Report outlines how to help SMEs benefit from 'integrated reporting'
Millions of small and medium-sized enterprises (SMEs) - many struggling to survive the economic fallout from COVID-19 and global conflicts - could boost their performance and resilience by embracing a new approach to business management.
A new report led by researchers at Deakin University outlines how SMEs around the world, of most types and sizes, could reap significant benefits from adopting the practices of 'integrated thinking' and 'integrated reporting'.
Already embraced by some of Australia’s leading organisations - including AGL, Lendlease, Dexus, Cbus and Australia Post - integrated reporting and integrated thinking techniques have been credited with generating transformational change in culture, operations and financial performance.
But Professor Peter Carey - Director of Deakin's Integrated Reporting Centre - said that to date, research showed very few SMEs anywhere have taken it up.
"Our report shows there must be active intervention to engage SMEs in integrated reporting - led by government, technology providers and the accounting profession - because they are too time poor to do it by themselves," Professor Carey said.
"Right now, SMEs in all countries are being buffeted by surging inflation and interest rate rises, supply chain disruptions, the energy crisis and restricted access to finance.
"If we can't enhance SME productivity in the next few years our economy is going to go backwards. Large-scale adoption of integrated thinking and integrated reporting among SMEs could help to catapult national and global economies into a new era of growth and prosperity and help to insure them against future adverse impacts."
The principles of integrated reporting were laid out in a framework developed by the International Integrated Reporting Council in 2013, which since July 2022 is administered by the International Financial Reporting Standards Foundation (IFRS Foundation).
"Although the framework has to date been adopted mostly by larger companies, it is designed for entities of various sizes and natures, including for-profit, public sector and not-for-profit organisations," Professor Carey said.
"Integrated thinking and integrated reporting are defined by a more open and inclusive approach to decision-making and communication across the organisation. It drives greater collaboration within firms and with partner firms, leading to more informed and considered decision-making, in contrast to traditional silo-based organisational structures.
"A critical element of integrated thinking and reporting techniques is the consideration of non-financial factors - such as environmental impacts or the value of human and intellectual capital - that affect a firm's ability to create and sustain value over time.
"Another key element is consideration of multiple stakeholders - from employees to suppliers, customers, financiers and others - in communication and decision-making.
"Such an inclusive and transparent approach leads not only to better internal decision-making and a more forward-looking culture, but to commercial advantage by enhancing reputation among prospective business partners and customers."
The Deakin report - based on an extensive global review of existing research and evidence, as well new insights from a panel of international experts - recommends several ways to support SMEs to adopt integrated reporting and integrated thinking.
- Governments should enable and encourage SMEs to adopt integrated thinking and integrated reporting by supporting and incentivising their service providers to develop the skills, guidance materials and tools to facilitate adoption.
- Accountants, as trusted advisers either working within SMEs or providing professional services to SMEs, should seek to assess the potential benefits of integrated thinking and integrated reporting for their SME clients and, where appropriate, encourage adoption.
- Professional accounting associations and industry organisations, supported by governments, should educate their members who work as trusted advisers to SMEs, particularly small and medium-sized accounting practices (SMPs), about the potential benefits of integrated thinking and integrated reporting for their SME clients.
- Software providers should work collaboratively with SMEs, SMPs and other relevant stakeholders (such as financiers, supply chain members and government) to facilitate the development of new products that simplify integrated thinking and integrated reporting processes for SMEs.
- The IFRS Foundation should develop simplified tailored guidance materials supporting the International Integrated Reporting Framework and Integrated Thinking Principles, specifically targeted at SMEs.
- More research should be undertaken to enhance understanding of the potential benefits and costs associated with integrated thinking and integrated reporting for SMEs, and the extent to which integrated thinking and integrated reporting could be adopted across the sector globally.
Professor Carey said SMPs would have a critical role to play in supporting their SME clients to adopt integrated thinking and reporting.
"SMPs are the most trusted and preferred advisers to SMEs. So, supporting their clients towards greater prosperity by thinking in an integrated way is a great business opportunity for them," he said.
"But the insights from our expert panel show that the first step is for SMPs to get used to integrated thinking in the way they run their own practices. Only after SMPs apply integrated thinking to their own practices will they have the confidence to support and assist their SME clients to embrace integrated thinking and reporting."
'Supporting global SMEs for future success – Exploring how to improve SMEs' business performance utilising integrated thinking and integrated reporting concepts' was developed with support from the Association of Chartered Certified Accountants (ACCA) and Chartered Accountants Australia New Zealand.