Integrated Reporting and SMEs *Profеssor

Abstract

Summary:

At present, there are two basic processes in the in the field of reporting of small and medium-sized enterprises (SMEs):  The International Integrated Reporting Council (IIRC) guides the development of a global framework for Integrated Reporting.  The European Commission requires simplifying the Accounting Directives as regards financial information obligations to reduce administrative burden, particularly for SMEs. The first process is now at its original stage, whereas the second one is in its final stage. The paper treats the issue of the relation between the two processes and whether they are in line with the goals and opportunities for development of the SMEs within the European Union. Small and medium-sized enterprises are the backbone of the European economy and the main contributors to the creation of employment in the EU. The thesis that is maintained is that the time has come to move on from the reporting of the performance of organizations on the basis of their capital to the reporting of their performance on the basis of all "capitals" (financial, manufactured, human, intellectual, natural and social), part of which are beyond the management’s responsibility for the resources owned by the organization and reflected in the balance sheet. The basic premise of integrated reporting is that current financial accounting standards and practices fail to capture all of the information necessary to manage enterprises effectively in the 21st C. Whilst we would expect that the concepts underlying integrated reporting are equally applicable to small- and medium-size enterprises this is not really the core issue. The main issue is how they are to be applied in practice and the changes that are necessary to take account of differences in scale. There is much support for a ‘think small first’ approach when developing requirements for small and medium enterprises and care would need to be taken that by predominantly working with larger companies first one did not fail to take account properly of the needs of smaller enterprises. It is essential to have proper regard to materiality when applying requirements especially to smaller organizations. In order to ensure that the mechanism of integrated reporting be effective with regard to SMEs, it is suggested that guiding principles of the integrated reporting should be subjected to the "universalizability test." The question of the meaning of ‘integrated thinking’ is raised and that every successive step involves seeking the opportunity to impact the organizations’ management in order to change frame of thought and responsibility not only to investors, but also to all stakeholders and to society at large. The overview of the envisaged amendments to the two Accounting Directives (on annual and consolidated financial statements) gives grounds to draw the conclusion that these amendments will not only reduce the administrative burden for small enterprises, but they will also create conditions for the development of integrated reporting for SMEs. The management report as an integral part of the financial statements of SMEs is the point at which the development of their integrated reporting could possibly begin. There is no doubt that the Integrated Report will be specific not only in terms of industries, but also for each enterprise. Furthermore, it will reflect the challenges and opportunities the enterprise is faced with. ‘Relevance’ should affirm itself as the basic qualitative characteristic of the information laid down in the Integrated Report.