Question Tag: Knowledge Economy

Corporations are realizing that in this 21st century, firms’ intangible assets and human capital are the most important assets for value creation, production, or rendering of services. A recent OECD report in 2006 attests to this and points to an emerging knowledge economy, where human capital and intangible assets lie at the core capabilities and competencies for innovation and business sustainability. There is therefore the general feeling and perception that traditional corporate reporting does not meet the capital allocation needs of providers of financial capital. One development has been the emergence of Integrated Reporting (IR), being promoted by the International Integrated Reporting Council (IIRC) and supported by IFAC and most professional accounting bodies globally. The framework issued in 2013, like IASB’s Conceptual Framework, is principles-based and as such does not prescribe KPIs but has some guiding principles and key content elements. Golden Path Plc is desirous of employing IR to overcome the present limitations of its traditional corporate reporting.

Required:

a) Write a report to the board of Golden Path Plc, advising them on why their financial statements may not meet the capital allocation needs of providers of financial capital in 21st-century firms, given the limitations of traditional corporate reporting which integrated reporting aims to address. (5 marks)

b) Briefly state why integrated reporting may still not resolve the main limitations identified above. (1 mark)