Integrated reporting

The country is still coming to grips with the convergence and carve-outs of IFRS, and that too in a language of XBRL. But the world has already started chanting the need for what is called as Integrated Reporting Facility (IRF) with a holistic view.

IFAC, the global federation of accountants is partnering an important paper which will now come out in May 2011 for public discussion. Is India a part of this evolution ? Will it affect us ? IRF is evolving as continuum of the global pressures on sustainable development and the pledge of G 20 to promote sustainable business practices. Sustainability has three important dimensions for all organisations: social, environmental, and economic performance. In the investor community these issues are generally grouped as ESG (environmental, social and governance) disclosures.

There is no global standard for general purpose CSR/sustainability reporting. The sustainability reporting guidelines issued by the Global Reporting Initiative are widely acknowledged as representing best practice . However, GRI framework is not always seen as working well for the financial community and separate sustainability reports are often seen as detached from the business.

Prince of Wales initiative on Accounting for Sustainability A4S developed the connected reporting framework (CRF). The CRF is a reporting model which presents key sustainability information alongside more conventional financial information to give a more rounded and balanced picture of the organisation's overall performance. The talk on IRF got started in the above context. Addressing the wider as well as longer-term consequences of decisions and actions, an integrated report makes clear the link between financial and non-financial value.

Organisational Framework

In December 2009, Accounting for Sustainability (A4S) convened a high-level meeting of investors, standard setters (including both FASB and IASB), companies, accounting bodies and UN representatives, where it was agreed that A4S and the Global Reporting Initiative should work together. The formation of the International Integrated Reporting Committee (IIRC) was formally announced in August 2010. The IIRC has set up three task forces considering content, governance and engagement and communications. It will develop proposals for an integrated reporting framework to be taken to the G20 meeting in November 2011.

Objectives and Principles

The objectives for an integrated reporting framework set out by Federation of European Accountants(FEE) are to support the information needs of long-term investors, by showing the broader and longer-term consequences of decision-making; reflect the interconnections between environmental, social, governance and financial factors in decisions that affect long-term performance and condition, making clear the link between sustainability and economic value; provide the necessary framework for environmental and social factors to be taken into account systematically in reporting and decision-making; rebalance performance metrics away from an undue emphasis on short-term financial performance; and bring reporting closer to the information used by management to run the business on a day-to-day basis.

According to FEE Integrated reporting is underpinned by the following principles:

Strategically important and material – the core is to move away from compliance-driven metrics to an integrated report focussed on the relevant strategy of the organisation;

Connectivity and linkage – information is not presented in isolation, particularly strategic issues around resource usage and emissions which impact the core of the business (its brand, products and services) and its long-term sustainability;

Impacts along the value chain – when reporting on resource usage, emissions and human rights, the whole value chain of a business is taken into account;

Time horizon – the integrated model incorporates a view of both past performance and those prospective events which provide insights into the changing dynamic of the industry and markets in which a business operates;

Consistent with management information – the information reported should be a fair reflection of the management information used internally to run the business on a day to day basis;

Trusted – the information reported should be capable of being verified;

Flexible and able to evolve over time – the integrated reporting framework developed in a manner which will enable it to evolve over time as reporting practices change and mature; and

Behavioural change – an overarching principle of the integrated reporting framework is for it to act as a catalyst for behavioural change.

The discussion paper on IRF being prepared by the IIRC working group is expected to be released for public discussions by May . It is expected to close by July and be submitted to the G 20 grouping in November for consideration and approval for adoption by the respective nations.

(The author is President, South Asian Federation of Accountants.)

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