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Integrated reporting framework garners international support

The International Integrated Reporting Council (IIRC) has released its long awaited Integrated Reporting Framework (IRF), attracting support of global accounting firms and professional bodies.

In April the IIRC launched the draft of its first IRF for a three-month consultation period, receiving more than 350 stakeholder responses from around the world.

The principles-based draft framework was aimed at providing a form of corporate reporting able to communicate concisely how an organisation's strategy, governance, performance and prospects lead to the creation of value in the short, medium and long-term.

In a statement the IIRC said the framework will be used to accelerate the adoption of integrated reporting (<IR>) globally, which is currently being trialled in a pilot program with companies in more than 25 countries, 16 of which are members of the G20.

IIRC chairman Mervyn King told The Accountant in an October interview that it's not possible "to carry on business as usual", a message that is getting through as the IIRC's project is receiving the support and "practical input of more than one hundred global iconic companies and 50 of the world's great asset owners".

Commenting on the release today he said in a statement: "Last month PepsiCo became the latest global company to sign up to the IIRC's 100-plus strong business network, which includes HSBC, Unilever, Deutsche Bank, China Light & Power, Hyundai Engineering and Construction, National Australia Bank and Tata Steel."

King added he was delighted that "the day" when businesses worldwide can use the framework has finally come and expressed satisfaction about the degree to which mainstream businesses and investors are willing to embark "on their own <IR> journey".

Last week in a London event hosted by Lord Mayor of London Fiona Woolf, ahead of today's official launch, IIRC chief executive Paul Druckman said: "The release of the framework is only the start. We needed a product to create momentum and scale and now we have that product so the real work starts in January."

Woolf said that <IR> represents not only a new approach to corporate reporting but also a new approach to business and a more inclusive capitalism, with the potential to transform the way business go about business.

Industry reactions
The Chartered Institute of Management Accountants (CIMA) welcomed the publication of the IIRC's IFR as an important step towards better corporate reporting and decision-making.

CIMA head of corporate reporting policy Nick Topazio told The Accountant that integrated thinking and <IR> will help to centre the boardroom conversation on the key factors that influence value creation over the short, medium and long term.

"The <IR> framework provides a combined emphasis on conciseness, strategic focus and future orientation. The connectivity of information and the capitals, and their interdependencies, will help to improve the information available to enable a more efficient and productive allocation of capital both between businesses and within businesses," Topazio added.

Landmark opportunity
The Association of Chartered Certified Accountants (ACCA), whose latest two annual reports were prepared following the draft framework, said in a statement that the IFR brings in a "landmark opportunity to break down the silos in corporate reporting."

ACCA said the IFR may also restore trust in business reporting although it called for immediate action. "Now is the time to put the framework into practice. This presents a significant opportunity to refresh corporate reporting and to place investor's needs central to the process," ACCA chief executive Helen Brand said.

In a statement ACCA also said it believed that <IR> brings a number of benefits because it offers a focus on the long term strategy and performance of a business, with Brand adding:

"A better understanding of long-term risks to commercial models can only be of benefit to business and to the investor community. Explaining how corporate value is created and sustained is important, and the IR framework enables business to do this."

Brand continued saying that reporting models have been criticised in the past, but now was the time for change. "I am sure the accountancy profession is ready and willing to show the necessary leadership to make that change happen," she said.

Financial reporting catalyst
The Institute of Chartered Accountants in England and Wales (ICAEW) welcomed also the publication of the IIRC's framework, which was dubbed as a "catalyst to improve business reporting" by its chief executive Michael Izza.

ICAEW said in a statement that the IIRC deserved to be congratulated but also urged the IIRC to respond to companies' practical experience in applying the principles of <IR> and to continue in its efforts to engage with mainstream investors and analysts.

"The IIRC's vision is a long-term one and its ambition is not only for a new model of corporate reporting around the world, but for the adoption of 'integrated thinking' by businesses everywhere. This will not happen quickly, and we need to recognise that what lies ahead is a process of radical, long-term transformation of how businesses and other organisations report, and how they think," he said.

Izza added that the framework is a high quality and principles-based document that reflects many of the detailed recommendations made during the consultation.

Foundation stone
The Global Reporting Initiative (GRI) said the IRF represents a major opportunity to embed material sustainability disclosures into corporate reporting as sustainability data is a foundation stone of <IR>.

In February 2013, the GRI and IIRC signed a Memorandum of Understanding aimed at reinforcing their common interest in enhancing the reach, quality and consistency of global corporate reporting.

According to the GRI, the IIRC's framework will be a platform to integrate sustainability with other aspects of business performance that shape the drivers and risks of a company's value in the short and long term.

In that sense the IIRC's framework will be able to integrate financial and non-financial disclosures, which ultimately would require companies to demonstrate that they have a strategy to create lasting value, the GRI said.

"The advent of <IR> is an exciting innovation that builds on the foundations of financial and non-financial reporting. As we have learned from those companies in the world who are early adopters of <IR>, this innovation can only be performed by first carrying out the important work of robust sustainability reporting. The many thousands of GRI reporters who wish to do so can now integrate their sustainability information into IR," GRI chairman Christianna Wood said.

The GRI said it will produce in 2014 an additional resource document to describe how the IIRC's framework and its own G4 Guidelines can be used in combination by companies preparing an integrated report.

"Today sustainability reporting is becoming as mainstream as financial reporting among large companies. By drawing on the guidance in the framework, and on the GRI Guidelines, companies have the opportunity to bring these two streams together in a single report, describing the fundamental link between their financial and non-financial performance, and how they flow from and to core business strategy," GRI chief executive Ernst Ligteringen said.

Corporate reporting evolution
Accounting firms have been equally supportive of the <IR> framework. Both KPMG and EY have described it as a milestone in the development of corporate reporting.

EY climate change and sustainability services Jeremy Osborn said: "IR encourages companies to account for the broad resources and relationships on which they draw and to which they contribute through their business activities. In so doing, companies will lay strong foundations for sustainable capitalism."

In a statement, KPMG said that businesses can struggle to communicate their progress in developing and protecting their prospects through tradition reporting and that the final version of the framework could prove an effective tool for businesses looking to shift their reporting focus from short term financial performance to long term shareholder value creation.

KPMG partner and leader of the firm's integrated reporting team David Matthews said: "Building narrative reporting around the business model to explain how the business has been developed should be particularly attractive to management teams looking to move their investor dialogue beyond short-term earnings."

Nevertheless KPMG said it didn't expect the framework to be the basis for an additional, standalone, integrated report but that it should be a mean for companies to develop their existing narrative reporting.

Grant Thornton International director Nick Jeffrey highlighted the value of the <IR> framework for shareholders and investors. "We live in a resource constrained world and the framework will help providers of finance to better understand the impact of companies they wish to invest in," he said.

Nexia International audit director Mohammed Yaqoob welcomed the release of the framework saying that he considered anything that enables companies to communicate better with investors and wider stakeholders as a step forward. "If it actually leads to clarity in reporting then Nexia is all for it," he said.

However he expressed some concern over how the framework would be implemented in practice. "Flexibility should be retained so as to enable companies to tell 'their story' as succinctly as possible or in as much detail as they wish to. The danger would be in very lengthy reports where one cannot see the 'wood for the trees'," he said.

Mazars group chief compliance officer Jean-Luc Barlet said Mazars partipated in the consultation process with a senior partner involved in the task force of the IIRC secretariat "We were asked to work in connection with the European Union and ensure that there is a correlation between their work on reporting and the IIRC work," he said.

Barlet noted there is a willingness among companies to adopt a new approach to reporting. "We must find a way to add value in concise reporting and at the same time lower the cost of reporting," he said. "This goes hand in hand with the trends of transparency which are encouraged by investors."

However Barlet said that there is still something missing in the framework. "There is a need for an open debate to include regulators in the process of defining these notions and help them adapt their regulatory requirements," he said. "Because it is counterproductive to have regulatory reporting on one side and Integrated Reporting on the other. This is the next step."



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