses operate in society. They contribute their part to the development of
society. However, while undertaking some of the activities, businesses may harm
some or the other valuable aspect of society. Businesses may pollute the
environment; they may employ workers under extortionate terms, or they may
undertake some activities that would undermine the interests of shareholders and
other stakeholders.

Corporate Social Responsibility is a concept that outlines the larger responsibility of

businesses towards the society. It seeks to reduce negative externalities associated
with carrying out activities in a business and enhance their positive externalities
instead. It is thus, about encouraging the corporates to adopt responsible business
practices

Corporate Social Responsibility in India

CSR is not a new concept in India. It gained legal force when it was incorporated
under Section 135 of the Companies Act, 2013.

Under this Act, every company that has a net worth of Rs. 500 crore or more, or a
turnover of Rs. 1000 crore or more, or a net profit of Rs. 5 crores or more shall be
obligated to constitute a Corporate Social Responsibility Committee. Such a
committee must be constituted by three or more directors of the Board, and at least
one of the directors must be an independent director. It is the responsibility of the
Committee to formulate a CSR Policy.

Such a policy must duly indicate activities that the company plans to undertake
amongst those enlisted in Schedule VII of the Companies Act. Moreover, these
companies must spend at least 2% of the average net profits of the preceding three
financial years. These activities include promotion of education, eradicating extreme
hunger and poverty, promoting gender equality and empowerment of women,
improving maternal health and reducing child mortality, combating human
immunodeficiency virus, acquired immune deficiency syndrome, malaria and other
diseases, ensuring environmental sustainability, promoting hygiene and sanitation in
backward areas, social business projects, contribution to the Prime Minister’s
National Relief Fund or any other fund set up by the Central Government or the State
Governments for socio-economic development and relief and funds for the welfare
of the Scheduled Tribes, the Scheduled Castes other backward classes, minorities and
women and such other matters as may be prescribed.
The Companies Act requires companies to focus more on the local areas where they
operate to undertake their CSR activities. Companies also have the option to
collaborate with other companies for the purpose of undertaking CSR activities.
However, companies have to make separate CSR reports of their own.

Through Business Responsibility Report, SEBI mandates that the listed companies
disclose all the practices that they have adopted in pursuance of CSR to all of its
stakeholders.

The Ministry of Corporate Affairs came out with the ‘National Voluntary Guidelines
on Social, Environmental and Economic Responsibilities of Business’. These
guidelines consist of principles that the companies need to adopt as part of their
corporate social responsibility. To make the activities conducted under CSR by
publicly listed companies more transparent, SEBI has made it mandatory for top 100
listed entities to include Business Responsibility Report as part of their Annual
Reports. It is also mandatory for them to furnish this report to the stock exchange
and also publish it on their websites for easy access to all the stakeholders. For other
listed companies disclosure of BRR has been made voluntary.

In cases where a foreign company has its subsidiary in India, it is mandatory for them
to make their own separate BRR. In the case of an Indian listed company that
publishes a sustainability report on a regular basis for the purpose of submission to
any foreign regulatory body under internationally recognized reporting framework
such as Global Reporting Initiative (GRI), it is not required of them to make a
separate BRR. However, they are required to furnish the said sustainability report to
all of its stakeholders.

SEBI has after that, published the prescribed format of the BRR. It is essential for
every top 100 listed company to provide basic information about themselves like its
financials, related performance indicators and the practices it has adopted in
pursuance of CSR. This information is expressed through indicators such as total
turnover, profits after tax and total spending on CSR. Additionally, these entities are
obligated to disclose the following information in its report:

• The list of entities to which the BRR and the company policy applies.
• The company is required to report on at least three of its products or
services.
• It must indicate the proportion of goods and services received by the
company from its distributors or suppliers that are a part of the company`s
policy and is compliant with environmental and social standards
prescribed.
 • It must describe the mechanism the company has in place to recycle its
products after consumption as well as wastes generated after that and also
at the time of production.
• The number of stakeholders complaints received in a financial year, and
the number of complaints satisfactorily responded must also be
mentioned.
• Some customer complaints received and the percentage of that which
were addressed.
• Some complaints against the company that relates to discriminatory
employment, sexual harassment, employment of child labor, forced labor
or involuntary labor and the percentage of these complaints that have
been addressed or are pending.
The company must also provide information with regards to its principle-based
performance. These principles are as follows:-

• Carrying out of business with ethics, accountability, and transparency.

• Providing goods and services that are safe and contribute to sustainability
throughout their life cycle.
• Promoting the well-being of employees.
• Respecting the interests of all the stakeholders and being responsive to
towards them.
• Respecting and promoting human rights.
• Respecting, protecting and making efforts to protect the environment.
• While engaging in influencing of regulatory bodies, customers and the
public at large, businesses should act responsibly.
Thus, it can be concluded that the requirement of furnishing Business Responsibility
Report, exhorts businesses to instill core principles that are essential for carrying out
responsible business practices. This would help businesses to implement responsible
business practices as a core part of their business model.
Environmental reporting
A common traditional belief is that businesses need only report upon those things
that can be measured and that are required under laws, accounting standards or
listing rules. A range of other pressures has increased on businesses in recent years,
however. Among these is the belief that business are ‘citizens’ of society in that they
benefit from society and so owe duties back to society in the same way that
individual human citizens do.
Many people no longer believe that businesses are able to take from society without
also accounting back to society (and not just to shareholders), on how it has behaved
with regard to its environmental impacts.
These measures can apply directly (narrowly) or indirectly (more broadly). A direct
environmental accounting measures only that within the reporting entity whereas an
indirect measure will also report on the forward and backward supply chains which
the company has incurred in bringing the products from their origins to the market.
For example, a bank can directly report on the environmental impact of its own
company: its branches, offices, etc. But to produce a full environmental report, a
bank would also need to include the environmental consequences of those activities
it facilitates through its business loans.
Where a company claims to report on its environmental impacts, it rarely includes
these indirect measures because it is hard to measure environmental impacts
outside the reporting company and there is some dispute about whether such
measures should be included in the bank’s report (the bank may say it is for the
other company to report on its own impacts).
Environmental reporting can occur in a range of media including in annual reports, in
‘stand alone’ reports, on company websites, in advertising or in promotional media.
To some extent, there has been social and environmental information in annual
reports for many years. In more recent times, however, many companies – and most
large companies – have produced a ‘stand alone’ report dedicated just to
environmental, and sometimes, social, issues.
These are often expensive to produce, and contain varying levels of detail and
information ‘quality’. Companies use a range of names for these ‘stand alone’
reports. Often linked to the company’s marketing and public relations efforts, some
companies include the word ‘sustainability’ in the title (perhaps ‘sustainability
report’), others include a range of social measures in addition to the environmental
information (such as jobs created, skill levels in the workforce, charitable initiatives,
etc). Some companies employ a wording in the title intended to gain attention and
stimulate interest.
Advantages and purposes of environmental reporting
Because of the complex nature of business accountability, it is difficult to reduce the
motivations for environmental reporting down to just a few main points. Different
stakeholders can benefit from a company’s environmental reporting, however, and it
is capable of serving the information needs of a range of both internal and external
stakeholders. Some would argue that environmental reporting is a useful way in
which reporting companies can help to discharge their accountabilities to society and
to future generations (because the use of resources and the pollution of the
environment can affect future generations).
In addition, it may also serve to strengthen a company’s accountability to its
shareholders. By providing more information to shareholders, the company’s is less
able to conceal important information and this helps to reduce the agency gap
between a company’s directors and its shareholders.
Academic research has shown that companies have successfully used environmental
reporting to demonstrate their responsiveness to certain issues that may threaten
the perception of their ethics, competence or both.
Companies that are considered to have a high environmental impact, such as oil, gas
and petrochemicals companies, are amongst the highest environmental disclosers.
Several companies have used their environmental reporting to respond to specific
challenges or concerns, and to inform stakeholders of how these concerns are being
dealt with and addressed. One example of this is the use of environmental reporting
to gain, maintain or restore the perception of legitimacy.
When a company commits an environmental error or is involved in a high profile
incident, many stakeholders seek reassurance that the company has learned lessons
from the incident and so can then resume engagement with the company. For the
company, some environmental incidents can threaten its licence to operate or social
contract. By using its environmental reporting to address concerns after an
environmental incident, society’s perception of its legitimacy can be managed. In
addition to these arguments based on accountability and stakeholder
responsiveness, there are also two specific ‘business case’ advantages.
The first of these is that environmental reporting is capable of containing comment
on a range of environmental risks. Many shareholders are concerned with the risks
that face the companies they invest in and where environmental risks are potentially
significant (such as travel companies, petrochemicals, etc) detailed environmental
report is a convenient place to disclose about the sources of these risks and the ways
that they are being managed or mitigated. The second is that it is thought that
environmental reporting is a key measure for encouraging the internal efficiency of
operations. This is because it is necessary to establish a range of technical
measurement systems to collect and process some of the information that comprises
the environmental report. These systems and the knowledge they generate could
then have the potential to save costs and increase operational efficiency, including
reducing waste in a production process.
Environmental Audit

An environmental audit is a systematic examination to assess a company’s

environmental responsibility. It aims to identify environmental compliance, verify
environmental responsibility implementation gaps whether they meet stated
objectives, along with related corrective actions.

Environmental audits are important for several reasons:

To build a good company reputation. Environmental audits can strengthen the

company’s image. For example, although it may not be fully compliant, the
improvement efforts made will be seen as a positive step by the public. And, if it is
compliant, it can lead to positive publicity, encouraging the public not to hesitate to
continue buying products from the company.

To avoid negative campaigns. Increasing external demands for environmental

responsibility by pressure groups and environmental activists are forcing companies
to check their compliance with environmental requirements. The increasing concern
for the environment has made these demands more and more popular. If the
company is not compliant, for example, they can campaign to boycott its products.

To adapt and comply with more stringent environmental regulations. Governments

adopt more stringent environmental regulations and standards, usually by
international consensus. It forces companies to comply if they do not want to be
penalized.

Then, when done properly, a comprehensive environmental audit can uncover

problem areas and provide recommendations for follow-up. So, the company can fix
it before its reputation is destroyed and regulatory problems arise.

Finally, environmental audits have several objectives, including:

• Assess the company’s compliance with laws and regulations and other
relevant requirements.
• Establish a performance basis for planning and developing an environmental
management system.
• Promote good environmental management.
• Maintain credibility with the public.
• Raise awareness and enforce the company’s internal commitment to
environmental policies.
 • Minimize risk exposure from environmental issues to health and safety.

Three main types of environmental audits:

• Environmental compliance audit – evaluates a company’s environmental

performance and environmental responsibility practices, whether the
company has complied with legal requirements and other requirements such
as ISO 14001. It is usually the most comprehensive and, perhaps, the most
expensive.
• Environmental management audit – verifies whether the company has met
the environmental objectives, policies, and performance set by management.
• Functional environmental audit – focuses on one element or impact of a
particular activity, such as wastewater management audits, materials, and air
quality monitoring.

What are the benefits of an environmental audit?

Environmental audits and their results provide useful input to:

• Provide management with information about the management and

performance of the company’s environment as input for making decisions,
• Identify risks related to environmental responsibility and take action to
implement them,
• Ensure company operations comply with environmental laws and
requirements and, if not, take necessary corrective actions,
• Identify environmental management system weaknesses before they cause
problems,
• Develop organizational culture and increase environmental awareness among
people within the company,
• Identify opportunities for improvement in environmental management and
performance to drive increased efficiency and cost savings,
• Improve company transparency to stakeholders such as government,
customers, and investors to support long term good relationships with them,
• Encourage positive publicity by publishing audit results, thereby enhancing the
reputation and image of the company, and
 • Develop marketing strategies and strengthen brand equity, encourage
consumers to remain loyal to the company.

While contributing to supporting environmental sustainability, there are some

limitations to environmental audit, including:

• Audits can be time-consuming and expensive to perform and are therefore

not suitable for small businesses with limited financial resources.
• Companies may simply take advantage of positive publicity without actually
intending to be environmentally responsible.
• Internal audits can be biased and lead to a consistently good environmental
record, but this is not the case.

Quality of Earnings
Quality of Earnings (QoE) represents a true picture of the company without any
accounting trick, one-time item, or anomalies. Or, we can say it refers to the income
that the company generates from its core operations. Often it is seen that net
income does not represent the true financial picture of a company. It may happen
that a company reports a massive net income, but its operating cash flows are
negative. One can’t say that the company is financially sound in such a case. Thus, to
get the true position in these cases, we calculate the quality of earnings.

A company can also manipulate earnings measures, such as price-to-earnings ratio

(PE) or earnings per share (EPS). By buying back shares, a company can reduce the
number of shares outstanding. This way, it can boost the EPS even if the net income
is not growing. When EPS goes up, the PE comes down, suggesting that the stock is
undervalued. This, in turn, could push the stock prices up by deceiving investors into
believing that the company is financially sound.

Thus, companies that manipulate accounts have poor or low earnings quality. And,
those that don’t follow such practices have a high quality.

Quality of Earnings Report

Basically, the QoE report measures how a company accumulates its revenues,
including recurring or nonrecurring and cash or non-cash. We can say that this
measure is primarily concerned with the income from the core operating activities of
a business.

Independent third-party firms usually prepare such a report during due diligence in
an acquisition. The report includes the detail of all the components of the company’s
revenue and expenses. Its main objective is to study the accuracy and the
effectiveness of the past earnings and verify the future projections.

The report usually includes the following components;

• Analysis of past earnings.

• Classifying revenue under different heads, such as by-product, by the
customer, and more.
• Classification of fixed and variable costs.
• Classification of one-time and recurring expenses.
• Analysis of assumptions for the cash flow projections and scenario
analysis.
• Analysis of change in revenue and expense due to management
changes.
• Recommendations and observations by the third-party firms.
There are many examples of acquisition that fails during the due diligence process.
Several major scandals, such as Enron and Worldcom, are good examples of poor
earnings quality misled investors. Note that it is not mandatory for either the
acquirer or the target company to follow the recommendations in a QoE report.

Features
•A company can report high-quality earnings quarter after quarter. Low-
quality earnings, however, are not repeatable due to one-time events
or items.
• In the quality earnings report, a company must provide details of all
sources of earnings. Also, it should mention the changes, if any, it
expects in these sources.
• A company must follow conservative accounting practices to ensure
proper recognition of the expenses and that revenue is not artificially
inflated.
• The more closely the company follows generally accepted accounting
principles (GAAP), the higher its QoE is likely to be.
How to Gauge Quality of Earnings?
One can gauge the quality of earnings by tracking activities from the income
statement to the balance sheet and cash flow statement. However, the one item that
analysts focus more on is the net income. It is the point of reference that tells
analysts how well the company is performing. If the income is higher than the last
year and is more than the analysts’ estimate, then it is a good sign.
But, how reliable these numbers are is something that the quality of earnings tells.
The analyst starts from the top in the income statement and works their way down.
For instance, the company’s sales growth may be the result of loose credit terms. An
analyst can look at the balance sheet and cash flow statement to get more details on
it. The revenue tied to the accounts receivable does not have much value.

If a company has a high net income, but its cash flows are negative. Then, an analyst
can look for variations between the operating cash flow and net income. It is possible
that the boost in net income is due to factors other than sales.

Another item to look for is the one-time transactions or the nonrecurring income or
expenses. For example, a company may be able to postpone a debt expense by
arranging a future balloon payment. Such an arrangement will increase the net
income for the current period but may be of concern to the investors.

Other items that can help gauge the quality are:

• Reserve balances
• Disclosure of related-party transactions
• Transparency of disclosures
• Details of one-time or nonrecurring items
• Consistency in accounting policies
• Assumptions

Low-quality of Earnings
A company is said to have high-quality earnings if it reports an increase in profit
because of improved sales or cost reductions. An increase in sales due to a marketing
campaign is also a sign of the high quality of earnings.

On the other hand, if the change in earnings is due to outside sources, then the
company can have low-quality earnings. One can attribute low-quality earnings to
the following factors;

• Inflation
• Increase in commodity prices
• Profit from the sale of the asset
• Eliminating LIFO inventory layers
• Aggressive use of accounting rules
• A rise in net income without a corresponding increase in cash flow.
Suppose Company XYZ reports an increase in sales of 30%, while its operating
expenses were down 5%, and net income rose by 20%. Another Company, ABC,
reports flat sales, no change in expenses but an increase of 30% in the net income.
Many may say that Company ABC is better as its net income rose by 30%. However,
in terms of quality of earnings, Company XYZ is better as its growth is due to better
core operations. To check such a thing from a company’s financial statements, let’s
introduce you to a metric – “Quality of Earnings Ratio.”

Quality of Earnings Ratio (QoE Ratio)

The quality of earnings is a ratio of net cash from operating activities to net income.
Both these figures are available in financial statements.

How is the Quality of Earnings Ratio Computed?

Calculating earnings quality is entirely subjective. Its accuracy depends on the
expertise of the person or agency calculating it. We can say that the measure of
earnings quality is the degree to which a company generates earnings from core
operations rather than external forces. Still, there is a formula to calculate it.

Formula
The formula for quality of ratio is dividing the net cash from operating activities by
the net income. This formula gives the quality of the earnings ratio rather than the
absolute figure.
Quality of earnings ratio = Net cash from operating activities / Net income
We can get the net cash from operating activities from the cash flow statement,
while the net income figure is there in the income statement.
Interpretation of the Ratio
Quality of Earnings Ratio Significantly less than 1?
If the ratio is less than one, it means net income is greater than the operating cash
flows. This will suggest that the company might be using accounting techniques to
inflate net income.
Quality of Earnings Ratio greater than 1?
On the other hand, if the ratio is greater than one, it would mean net income is less
than the operating cash flows, suggesting a better QoE.
Earnings Management

Earnings management is a practice followed by the management of a company to

influence the earnings reported in financial statements. It is executed to match a set
target and is different from managing the underlying business of the company. An
earnings management strategy uses accounting methods to present an excessively
positive view of a company’s financial positions, inflating earnings.

• Earnings management is a method used by a company’s management to

manipulate its financials.
• Companies use earnings management to show consistent profits, flatten out
earnings variations, and hold the share price up.
• Earnings management happens when a company’s management team makes
decisions solely to meet expectations or when they alter accounting policies
to show an increase in its quarterly or annual earnings.

Earnings Management Approaches

Companies use several strategies used for earnings management. The most
commonly used strategies are as follows:

1. Earnings-focused decisions

Decisions taken by the management are solely focused on meeting earnings

estimates. The easiest way for earnings management is to control the company’s
expenses. Companies look to cut any optional expenses to meet earnings estimates.

Certain activities – such as research, advertising, or staff training – can be suspended

temporarily. Companies suspend such activities for a short time, assuming that the
business will perform better in the upcoming periods, and the suspended activities
can be resumed thereafter.

However, for companies that are performing well, the management focuses on the
long-term success of the business and does not usually resort to artificially enhancing
the earnings.

2. Biased accounting judgments

Accrual accounting presents opportunities for earnings management; however, a

company’s management needs to exercise some difficult judgments when accrual
accounting is applied.
There are formal policies, accounting manuals, and processes followed at well-
performing companies to ensure that the judgments are bias-free. Earnings
management happens when the management team distorts judgments and mends
policies to meet expectations.

3. Altering accounting principles

U.S. accounting standards provide different rules of accounting for the same
transactions. For example, both the inventory cost and fixed asset cost can be
accounted for in three different but acceptable ways.

The management of well-run companies chooses the accounting rule that best
reflects the implicit economic factors. Earnings management happens when a
company’s management selects an alternative of a certain accounting standard,
which will cause the earnings number to meet the expectations.
Forensic Audit
A forensic audit is an analysis and review of the financial records of a company or
person to extract facts, which can be used in a court of law. Forensic auditing is a
speciality in the accounting industry, and most major accounting firms have a
department forensic auditing. Forensic audits include the experience in accounting
and auditing practices as well as expert knowledge of forensic audit's legal
framework.

Forensic audits cover a large spectrum of investigative activities. There may be

a forensic audit to prosecute a party for fraud, embezzlement or other financial
crimes. The auditor may be called in during the process of a forensic audit to serve as
an expert witness during trial proceedings.

Forensic audit investigations may expose, or confirm, various kinds of illegal

activities. Normally, instead of a normal audit, a forensic audit is used if there is a
possibility that the evidence gathered would be used in court.

The forensic audit process is similar to a traditional financial audit — planning,

gathering evidence, and writing a report — with the additional step of a possible
appearance in court. The lawyers on both sides offer evidence that the crime is
either discovered or disproved, which decides the harm sustained. They explain their
conclusions to the defendant should the case go to trial before the judge.

A forensic audit comprises the following steps:

• Planning the Investigation: The forensic auditor and the team will plan their
investigation in order to meet their objectives.
• Collecting Evidence: The evidence gathered should be sufficient to prove in
court the identity of the fraudster(s), reveal the details of the fraud scheme
and document the financial loss suffered and the parties affected by the
fraud.
• *Reporting: *A forensic audit will need a written report on the crime to be
given to the client, so that if they desire, they can continue to file a legal case.
• *Court Proceedings: *During court proceedings, the forensic investigator must
be present to clarify the evidence collected and how the suspect(s) were
found by the team.
Integrated Reporting
Integrated reporting is an important tool in improving the understanding of the
relationship between financial and non-financial factors that determine a company’s
performance and of how a company creates sustainable value in the longer term.

When organizations lack clear expectations for performance, they are more likely to
lose focus on the long-term objectives. This is one of the reasons why it’s important
that companies report on sustainability – not just their financials, but also how
they’re managing risks and opportunities in environmental, social and governance
(ESG) issues.

Overall, integrated reporting helps your organization better understand its business
practices and identify opportunities for future growth. You should consider whether
or not it’s worth the effort to adopt this process for your company.

The challenges of implementing an integrated reporting program include developing

the appropriate reporting framework, identifying materiality thresholds,
understanding the information needs of different stakeholders and gaining
stakeholder support.

Integrated reporting can provide valuable insights for organizations of all sizes. It is
important, however, to make sure that companies are prepared to conduct an
extensive and effective analysis about how ESG factors contribute to financial
success.

An integrated report describes how a company creates sustainable value through its
return on invested capital and cash flow generation as well as its ability to sustain
and enhance its brands, intellectual capital and other intangible assets.u don't you
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If your organization is considering adopting Integrated Reporting, you should

consider the following:

• How will your company integrate ESG factors into reporting?

• What kind of analysis will be performed to identify where value is created in
your business?
• Will your organization need any specific training for this process?

All these factors play a role in determining what steps to take when reporting on ESG
issues.
What is the difference between Integrated Reporting and Materiality?

Not every company needs to conduct an in-depth analysis of sustainability factors as

part of its business reporting process. If your company has been transparent about
its reporting on ESG issues in the past, it may be able to stick with existing reporting
practices. That’s where materiality assessments come in. In order to make decisions
around what is and isn’t included in your company’s Integrated Report, you will need
a clear understanding of your business goals and how ESGs affect those goals.

What are the 6 capitals of integrated reporting?

The 6 capitals of integrated reporting are finance, people, planet, customer,

innovation and that capital which is usually forgotten – governance. This 6th capital
represents the systems used to create value in society. The 6 capitals collectively, are
linked through the triple bottom line (people+planet+profit).

What are some key elements of Integrated Reporting?

Some of the key elements of Integrated Reporting are linkages, transparency and
disclosure. Integrated reporting should provide information on how a company
impacts the world around them and how it makes sure that they create value for
their “stakeholders”.

If an integrated report is a success it should be a tool which shows you can see
patterns of behavior over time e.g. climate change has been shown to impact coffee
prices.

What does the future of Integrated Reporting look like?

Integrated reports can be seen as a “communications tool” and therefore the

amount of required information is likely to evolve over time. The general focus for
companies however will always be on creating long term value in addition to
occupying a responsible social role in society.

What is integrated reporting in financial accounting?

Integrated reporting with regards to financial accounting is the combination of two

core financial statements: a traditional income statement and a balance sheet. This is
because, under generally accepted accounting principles (GAAP), a company needs
to provide a “statement of financial position” as well as a “statement of operations.”
It’s often called the statement of comprehensive income or the statement of changes
in equity.
What is the integrated reporting framework?

The integrated reporting framework is a framework developed by the International

Integrated Reporting Council (IIRC) to help businesses create reports which are
focused on creating long term value. It includes 6 “capitals” which are linked via the
triple bottom line, these capitals are finance, people, planet, customer, innovation &
governance. It is based on 3 pillars of sustainability reporting – economic value-
added (EVA), social capital and environmental capital.

Integrated reports are seen as one way to see how a company’s performance is
changing over time, allow organisations to understand the risks associated with their
operations and provide more transparency on how they operate (i.e. using language
which is understandable for stakeholders). Integrated reports can include all types of
businesses, however they are most suited for companies who want to communicate
directly with their stakeholders e.g. company’s that trade in financial markets or that
operate in industries that rely on long term stability (e.g. mining).

What is the triple bottom line?

The triple bottom line (abbreviated to TBL or 3BL) is a framework for understanding
sustainability, which was coined by John Elkington in 1994 and describes social
equity, environment and financial performance as three pillars of sustainable
development. The triple bottom line is often used in reporting to show how a
company’s activities and processes affect society and the environment.

What does “stakeholders” mean?

Stakeholders are generally defined as people who have an interest in the

performance of an organization, whether it is positive or negative, voluntary or
involuntary. Stakeholders can include owners, managers and employees, directors
and regulators as well as customers, suppliers and local communities.

What is the connection between Integrated Reporting and sustainability?

Integrated reporting can be seen as a tool to help companies understand the risks
associated with their operations (including those related to climate change), as well
as providing transparency of how they function internally. Sustainability, which is
part of the triple bottom line, means that companies should not only look at their
immediate profits but also consider the environmental and social impacts of their
decisions in order to protect stakeholders interests in the future.

What are “non-financial” factors?

Non-financial factors are outcomes or impacts on a company’s performance which
are not recorded as transactions, but still have an effect on the company. These
factors include social and environmental factors that affect how society can interact
with the business (e.g. employee relations or ethical conduct of the business).

Having this level of trust means that shareholders are more likely to view them as
“investment worthy.”