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July 2013

Integrated Reporting

By Kalpesh Shingala, Chartered Accountant
Reading Time 6 mins
If we think that it’s only financial reporting that has seen substantial changes in the last 5 years, initiatives around better, more effective communication about an organisation’s sustainability and value creation through corporate reporting weren’t left far behind. As accountants, our professional responsibility primarily revolves around preparation, review and analysis of financial information. The management of an entity has even greater responsibility when it comes to communicating with shareholders and other stakeholders about how they are managing the business, how they are using the resources available to them and, above all, how they are creating value not just for its shareholders but for the environment at large in which it operates.

In this direction, a major milestone was achieved in April this year. The International Integrated Reporting Council (IIRC) issued a consultation draft of the International Integrated Reporting Framework (the ‘Framework’). The IIRC is a global coalition of companies, investors, regulators, standard setters and other key stakeholders. The main aim of the IIRC is to create a globally accepted integrated reporting framework and to make integrated reporting a globally accepted corporate reporting norm.

The Integrated Reporting (or IR) Framework sets out the purpose, provides guidance and outlines how businesses can better explain how they create, sustain and increase their value in the short, medium and long term. The aim is also to enhance accountability and stewardship and support integrated thinking and decision making in the wake of increasing challenges to traditional business models.

What is IR?

IR is defined as a process that results in communication by an organisation, most visibly a periodic integrated report, about value creation over time. It aims to communicate the ‘integrated thinking’ through which management applies a collective understanding of the full complexity of value creation to investors and other stakeholders. An integrated report is a concise communication about how an organization’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. The length of these time frames will be decided by each the organisation differently with reference to its business strategy, investment cycles, and its stakeholders’ needs and expectations. Accordingly, there is no set answer for establishing the length for each term.

IR is intended to be a continuous process and to be most effective should connect with other elements of an organisation’s external communication, e.g. financial statements or sustainability report.

IIRC identifies those charged with governance as having the ultimate responsibility of the IR. On the other side, key audience is the providers of financial capital. At the same time, it is accepted that IR benefits all external parties interested in an organisation’s ability to create value over time, including employees, customers, suppliers, business partners, local communities, legislators, regulators, and policy-makers. It is important to note that the purpose of an integrated report is not to measure the value of an organisation or of all the capitals, but rather to provide information that enables the intended report users to assess the ability of the organisation to create value over time.

To lend further credibility to the IR process, organisations may seek independent, external assurance to enhance the credibility of their reports. The Framework provides reporting criteria against which organisations and assurance providers assess a report’s adherence; it does not yet provide the protocols for performing assurance engagements.

IR Framework

The purpose of the Framework is to assist organisations with the process of IR. In particular, the Framework establishes Guiding Principles and Content Elements that govern the overall content of an integrated report, helping organisations determine how best to express their unique value creation story in a meaningful and transparent way.

The Framework sets out six guiding principles to help preparers determine the structure of the integrated report.

These are:

• Strategic focus and future orientation
• Connectivity of information
• Stakeholder responsiveness
• Materiality and conciseness
• Reliability and completeness
• Consistency and comparability

An integrated report is structured by answering the following questions for each of its seven content elements:

• Organizational overview and external environment: What does the organisation do and what are the circumstances under which it operates?

• Governance: How does the organisation’s governance structure support its ability to create value in the short, medium and long term?

• Opportunities and risks: What are the specific opportunities and risks that affect the organization’s ability to create value over the short, medium and long term and how is the organization dealing with them?

• Strategy and resource allocation: Where does the organisation want to go and how does it intend to get there?

• Business model: What is the organisation’s business model and to what extent is it resilient?

• Performance: To what extent has the organisation achieved its strategic objectives and what are its outcomes in terms of effects on the capital?

• Future outlook: What challenges and uncertainties is the organisation likely to encounter in pursuing its strategy, and what are the potential implications for its business model and its future performance?

Pilot Programme

IR is a new concept and is in its formative stage. The IIRC acknowledges this fact. Accordingly, in order to construct and test its thoughts around the Framework, the IIRC began a Pilot Programme in October 2011. This programme was soon joined in by over 90 businesses and 30 investor organisations from around the globe. Some of the business network participants are Tata Steel, Kirloskar Brothers Limited, Unilever, The Coca- Cola Company, HSBC, Microsoft Corporation, and Prudential Financial among others. [Source:]. Version 1.0 of the Framework is expected to be published in December 2013, much before the end of the Programme in September 2014, thereby allowing participants time to test the Framework during their following reporting cycle. This will also enable the IIRC to assess IR outcomes and complete its work.

IR is still a voluntary initiative so why bother now?

Well, the key results of the Pilot Programme speak for themselves. 95% of participants find that integrated reporting provides a clearer view of the business model and increases board focus on the right KPIs; 93% feel it leads to the better data quality collection, greater focus on sustainability issues, development of improved cross-functional working processes and breaking down silos between teams; and 88% agreed that IR leads to improvements in business decision making.

Currently, the industry participation is led by financial services, while more than 50% of the geographical spread is accounted for by Europe as these were the worst affected during the financial crisis. Sustainability concerns may have sowed the seeds of the IR on a global scale, but the trends emerging from the Pilot Programme provide enough evidence of much wider benefits to the organisations and their stakeholders – now and in the future.

Let’s prepare for a world of valued corporate reporting!

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