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December 23, 2013

Integrated Reporting: the future of more meaningful corporate reporting

By Wayne Kolins, BDO global head of audit and accounting

This month we saw a potentially game-changing milestone in the evolution of corporate reporting globally, as the International Integrated Reporting Council (IIRC) announced the launch of its new Integrated Reporting Framework.

The launch of the Framework heralds a new era in the relationship among business, society and the environment in corporate reporting. By focusing on a broader range of forward-looking financial and non-financial risks and opportunities, the Framework evolves business reporting beyond a review of financial performance into a concise communication about an organisation’s strategy, governance, performance and prospects in the context of its external environment – ultimately leading to the creation of value in the short, medium and long term.

So what does this Framework entail and what does it mean for businesses, investors and audit professionals?

The very fact that the Framework exists reflects the changing commercial, social and environmental context in which businesses are operating. We know from direct experience that investor demands are increasingly reaching beyond financial governance to other issues that have a material influence on the ability of a business to deliver enduring shareholder value.

As such, this Integrated Reporting Framework is a significant departure from existing financial and non-financial reporting practices. It prescribes a range of reporting parameters which are generally lacking in today’s corporate reports. For me, there are three areas of particular significance:

Firstly, it demonstrates strategic focus and future orientation. The focus for accountants and business advisers must be on helping organisations to ‘future proof’ their business plans. This Framework therefore includes provision for detailed insight into an organisation’s strategy and how it relates to its ability to create value – and mitigate any value destruction in the short, medium and long term

Secondly, it illustrates connectivity of information. An integrated report should show a holistic picture of the combination, interrelatedness and dependencies among the factors that affect an organisation’s ability to create value over time. It provides an opportunity to articulate strategic aspects of an entity’s business without compromising its competitive advantage. As such, it creates a platform for demonstrating how unique business models are responding to changing stakeholder needs, threats, opportunities and the expectations in the market. Organisations successfully embracing this approach will not just have a better report, but also information that can drive short-term operating benefits and at the same time future proof the ability to deliver shareholder value in the medium and longer term.

Finally, the Framework extends beyond globally-listed companies to SMEs, medium caps and private entities. We at BDO have worked closely with the IIRC over the past two years to shape the final version of the Framework and have consistently championed the importance of a solution that works for businesses of all sizes – if integrated reporting is to be successful it must also reach SMEs, not just the largest companies listed globally.

We know from our work around the world that SMEs form the backbone of many economies. That’s why at BDO we pushed for the creation of a Framework that gives these businesses the right kind of reporting: not over-reporting, but the flexibility to tailor it to ensure it creates value for their stakeholders. And we believe this has been achieved.

There is no doubt that the launch of the Framework marks a major milestone in the future of meaningful corporate reporting – but there remain many issues for the IIRC to address in the coming months. Specifically: when will robust integrated reporting assurance criteria be available? Can integrated reporting lead to a reduction of the significant corporate reporting burden? Will there be sector guidance, given the different reporting requirements?

I look forward to our ongoing work with the IIRC to further this evolution in reporting so that the entire business community can continue to take great strides towards better and more transparent business reporting that will ultimately underpin economic growth.

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