Corporate Financial Reporting

2.  The goal of sustainable development is to “meet
the needs of the present without compromising
the ability of future generations to meet their
own needs.
 It is the Global Reporting Initiative’s (GRI) mission
to fulfil this need by providing a trusted and
credible framework for sustainability reporting
that can be used by organizations of any size,
sector, or location.
 Sustainability reporting’ is a broad term
considered synonymous with others used to
describe reporting on economic, environmental,
and social impacts (e.g., triple bottom line,
corporate responsibility reporting, etc.).

3.  John Elkington has coined the phrase and it is also known
as 3BL.
 TBL reporting is defined as corporate communication with
stakeholders that describes the company's approach to
managing one or more of the economic, environmental
and/ or social dimensions of its activities and through
providing information on these dimensions.
 Important Consideration
◦ Forms of Reporting
◦ Implementation and strategy
 Clear definition of the role of TBL reporting in driving strategic business
objectives
 Establishment of the resource and cost requirements
 Awareness of associated legal implications
 Understanding the risks involved in publishing TBL information

4. ◦ Awareness of relevant issues associated with TBL
reporting;
◦ Understanding stakeholder requirements;
◦ Aligning TBL reporting with objectives and risks;
◦ Determining and measuring performance indicators;
 TBL Accounting
◦ Expanding the traditional reporting framework
◦ Take into account environmental and social performance
in addition to financial performance.
◦ Company's responsibility to 'stakeholders' rather than
shareholders.

5.  Reputation and brand benefit
 Securing a social license to operate
 Attraction and retention of high calibre
employees
 Improve access to investor market
 Establish position as a preferred supplier
 Reduce risk profile
 Cost Saving
 Innovation
 Aligning stakeholders need and management
focus
 Creating a sound basis for stakeholders dialogue

6.  Economic
◦ Generally Accepted Accounting Principles
◦ Customers
◦ Suppliers
◦ Employees

 Social
◦ Bribery and corruption
◦ Political contributions
◦ Child labour
◦ Security practices
◦ Indigenous rights
◦ Training and diversity

 Environmental
◦ Energy
◦ Water
◦ Biodiversity
◦ Emissions, effluents, and waste

7.  The Global Reporting Initiative (GRI) is an
international independent standards organization
that helps businesses, governments and other
organizations understand and communicate their
impacts on issues such as climate change,
human rights and corruption.
 It is a non-government organization which was
founded in1997 at Boston, United States.
 The Global Reporting Initiative’s (GRI) vision is
that reporting on economic, environmental, and
social performance by all organizations becomes
as routine and comparable as financial reporting.

8.  Characteristics
◦ Reliability
◦ Usefulness
◦ Consistency of presentation
◦ Full Disclosure
◦ Reproducible
◦ Auditable
 Things to be included in reporting
◦ marketing publications, limited environmental/ social
information, Commencement of consistent annual
reporting, environment and/or community reports,
Annual reporting, Integration of economic,
environmental and social performance

9. . Planning for
Reporting
Understand the national,
international and industry
sector trends in TBL
reporting
Establish the 'business
case' and set high-level
objectives for TBL
reporting
Identify key stakeholders
Secure support from the
Board and senior
executives
Setting the
Direction for TBL
Reporting
Engage with stakeholders
to understand their
requirements
Prioritise stakeholder
requirements and
concerns
Set overall objectives for
TBL reporting
Review current approach
and assess capability to
deliver on reporting
objectives
Implementation of
TBL Reporting
Strategy
Implementation of TBL
reporting strategy
(including required data
collection and review
processes)
Clarify relationship to
statutory financial
reporting
Publication of TBL
Report
Prepare draft report
Review content and
structure of report
internally, and modify
accordingly
Obtain independent
assurance - external
verification
Publish TBL report

10.  Gaining an awareness of relevant issues
associated with TBL to the reporting
organisation;
 Obtaining an understanding of the requirements
of key stakeholders in relation to public
reporting;
 Achieving clarity in relation to the company's
objectives and the risks related to reporting; and
 Determining key indicators of environmental,
social and economic performance, and basis of
measurement.

11.  five critical areas for consideration by those
companies seeking independent assurance
◦ Internal information system and process
◦ The assurance process
◦ Selection of assurance providers
◦ Directors responsibilities
◦ Assurance statements
 Elements of GRI guidelines
◦ Multi-stakeholder input
◦ A record of use and endorsement
◦ Government reference and activities
◦ Independence
◦ Shared developed cost
◦ Bridge Building

12.  update and completion of the third generation of
GRI's Sustainability Reporting Guidelines.
 includes expanded guidance for reporting on
human rights, local community impacts, and
gender
 The G3.1 Guidelines are made up of two parts
◦ Part 1 features guidance on how to report and includes
 Principles to define report content: Materiality, Stakeholder
Inclusiveness, Sustainability Context, and Completeness
 Principles to define report quality: Balance, Comparability,
Accuracy, Timeliness, Reliability, and Clarity
 Guidance on how to set the Report Boundary
◦ Part 2 features guidance on what should be reported, in
the form of Disclosures on Management Approach and
Performance Indicators.

13.  Aparna Bhatia and Siya Tuli in their study entitled
“Corporate attributes affecting sustainability
reporting: an Indian perspective” studied the
relationship between sustainability reporting by
companies and selected corporate specific attributes.
It also highlighted that the scope of sustainability
reporting differs from company to company and
industry to industry.
 GRI Indicators
◦ Economic performance indicators
 EC1 Direct economic value generated and distributed
 EC2 Financial implications and other risks and opportunities due
to climate change
 EC3 Coverage of org defined benefit plan obligations

14.  Environmental performance indicators
◦ EN1 Materials used by weight or volume
◦ EN2 Percentage of materials used that are recycled input materials
◦ EN3 Direct energy consumption by primary energy source
 Social performance indicators
◦ (i) Labour practices and decent work
 LA1 Total workforce
 LA2 Total number and rate of employee turnover
◦ (ii) Human rights
 HR 1 Investment agreements that include human rights clauses
 HR2 Percentage of significant suppliers and contractors (have undergone
screening on human rights)
◦ (iii) Society
 SO1 Nature, scope and effectiveness of any programmes
 SO2 Percentage and total number of business units analysed for corruption
◦ (iv) Product responsibility
 PR1 Life cycle stages in which health and safety impacts of products and services
are assessed for improvement
 PR2 Total number of incidents of non-compliance, health and safety impacts

17. WEALTH
GENERATION
SALES REVENUE
+ DIRECT INCOME
- MATERIAL COST
- EXPENSES COST
+ NON OPERATING
INCOME/
- EXPENDITURE
+ EXTRA ORDINARY
INCOME/
- EXPENDITURE
WEALTH
DISTRIBUTION
WAGES PAID TO
EMPLOYEE
+ INTEREST PAID TO
PROVIDER OF LOANS
+ TAXES PAID TO
GOVERNMENT
+ DIVIDEND PAID TO
OWNER & INVESTOR
+ RETAINED PROFIT
+ DEPRECIATION
=

18. WEALTH
DISTRIBUTION
WAGES PAID TO
EMPLOYEE
+ INTEREST PAID TO
PROVIDER OF LOANS
+ TAXES PAID TO
GOVERNMENT
+ DIVIDEND PAID TO
OWNER & INVESTOR
+ RETAINED PROFIT
WEALTH
GENERATION
SALES REVENUE
+ DIRECT INCOME
- MATERIAL COST
- EXPENSES COST
+ NON OPERATING
INCOME/
- EXPENDITURE
+ EXTRA ORDINARY
INCOME/
- EXPENDITURE
- DEPRECIATION
=

20. 1. Realistic meaning of Retained profits: There is no cash outflow
from a firm to the extent of depreciation charged. Hence, GVA
reporting, which includes depreciation as part of retained
profits, properly reflects the amount retained for business
purposes.
2. Objectivity: Depreciation charged in the accounts depends on
the firm’s policy and also on the estimates of the asset’s useful
life, scrap value, etc. Since the cost of bought in materials and
services are deducted to compute GVA, it is derived in an
objective manner than NVA.
3. Macro level analysis: At the macro level, Gross Domestic
Product (GDP) is commonly used as an indicator of economic
trends. GVA reporting will make aggregation of data easier for
macro level analysis.

21. 1. Matching: NVA reporting properly deducts depreciation, which
represents a write off of the capital cost of the asset due to wear and
tear. This results in proper matching of the period’s revenues with
costs.
2. Asset Life Disparity: Under GVA, cost of tools, jigs, etc. having a life
of one year would be deducted whereas depreciation on assets having
a longer useful life will not be deducted. NVA recognises both types
of assets and properly records depreciation on the assets utilised.
3. Calculation of Wealth: Wealth or Surplus created by an entity will be
overstated if no allowance is made towards wear and tear or loss of
value of fixed assets used by the entity.
4. Impact on Productivity Bonus: When a Productivity Bonus is paid to
employees based on Value Added, NVA is more appropriate since it
recognises the effect of mechanization, etc. by charging depreciation.

22. In this theory there is no fundamental distinction is drawn
between a legal entity and its owners, i.e. the entity does
not exist separately from the owners. It is based on the
principle that the proprietor is the centre of interest. This
theory propounds that all assets belong to the Proprietor
and all liabilities are the Proprietor’s obligations. This
theory holds good only for a Sole Proprietorship or a
Partnership

23. This theory is suitable for corporate form of business
enterprises. The theory suggests that the Net Income of
the Reporting Entity is generally expressed in terms of the
Net Change in the Stockholders’ Equity. It represents the
residual change in equity position after deducting all
outsiders’ claims. The Reporting Entity is considered as a
separate economic unit operating only for the benefit of
its Equity Shareholders.

24. In this theory, the Reporting Entity is a Social Institution,
operating for the benefit of many interested groups like
Shareholders, Bondholders, Management, Employees, etc.
The Value Added is an important concept in this theory.
When the income is defined as the reward of a larger
group of people than just shareholders

25. 1. Company Ranking: The Value Added is a very good index to
measure the size and importance of a Company. It also
overcomes the distortion in ranking caused by the use of
inflated sales.
2. Systems Concept: The Value Added Statement reflects the
Company’s objectives and responsibilities in a better fashion. It
establishes the fact that the business entity is part of a larger
system interacting with other components in the environment.
3. Employee Incentives: The Value Added Statement paves way
for introduction of productivity linked bonus schemes for the
employees. Calculation also becomes easier.
4. Macro level analysis: The Value Added Statement links the
Company’s financial accounts to the national income by
indicating the Company’s Contribution to National Income.

26. 5.Ratio Analysis: The Value Added Statement helps in ratio analysis. The Value
Added to Payroll, Taxes to Value Added and Value Added to Sales ratios are
used as predictive tools for analysis of different firms. It also provides for
adjustments in respect of inflation, to facilitate comparison between periods.
6. Concepts: The Value Added Statement is based on fundamental concepts that
are accepted in financial statements like the going concern concept, matching
concept, consistency and substance over form, etc.
7.Performance Measure: Value Added is a better measure of performance of
business entity than the profit. It explains the input-output relationship. Once
the value added is ascertained, it is possible to establish a linkage with value to
be used —
• For the work force – for Wages, Salaries
• For the Government – for Corporation Tax and related expenses
• For the Financiers – for Interest on loans and
• For the Business – for retention for Dividends on Share Capital
8.Budgeting: Value Application is a pre-condition for value generation. So
insufficiency of value added can be understood beforehand. This may be good
test for Business Budgeting than Financial Reporting.

27. 1. Wealth Creation: The Value Added Statement specifies the
wealth accumulated by the Company. It states in monetary
terms the wealth accumulated by the Company.
2. Beneficiaries/participants of wealth: The Value Added
Statement states the application of Value Added to
shareholders, bondholders, employees, etc. This identifies
the participants/ beneficiaries of the wealth generated by the
Company and their interest in the Company in terms of value
and percentage.
3. Value Added based ratios: The following ratios can be
computed – Value Added to Sales, Value Added to payroll,
Taxes to Value Added, etc. This facilitates comparison of
ratios between periods as well as comparison between
Companies.
4. Value Added Interpretation: Value Added facilitates

28. a. Risk: Employees, Government and Fund Providers are
interested only in getting their share of Value Added. The
entire business risk is borne only by the Shareholders. The
residual profits after meeting the obligations of the outside
groups should be shown as the Value Added accruing to the
shareholders.
b. Non-uniformity: Value Added Statements are non-
standardised in areas like inclusion or exclusion of
Depreciation, Taxation on Profits, etc. This can however be
overcome by defining an Accounting Standard on Value
Added