Guest Post: An Accountant’s Perspective on Integrated Reporting
To finish this short series I was looking for an alternative perspective on IR. I met Stathis Gould in New York at the CR Commit Forum 2011. Stathis works at the International Federation of Accountants on supporting professional accountants working in business, and is passionate about corporate responsibility. He has also been pulling together the IFAC Accountants in Business response to the IIRC discussion paper available here. I enjoyed hearing his views from an managerial accountants’ perspective and we have met since to discuss integrated reporting from our different vantage points. He kindly agreed to contribute his perspective in a blog post.
The International Integrated Reporting Council (IIRC) has established prominence quickly following its formation in 2010, and the issuance of its discussion paper in September 2011, Towards Integrated Reporting, Communicating Value in the 21st Century.
The pace of the IIRC’s development, and the thinking on integrated reporting (IR), is a testament to thewide variety of organizations and individuals that have driven this importantidea forward. The number of responses to the discussion paper (more than 200) demonstrates the interest, andcurrent frustrations with corporate reporting. But will IR provide a solution?
More than 50 companies are participating in the IIRC’s pilot programme, which will provide an enormous learning opportunity and should work through the implementation of theory into practice.However, challenges in implementing the vision for IR remain.
1. Should various reports and disclosures be brought together to form the integrated report? The integrated report is clearly not about gluing together pieces of information from various disclosures and reports. The integrated report isalso not intended to replace existing forms of disclosure; it is currently presented as an additional report. However, it will be important to compare the cost/benefit in various reporting scenarios, such asascertaining whether the principles of IRcan been applied in the preparation of the annual report and accounts. Integrated reporting might not necessarily need to entail preparing a separateadditional report.
2. What is material and to whom? If the IIRC continue to follow an investor-centric approach, how will materiality be defined for investors(vis-à-vis wider stakeholders)? Furthermore, to achieve conciseness, relevance, and usefulness, anIR framework will need to help organizations practically address materiality to avoid disclosing too much and, therefore, creatingdisclosure clutter.
3. What does sustainable value creation mean, particularly in relation to the demands of investors? If it is the long-term that we (society) really care about, does IR provide adequate incentive to seriously change current short-termism? Decisions potentially impacting the welfare of future generations should require an assessment of costs and benefits beyond what some companies and investors currently consider long term.
4. What comes first: internal integration or IR? Arguably, organizations require guidance on the internal steps necessary to achieve high quality IR, which depends on integrated thinkingat various levels so that sustainability factors are integrated into governance, strategy, management, processes, and systems. Producing a polished integrated report and taking sustainable development seriously is not necessarily the same thing.
5. Does non-financial information attract an adequate level of oversight? Audit committees oversee financial reporting and disclosure, which gets boardroom attention.There also needs to be sufficient understanding and oversight applied to the management and reporting of significant ESG risks and disclosures, either through the audit committee or other means.
The next phase for the IIRC is the development of a proposed framework for IR, which will be released for consultation in 2012 or 2013.