The merits of integrated reporting

A. N. Raman | Updated on November 12, 2011

Integrated reporting provides a clear and concise representation of how an organisation demonstrates stewardship and how it creates and sustains value.

The discussion paper on the Integrated Reporting (IR) was released on September 12 by the International Integrated Reporting Committee (IIRC) for public exposure and comments by December 14, 2011.

The feedback received along with the experience of the pilot sites launched in October 2011 will be culminated in an Exposure Draft to be released during the end of 2012.

The personalities involved in the committee as revealed by the report reflects a very wide list of stakeholders in preparing the report.

Ranging from IAASB to World Wild Life and IFAC to GRI reflects the depth and width of the world wide participation. This article is just a primer on the questions raised by the Discussion paper and the context it has set.

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.

Need for IR

The paper defines IR functionally as one which brings together material information about an organisation's strategy, governance, performance and prospects in a way that reflects the commercial, social and environmental context within which it operates.

It provides a clear and concise representation of how an organisation demonstrates stewardship and how it creates and sustains value.

The paper declares that an IR should be an organisation's primary reporting vehicle. The discussion paper traces the complexity in business which has evolved over decades due to globalisation, regulatory intervention in different regimes, pressures on transparency and governance, scarcity of resources, environmental concerns and population growth creating voids in business communication to the stakeholders.

The discussion paper therefore talks of an integrated reporting framework which makes visible an organisation's use of and dependence on different resources and relationships or “capitals” (Financial, Manufactured, Human, Intellectual, Natural and Social) and the organisation's impact on them.

The discussion paper declares that integrated reporting on the above capitals is critical to a meaningful assessment of the long-term viability of the organisation's business model and strategy, meeting the information needs of investors and other stakeholders and ultimately the effective allocation of scarce resources.

Questions Raised for Discussion

The discussion paper raises ten questions and seeks public response towards drawing the exposure draft:

Since the world has changed significantly, is there a need for action to help improve organisation's represent their value creation process? Also, whether such action should be international in scope?

Whether the definition of the integrated reporting is agreeable and if not why? Whether the proposal to develop an international integrated reporting framework with the key contents advocated is acceptable and if not why?

The initial focus of the applicability of IR is expected to be only on large companies and whether such an approach was acceptable and if not why? An additional question has also been put in the form of a poser if these concepts can also be made applicable to SME sector, public sector and not-for-profit organisations.

An important question has been addressed in this part as to the acceptability of a business model as an enabling concept in creating and sustaining value in the short, medium and long term and placing it as a central theme in IR.

Another key aspect is the focus of the IR paper, not only on financial capital but also on other forms of capital such as manufactured, social, environmental and intellectual. This is a vital issue as the traditional reporting model has always been emphasised in financial statements. Financial accounting as the sole basis of reporting to stakeholders has thus been challenged as conventional wisdom by the discussion paper.

Call it a blend of financial and non-financial information, or by any other name, but it is certain that future business reporting will certainly rest on the additional pillar of management accounting.

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

Published on November 06, 2011

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