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November 12, 2014

WCOA Rome: High expectations ahead of Integrated Reporting debate in Rome

Rome, Italy (WCOA 2014). Global accountancy stakeholders will debate Integrated Reporting (IR) next Thursday on a plenary session entitled Integrated Thinking: the key to improved performance and value creation at the World Congress of Accountants that is taking place in Rome.

The session will be chaired by the International Integrated Reporting Council (IIRC) chief executive Paul Druckman.

He will be moderating a panel of speakers which includes outgoing IFAC president Warren Allen and C-suite executives from Brazil’s Itau Unibanco, South African mining company Gold Fields and German listed electric utility company EnBW.

Ahead of the plenary session on Integrated Reporting (IR) The Accountant recently discussed IR with global accountancy stakeholders on the occasion of its annual UK country survey.

"I think IR shouldn’t be seen as a sustainability issue any more. It’s about explaining how companies create value for their shareholders over time," the ICAEW chief executive Michael Izza, told the TA.

He explained that IR started as a sustainability reporting theme but evolved into a "spin-off, taking a life of its own" under the IIRC’s auspices.

"The whole IR’s ethos is changing the way people think about meaningful reporting and about what they do in their business," he said.

"I mean there’s a small revolution going on. We hope it becomes a big one," Izza continued.

Mandatory or voluntaryAsked whether this "small revolution" will need at some point help from regulators to spread, Izza, who sits at the IIRC Council, said:

"We’ve talked about that at the IIRC and I think there are clearly advantages to making IR either mandatory or recommended by perhaps stock exchanges, as in the case of South Africa. But if investors were willing to pay a premium for companies that explain how value is created, I’m pretty sure everybody would move to IR."

At the ACCA, director of external affairs Sue Almond said the IIRC would not probably seek a regulatory way to implement IR.

"The IIRC is probably keener that IR remains a market-driven exercise aimed at meeting the market’s need. The critical point now is to see if investors and stakeholders feel IR really meets those needs," Almond says.

Asked whether a mandatory EU-wide adoption of IR, similar to what happened with IFRS a decade ago, would science fiction Almond replied:

"I would be surprised if that happens in that way. There is a lot of focus on non-financial reporting at EU level but there hasn’t been a huge regulatory take up on IR side. The case of IFRS was different because it was already a framework that was well developed. Although, it wouldn’t be impossible," she said.

Izza commented jokingly that making IR mandatory across countries would make Druckman’s life much easier. Regarding an hypothetical EU directive, for example, whereby IR became compulsory, Izza added:

"I think it could really happen. It’s a trend that it’s happening in society in general and certainly in the tax world. It’s a move towards transparency. IR is about telling people how you create value: don’t put things in a black box, show what you are doing."

ScepticismNot everyone, however, share the same optimism about how the development of IR will play out. University of Essex accounting professor Prem Sikka said he remains sceptical of initiatives like IR and wondered how it changes the nature of accounting.

"Even if it worked, we still don’t know what investors do with information. These are just gimmicks and we have seen them before. In the eighties we had multicolumn reporting, which it was going to revolutionise accounting. Then we had value added statements. They all came and went. So I’m afraid I’m a bit sceptical about these things in my old age," Sikka said.

Sikka added that even if there were merits to build the case of IR, it does resolve perennial questions in accounting.

"What’s an asset, what’s a liability, when to recognise income…those issues are not resolved in any way whatsoever," he said in reference to UK retailer Tesco’s accounting irregularity, which overstated half-year profits to the tune of £263m ($m).

 

Related story:

UK survey 2014: The British profession’s not for EU-turning

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