Accounting Theory
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Introduction Today, companies are faced with various issues of long-term growth affecting  business value, the accounting frauds in large companies have obligated them to publish a report their level of good governance. Accordingly, the companies are required to publish financial reports on the economic and financial situation, as well as report on their sustainabilitys activity (Frias-Aceituno, Rodriguez-Ariza1 &  Garcia-Sanchez, 2013). The IR enabled organisations to do business differently, by strengthening financial reporting, increase in internal and external communications and internal collaboration (PWC, 2013). Therefore, companies have decided to publish their financial and sustainability report as a single integrated report. This paper explains how the purpose of International Integrated Reporting Council (IIRC) for accounting for sustainability eventually became organisation ability to create value over time with the use of regulatory theory. The paper also discuss whether publicly listed companies should adopt value for society or value for investors. Further the paper discusses on decision usefulness information should be  investors or society or both.  1. Integrated Reporting (IR) from accounting for sustainability to communicating to providers of financial capital ability of an organisation to create value over timeWith rapid globalisation, demands for corporate transparency, increasing environmental issues like climate change, rapid natural resource depletion and loss in biodiversity, and growing awareness in society, organisations, business professionals and accounting bodies initiated reporting impacts of organisational activities on society and environment. This reporting was voluntary and not linked to financial reports. In 2010, IIRC was established with an objective, to develop an integrated report that promoted sustainable, social and environmental accounting. This IR would contain information on strategy, governance, performance, and future prospects relating to financial, social, and environmental context within which an organisation operates. This report would also provide clear view of how an organisations is managed and how it creates and sustains value (Frias-Aceituno, Rodriguez-Ariza1 & Garcia-Sanchez, 2013, p.46). However, when IIRC released its Framework in December 2013, it defined IR as “a concise communication about how an organisation’s strategy, governance, performance and prospects, in the context of its external environment, lead to the creation of value over the short, medium and long term” (IIRC, 2013, p7). The primary purpose of IR now is to provide information to providers of financial capital on how organisation an creates value over time (IIRC, 2013). It can be noticed that there has been a major variation in IIRCs objective and a further analysis of their Framework indicates that they have given up their sustainability goal. According to Global Reporting Initiative (2013, p4), sustainability is related with an organisations impact on economic conditions of its stakeholders and on economic systems at local and national level. The focus is not only on financial but also on non-financial aspects of an organisation. In other words, sustainability accounting focuses on social and environmental impacts caused by companys everyday activities.
In addition to the change in IIRCs primary objective, IR is more closely tied into business strategy and value creation rather than sustainability reporting, and is not presented as the next generation sustainability reporting.This major shift in the purpose of IIRC can be better understood with the help of regulatory capture theory. This theory states that, the regulatory body which was initially formed to act on behalf of the public, starts providing advantages to particular group of industry or sector (Deegan, 2014, p80). In IIRCs context, its governing body was an association of heads of major accounting regulatory bodies, investors and CFOs of MNE, standard setters, accounting professionals and NGOs (Brown & Dillard, 2014).  The representatives from organisations that promoted sustainability accounting were largely outnumbered by representatives that represented traditional accounting practices. The finance people, in particular, were focalised as being resistant and were blamed for lack of progress on IR (Higgins, 2014).Though their initial purpose was to promote sustainability accounting, i.e. act on behalf of the society, the end result was that it benefited providers of financial capital. It seems the standard setters acted on behalf of the interest of investors (Zeff, 2008). Some of the rationale as to why IIRC has abandoned sustainability reporting are that IR would place a burden on organisations by collecting more financial and non-financial information, organisations would be obligated to reveal information that might have negative impact on their operation, and that sustainability report was not feasible (Flower, 2014). These reasons signify that people who are connected in the decision making procedure, always put pressure on the standard setters to not create any standards with objectionable feature (Zeff, 2008). IIRC states IR as “designed by business for business” (IIRC 2013a, p3). This statement gives rise to the debate as to whether IR is of interest to the public or only for an organisation. IR emphasises on inter-relations between six capitals financial, manufactured, intellectual, human, social and relationship, and natural to create value over time in organisation (Dillard, 2014). However, it states that organisations can only achieve sustainability if all six capitals show no value decrease from the activities of an organisation. Furthermore, IIRC does not require companies to report on sustainability if this condition of no decrease in value of capitals is not met. It also does not require organisations to report on the full impact of their activities on stakeholders, environment and society. Therefore, it can be said that IIRC abandoned reporting on sustainability.The abandonment of sustainability is also evident from the program of IIRC, it highlighted on issues such as governance, business strategy, performance and prospects, however, the acknowledgement was that the implications of sustainability to create value for an organisation was minimum. Hence, IRs concept of social and environmental reporting is narrow (Dillard, 2014). Adams and Whelan (cited in Adams, 2014) suggest that any changes in corporate disclosure, is governed with profit maximisation. According to financial officers, social and environmental sustainability cost are unnecessary to a firm, it provides only moral obligation or benefit, and the main objective of an organisation is to focus on profit gains and cost cutting (Adams, 2014). This is also emphasised by the fact that organisations are created to maximise shareholders value. Therefore, the risks associated with sustainability is ignored, which leads to decrease in value for society.