An intro to integrated reporting
Are you familiar with the new kid on the block, Integrated Reporting <IR>? This holistic reporting method is a fantastic new method of collating and presenting financial and strategic information.
Integrated Reporting, or <IR> as it is often described, is a way of an organisation articulating how it creates value, in a connected way. It’s telling the organisation’s ‘story’ in a concise manner.
It encompasses not only the financial aspects of an organisation’s financial performance, but also the social and environmental aspects, and explains how the organisation impacts, uses and depends upon a broader set of capitals than just the traditional financial capital in the short, medium and long term.
How will today's CA Students encounter <IR> in the future?
<IR> is still at an early stage of evolution. Some countries, such as South Africa, have introduced a mandatory requirement for all companies listed on the Johannesburg Stock Exchange to produce an integrated report, or explain why they have not done so.
The feedback on the South African experience is that <IR> is helping to increase awareness of some of the social and environmental issues that are likely to impact upon their business activities in the long term and, consequently, what they need to do to tackle some of these issues.
A high-quality strategic report prepared using the principles in the FRC’s guidance will also achieve the objectives of <IR>
In the UK, there are a number of companies experimenting with the concept of <IR> and many are making good use of recent technological developments which have enabled them to present their corporate reports in a digital format thereby producing a more connected reporting mechanism. In the UK, all companies, except small companies, are required to include a Strategic Report within their annual report.
The Financial Reporting Council, FRC, has said that a high-quality strategic report prepared using the principles in the FRC’s guidance will also achieve the objectives of <IR>.
Therefore, although it may not always be referred to as an integrated report in the UK, the underlying principles and fundamental objectives are the same.
How often is <IR> currently being used by organisations?
One UK company currently leading the way on <IR> is United Utilities whose 2016 Annual Report was awarded the Finance for the international Finance Future Award for 'Communicating integrated thinking'
The International Integrated Reporting Council (IIRC) website has a list of all organisations, globally, producing integrated reports.
Could <IR> be used to raise the profile of a business or increase transparency?
The Integrated Reporting Framework makes it clear that an integrated report should include details of both positive and negative influences on an organisation’s activities and performance, where material.
One of the guiding principles in the framework is ‘reliability and completeness’ to ensure the balance of the integrated report. This is intended to challenge any claims that an integrated report could be viewed as a marketing tool only reporting on ‘good news’.
<IR> has been described as a ‘holistic’ report of a business – what are the more unusual aspects of a business that could appear in the report?
<IR> focuses on an organisation’s dependency, use and impact upon what it has defined as six capitals. These capitals are: financial capital (which we are all familiar with);
- natural capital
- human capital
- intellectual capital
- manufactured capital
- social and relationship capital.
Therefore, we might see more information being produced on an organisation’s supply chain or the extent to which it relies on natural resources, and what it is doing to ensure there is a sufficient supply of these resources in the long term.
Could <IR> replace corporate reporting for some businesses?
The corporate reporting environment is diverse and varies across different jurisdictions. The extent to which businesses move from traditional corporate reporting to <IR> will vary according to the regulations and legislation in force in the jurisdiction(s) in which they operate.
However, we are seeing users place greater emphasis on the information on how the organisation creates value in the narrative section of the annual report, so this may increase the demand for more organisations to produce integrated reports.