An information-rich society is feeding stakeholder desire to be provided with a broader base of information about company activities to assist in their decision-making process.
Integrated Reporting is an emerging framework that attempts to capture the economic, social and environmental dimensions of company operations.
“A key benefit of broadening the reporting and accounting function is hopefully to enhance the relevance of the information provided to diverse stakeholders,” Associate Professor Brad Potter from the University of Melbourne’s Department of Accounting explains.
“Integrated Reporting also challenges us to think about the constitutive role of accounting in business and society.”– Associate Professor Brad Potter and Professor Naomi Soderstrom, The University of Melbourne
The Integrated Reporting Framework was released by the International Integrated Reporting Council (IIRC) in December 2013, and remains a voluntary form of disclosure. It is designed to be applied across a wide range of businesses in different legal jurisdictions.
The challenge that Integrated Reporting is attempting to address reaches beyond traditional financial reports and attempts to capture and communicate a business’s true value creation.
“While Integrated Reporting is intended to streamline reporting, making reports more concise and ‘investor friendly’, the transition requires ongoing commitment,” CPA Australia chief executive Alex Malley says. Malley serves on the Prince of Wales Accounting for Sustainability Project and is Australia’s only member of the International Integrated Reporting Council domiciled in London.
With company stakeholders already having unprecedented access to information about company activities, the potential shift towards Integrated Reporting is an extremely important topic for senior executives.
In a report ‘Exploring the Challenges of Broadening Accounting Reports’ by Potter and Professor Naomi Soderstrom, also at the University of Melbourne, the move could have considerable implications for organisational governance, reporting and assurance.
“Any substantial broadening of the basis for company reporting poses challenges to organisations in terms of cost, and to the profession in terms of measurement and assurance,” Potter and Soderstrom add.
“The idea that conventional company reporting approaches and techniques may be broadened to incorporate the social, environmental and financial dimensions of company activities also challenges us to think about the constitutive role of accounting in business and society.”
Change – what does it cost?
While information outputted through Integrated Reporting will hopefully enable better management for the medium to long term, the long-term effect on decisions is not known.
What is known is that any changes to an ingrained reporting system will take time and cost money.
“With Integrated Reporting, data collection, management and monitoring systems and approaches need to be enhanced and monitoring is made more complex,” Potter says.
Among the ASX Top 50 companies, about eight are producing reports that would conform with the framework, Malley confirms. “But it is certainly not only the domain of the ‘big end of town’.”
Unlike trends in similar fields, such as triple bottom-line reporting, which rose quickly and died off, advocates for Integrated Reporting can be found in senior people from large global organisations.
As current and future business leaders, accountants have a keen role to play in transforming business to be more sustainable, ethical and transparent. As society’s understanding of what value is, how it is generated and how it is shared evolves, business must be part of this important transformation, Malley concludes.
What is integrated reporting?
- The Integrated Reporting Framework was released by the International Integrated Reporting Council (IIRC) in December 2013
- The framework provides a clear roadmap for companies to begin taking a more transparent and holistic approach to the way they measure and report on performance
- Current reporting often shows a lack of connectivity; better connection between different internal departments is seen as a key benefit of integrated reporting
- Many reporting styles “look back”, focusing on last year’s performance. An integrated report should have forward-looking elements, using current information to shape strategic insight over the long term
- Current reporting remains largely focused on financial performance. Measuring the impact an organisation has beyond traditional reporting boundaries is at the heart of integrated reporting.