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Disclosures change with integrated reporting: ACCA

Integrated Reporting (IR) is changing what information companies choose to disclose, according to a discussion paper issued by the Association of Chartered Certified Accountants (ACCA).

The paper Reporting pre- and post-King III: what’s the difference?, analysed the differences in 10 Johannesburg Stock Exchange listed companies from before they were mandatorily required to produce an integrated report in 2009 and post-mandating in 2010/2011.

It found significantly more social, environmental and ethical information was reported in 2010/2011 reports than those before IR became mandatory. In the 2009 reports, this type of information is, for the majority, restricted to certain sections but mainly to the sustainability report itself.

According to the paper, the biggest change comes from a shift towards more stakeholder orientated reporting in the integrated reports particularly in the chairman’s statement and chief executive’s review.

The ACCA makes five recommendations in its discussion paper:

  1. The way in which information is set out could be more concise to avoid repetition;
  2. The form of reporting could be extended to incorporate more feedback from consultation with stakeholders regarding social and environmental issues and corporate responsiveness to feedback;
  3. Organisations should solicit the views of their major stakeholders about the social, environmental and ethical information (and underlying policies and practices) that they report and include these views within integrated reports;
  4. Academics can and should play a significant role in researching the IR framework and its applicability; and,
  5. Academics should, can and do play an important role in educating potential managers and users in IR through university and professional education in which they are involved.

The paper also found a discourse of care for stakeholders emerging in the integrated reports and a greater level of attention is given to stakeholder engagement than in 2009.

ACCA head of sustainability Rachel Jackson said the main goal of the larger academic report, Integrated reporting: the new face of social, ethical and environmental reporting in South Africa?, the paper is based on is to find out what “works, what does not; how companies approach IR; and, importantly, whether or not IR makes a difference”.

“Our findings show there is a difference between then and now, and it appears that the organisations examined have had a growing realisation that non-financial issues have financial implications for their firms. There has been a change in how sustainability issues are now linked to materiality and risk,” Jackson explained.

She warned that while IR presents new opportunities it also brings challenges, pointing out that the International Integrated Reporting Council (IIRC), which is currently working on producing the world’s first IR framework, will have to take these into account.

“The ‘stakeholder engagement’ approach could present a challenge to the IIRC, whose recent documentation suggests that it does not favour such an approach. Instead, the IIRC’s focus has been on the production of integrated reporting for decision-making purposes, and for shareholders – the IIRC itself has made clear its emphasis on shareholder, not stakeholder, accountability,” Jackson concluded.

IR is the combination of financial and non-financial information into one annual report and is thought to be the next evolution in corporate reporting.

On the back of King III report on corporate governance this is now a mandatory requirement in South Africa and the ACCA said countries that are looking to develop and introduce IR can learn a great deal from developments in South Africa hence its use as a case study for its report.

 

Related article

IIRC issues draft outline of integrated reporting framework

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