Our only savior is our will power. Will is the switch that controls everything in this universe. If you don't exercise your will power, you will be a weakling, easily influenced by your environment. Development of the will is the secret of magnetism. Men of success are men of great will power. When you develop will, no matter how you are pounded down by life, you rise again and say, "I am successful. I can win."
Regards from Prof Mahaley Head Gmsisuccess
Your Career Mentor Gmsisuccess...
Builds trust with customers & regulators (social capital)
Reduces emissions (natural capital)
➡ Result: Sustainable long-term value creation
⚠️ Value Creation vs Value Destruction (Tricky Exam Angle)
Decision
Impact
Cutting training costs
Short-term financial gain ❌ long-term human & intellectual capital loss
Ignoring pollution
Higher profits now ❌ destroys natural & social capital
Investing in R&D
Short-term cost ✔ long-term intellectual & financial value
🧠 One-Line CMA Exam Summary
Integrated Reporting explains how an organization uses and transforms the six capitals through its business model to create, preserve, or erode value over time.
🔷 Integrated Reporting (IR) – Very Important Points
(US CMA Part 1 – Performance Management / External Reporting)
1️⃣ Meaning & Objective (⭐ frequently tested)
Integrated Reporting communicates how an organization creates value over short, medium, and long term
Combines financial + non-financial information in one concise report
Focus = value creation, not just profit
👉 Exam trap: IR is NOT sustainability reporting alone.
2️⃣ Governing Framework
Issued by IIRC – International Integrated Reporting Council
It is principle-based, not rule-based
📌 CMA loves asking: Who issues IR? → IIRC
3️⃣ Core Concept – Value Creation Model (⭐⭐)
Value is created by using inputs → business activities → outputs → outcomes
✔️ Focus is on long-term viability ✔️ Value for organization + stakeholders
4️⃣ Six Capitals (🔥 extremely important – MCQ favorite)
IR explains how the firm uses and affects six capitals:
Financial – funds available
Manufactured – buildings, machinery
Intellectual – IP, systems, brand
Human – skills, experience
Social & Relationship – customer trust, reputation
Natural – environmental resources
👉 Wrong option elimination tip: If only financial capital is mentioned → ❌ Not IR
The six capitals in Integrated Reporting (IR) are the diverse resources and relationships—Financial, Manufactured, Intellectual, Human, Social & Relationship, and Natural—used by organizations to create, preserve, or erode value over time. They act as inputs and outputs in a company's business model, transforming throughout its operations.
1. Financial Capital
Definition: The pool of funds available for use in production or operations.
Examples: Equity, debt financing, retained earnings, and investment income.
2. Manufactured Capital
Definition: Physical objects created by the organization that are available for use in production.
Examples: Buildings, factories, equipment, tools, and infrastructure.
3. Intellectual Capital
Definition: Intangible, knowledge-based assets.
Examples: Patents, copyrights, software, licenses, tacit knowledge, and brand reputation.
4. Human Capital
Definition: The competencies, capabilities, and experience of the workforce.
Examples: Employee skills, training, leadership, motivation, and safety initiatives.
5. Social and Relationship Capital
Definition: The relationships and shared norms within and between communities and stakeholders.
Examples: Brand reputation, stakeholder relationships (suppliers, customers), community trust, and social license to operate.
6. Natural Capital
Definition: All renewable and non-renewable environmental resources.
Examples: Water, land, minerals, forests, biodiversity, and ecosystem health.
These capitals are interdependent and vary in importance based on the organization's business model.
✔️ Sustainability can be part of IR, but IR is broader
🔟 Benefits of Integrated Reporting (Conceptual MCQ)
Improves transparency
Enhances investor confidence
Better capital allocation
Long-term risk identification
Stronger corporate governance
🎯 CMA Exam Hot Keywords to Remember
Value creation
Six capitals
Integrated thinking
Connectivity
Future orientation
Stakeholder relationships
🧠 30-Second MCQ Elimination Logic
If option says:
❌ Only historical financial data → Not IR
❌ Detailed sustainability metrics only → Not IR
❌ Compliance-heavy rules → Not IR
✅ Strategy + capitals + future value → ✔️ IR
www.gmsisuccess.in
Conciseness in Integrated Reporting (IR) is a guiding principle requiring reports to present the most material information about value creation clearly and briefly, avoiding clutter. It balances comprehensive disclosure with readability, ensuring stakeholders understand strategy, performance, and prospects without being overwhelmed by immaterial details.
Here are key points on Integrated Reporting from US CMA Part 1:
- *Purpose*: Provide a concise communication about an organization's strategy, governance, performance, and prospects.
- *Key Elements*:
- Organizational overview and business model
- Operating context, including risks and opportunities
- Strategic objectives and progress
- Governance and leadership
- Performance and outlook
- *Principles*:
- Strategic focus and future orientation
- Connectivity of information
- Stakeholder relationships
- Materiality
- Conciseness, reliability, and comparability
- *Benefits*:
- Enhanced transparency and accountability
- Improved decision-making
- Better risk management
- Stronger stakeholder relationships
- *<IR> Framework*: Developed by the International Integrated Reporting Council (IIRC), now part of the IFRS Foundation.
- *Capitals*: Six types of capital considered:
- Financial
- Manufactured
- Intellectual
- Human
- Social and relationship
- Natural
- *Materiality*: Focus on information that affects value creation.
- *Connectivity*: Show relationships between elements.
- *Value Creation*: Explain how the organization creates value.
Some potential questions:
- What are the benefits of integrated reporting?
- How does integrated reporting differ from traditional reporting?
- What are the key elements of an integrated report?
Here are the benefits, differences, and key elements of Integrated Reporting (IR):
*Benefits of IR:*
- Enhanced transparency and accountability
- Improved decision-making
- Better risk management
- Stronger stakeholder relationships
- More efficient reporting
- Alignment with organizational strategy
*IR vs Traditional Reporting:*
- *Focus*: IR focuses on value creation, while traditional reporting focuses on financial performance.
- *Scope*: IR considers multiple capitals (financial, manufactured, intellectual, human, social, natural), while traditional reporting primarily focuses on financial capital.
- *Timeframe*: IR emphasizes future prospects, while traditional reporting is often backward-looking.
- *Connectivity*: IR shows relationships between elements, while traditional reporting often presents siloed information.
*Key Elements of an IR:*
- Organizational overview and business model
- Operating context, risks, and opportunities
- Strategic objectives and progress
- Governance and leadership
- Performance and outlook
- Connectivity of information
- Materiality
www.gmsisuccess.in
The US CMA Part 1 exam on Integrated Reporting (IR) includes both theoretical and practical questions. Here are some examples:
*Theoretical Questions:*
- Define Integrated Reporting and explain its purpose.
- Identify the key elements of an Integrated Report, such as organizational overview, governance, and business model.
- Explain the benefits and challenges of adopting Integrated Reporting.
- Describe the six capitals considered in Integrated Reporting: financial, manufactured, intellectual, human, social, and natural.
*Practical Questions:*
- Analyze a case study and identify the key elements of an Integrated Report.
- Calculate the value of a company's intellectual capital using a given method.
- Evaluate the effectiveness of a company's Integrated Report in communicating its strategy and performance.
- Identify and explain the relationships between different components of an Integrated Report, such as strategy, governance, and performance ¹ ².
Some sample questions might include:
- What are the primary objectives of Integrated Reporting?
- How does Integrated Reporting differ from traditional financial reporting?
- What are the benefits of using the Integrated Reporting framwork.
📘 Integrated Reporting – MCQs (US CMA Part 1)
Q1.
The primary objective of Integrated Reporting is to:
A. Replace financial statements
B. Provide assurance on sustainability data
C. Explain how an organization creates value over time
D. Measure environmental impact in monetary terms
Answer: ✅ C Explanation: focuses on value creation in short, medium, and long term, not just sustainability or financials.
Q2.
Which of the following is NOT one of the six capitals in Integrated Reporting?
A. Financial
B. Manufactured
C. Human
D. Regulatory
Answer: ✅ D Explanation: The six capitals are Financial, Manufactured, Intellectual, Human, Social & Relationship, Natural.
Q3.
An integrated report is primarily intended for:
A. Employees
B. Regulators
C. Providers of financial capital
D. Environmental agencies
Answer: ✅ C Explanation: Although useful to many stakeholders, the primary audience is providers of financial capital.
Q4.
Which principle requires an organization to disclose only information that substantively affects its ability to create value?
A. Conciseness
B. Reliability
C. Materiality
D. Consistency
Answer: ✅ C Explanation:Materiality focuses on matters that significantly impact value creation.
Q5.
Which of the following best describes “Connectivity of information”?
A. Linking financial and non-financial data
B. Eliminating duplicate disclosures
C. Reporting only quantitative data
D. Focusing only on past performance
Answer: ✅ A Explanation: CMA loves this point—connectivity shows how strategy, governance, performance, and prospects interrelate.
Q6.
Integrated Reporting emphasizes which time orientation?
A. Past only
B. Present only
C. Future only
D. Short, medium, and long term
Answer: ✅ D Explanation: Value creation is assessed across multiple time horizons.
Q7.
Which of the following is an example of Intellectual Capital?
A. Employee skills
B. Brand reputation
C. Production machinery
D. Cash reserves
Answer: ✅ B Explanation:Brands, patents, systems, and processes fall under intellectual capital.
Q8.
In Integrated Reporting, “Outcomes” are best described as:
A. Inputs used by the organization
B. Outputs generated by operations
C. Effects on capitals resulting from activities
D. Strategic objectives
Answer: ✅ C Explanation: Outcomes = increase, decrease, or transformation of capitals.
Q9.
Which content element explains how risks and opportunities affect value creation?
A. Business model
B. Strategy and resource allocation
C. Governance
D. Performance
Answer: ✅ B Explanation: Strategy section discusses risk response and capital allocation.
Q10.
Which statement about Integrated Reporting is TRUE?
A. It mandates uniform KPIs across all companies
B. It replaces sustainability reporting
C. It integrates financial and non-financial information
D. It focuses only on environmental performance
Answer: ✅ C Explanation:does not replace other reports; it integrates them.
Q11.
Which principle supports comparison over time and across organizations?
A. Consistency and comparability
B. Strategic focus
C. Conciseness
D. Stakeholder inclusiveness
Answer: ✅ A
Q12.
Which of the following is an example of Natural Capital?
A. Customer loyalty
B. Employee training
C. Water and biodiversity
D. IT infrastructure
Answer: ✅ C
Q13.
Which capital is MOST directly affected by employee turnover?
A. Manufactured
B. Financial
C. Human
D. Natural
Answer: ✅ C
Q14.
Integrated Reporting encourages “integrated thinking,” which means:
A. Preparing multiple reports
B. Linking departments and decision-making
C. Outsourcing sustainability reporting
D. Eliminating financial reporting
Answer: ✅ B Explanation: Integrated thinking = cross-functional, long-term decision-making.
Q15.(Tricky CMA-style)
A company reports detailed CSR activities but fails to link them to strategy or financial performance. This violates which guiding principle?
A. Materiality
B. Connectivity of information
C. Conciseness
D. Completeness
Answer: ✅ B
🔥 CMA Exam Tips – Integrated Reporting
Focus on WHY exists, not just definitions
Capitals = favorites for MCQs
Remember: Outcomes ≠ Outputs
Primary audience = providers of financial capital
Time horizon = short, medium, long term
www.gmsisucess.in
📘 Case-Based Integrated Reporting (IR) Questions
US CMA Part 1 – High Difficulty
CASE 1: Six Capitals – Identification
Scenario:
A pharmaceutical company reports the following in its Integrated Report:
Investment in R&D laboratories
Strong brand reputation among doctors
Employee training on new drug regulations
Long-term bank loans
Reduction in water consumption
Question:
Which capital is MOST directly affected by the company’s brand reputation?
A. Human capital B. Social & relationship capital C. Intellectual capital D. Manufactured capital
✅ Correct Answer: B
Explanation:
Brand reputation relates to trust and relationships with external stakeholders
That falls under Social & Relationship Capital
❌ Wrong option logic:
Human → skills of employees
Intellectual → patents, IP
Manufactured → physical assets
CASE 2: Integrated Thinking
Scenario:
Management evaluates a proposed automation project not only on cost savings but also on employee reskilling, environmental impact, and customer satisfaction.
Question:
This approach BEST demonstrates:
A. Sustainability reporting B. Integrated thinking C. Financial capital optimization D. Compliance reporting
✅ Correct Answer: B
Explanation:
Integrated thinking = considering interdependencies among capitals
Decision is not purely financial → key IR philosophy
❌ Trap:
Sustainability reporting focuses mainly on environment/social, not full integration
CASE 3: Value Creation Time Horizon
Scenario:
A company highlights that reduced carbon emissions today will lower regulatory risk and improve brand value over the next 10 years.
Question:
Which IR principle is MOST clearly illustrated?
A. Conciseness B. Consistency C. Strategic focus and future orientation D. Materiality
✅ Correct Answer: C
Explanation:
Explicit link between current actions and long-term value
Future orientation is a core IR principle
CASE 4: Content Elements – Identification
Scenario:
An Integrated Report explains how raw materials are converted into finished goods, delivered to customers, and generate cash flows.
Question:
This disclosure relates to which content element?
A. Performance B. Governance C. Business model D. Outlook
✅ Correct Answer: C
Explanation:
Business model explains inputs → activities → outputs → outcomes
Central element of IR
CASE 5: IR vs Traditional Financial Reporting
Scenario:
A firm issues a report focusing exclusively on audited financial statements and past-year profits.
Question:
Why does this report FAIL to qualify as an Integrated Report?
A. It excludes sustainability metrics B. It lacks non-financial capitals and future value creation C. It is prepared annually D. It focuses on shareholders
✅ Correct Answer: B
Explanation:
IR must include financial + non-financial information
Must explain future value creation
❌ Sustainability alone is NOT mandatory
CASE 6: Stakeholder Relationships
Scenario:
A company discloses how customer feedback led to product redesign and higher retention rates.
Question:
Which guiding principle is MOST directly addressed?
A. Connectivity of information B. Stakeholder relationships C. Reliability and completeness D. Materiality
✅ Correct Answer: B
Explanation:
Focus is on engagement with stakeholders
Shows responsiveness to stakeholder needs
CASE 7: Materiality Judgment
Scenario:
Management excludes minor office energy usage data from the Integrated Report to keep the report concise and focused on key value drivers.
Question:
This decision reflects which IR principle?
A. Conciseness B. Materiality C. Consistency D. Comparability
✅ Correct Answer: B
Explanation:
Materiality = include information that substantively affects value creation
Minor items can be excluded
CASE 8: Six Capitals – Multi-Capital Impact
Scenario:
A mining company rehabilitates land after extraction, improving community trust and biodiversity.
Question:
Which TWO capitals are MOST impacted?
A. Financial and manufactured B. Natural and social & relationship C. Intellectual and human D. Financial and intellectual
VERY IMPORTANT POINTS on Business Ethics & Professional Ethics for US CMA Part 2. This is exactly the kind of stuff examiners love to test (MCQs + short scenarios).
📌 BUSINESS ETHICS – US CMA PART 2 (Must-Remember Points)
1️⃣ Meaning & Scope
Business ethics = moral principles guiding business decisions
Focus: fairness, transparency, accountability
Applies to pricing, marketing, HR, finance, environment, governance
🚫 Never go public immediately unless legally required.
1️⃣2️⃣ Whistle-Blowing (Tricky Area)
Allowed when:
Internal resolution fails
Legal or regulatory requirement exists
Confidential documentation is critical
1️⃣3️⃣ Professional Ethics vs Business Ethics (Comparative MCQ)
Business Ethics
Professional Ethics
Organization-wide
Individual responsibility
Broader moral issues
Code-based
Applies to all employees
Applies to CMA professionals
🎯 FINAL EXAM SMART TIPS
✔ Choose long-term ethical solution, not quick fix ✔ Ethics MCQs often test what NOT to do ✔ Best answer usually involves disclosure + escalation ✔ If profit vs ethics → ethics wins
Currency Translation..in OCI But currency remeasurement...in Income statement ,as conversion of foreign currency,on settlement of transaction
Key Details on Accounting Location:
·Income Statement Classification: Remeasurement gains/losses (arising when the local currency differs from the functional currency) are recognized in the net income section of the income statement, not in Other Comprehensive Income (OCI).
·Operating vs. Non-Operating: They are often reported in non-operating income/expense, though they may be allocated to operating categories if deemed appropriate for representing financial performance.
·Realized vs. Unrealized: Both realized (settled transactions) and unrealized (year-end balance sheet remeasurement) gains/losses are booked to the income statement.
·Distinction from Translation: Unlike translation adjustments (which go to OCI), remeasurementadjustments always flow through the income statement.
EXAMPLE A LTD ‘S (INDIAN ORGANIZATION)HEAD OFFICE /PRINCIPLE OPERATION OF BUSINESS IS IN UAE (LOCAL CURRENCY DIRHAM), EXPORTED GOODS TO USA ( FOREIGN CURRENCY US DOLLOER) $100,000, & RECEIVED US DOLLOER & CONVERTED INTO INDIAN RS(FUNCTIONAL CURRENCY , SINCE A LTD TRANSACT SALES. PURCHASES , MAJOR BUSINESS OPERATION IN INDIAN RUPEES…SO INDIAN RS IS FUNCTIONAL CURRENCY,BCOZ A LTD CONVERTED(REMEASUREMENT)DOLLOER NOT IN LOCAL CURRENCY DIRHAM BUT IN INDIAN CURRENCY ( FUNCTIONAL CURRENCY).
