Integrated reporting & sustainability reporting

what is the objective of financial reporting?

• to provide information about the results of operations, financial position, and cash flows of an organisation

• used by the readers of financial statements to make decisions regarding the allocation of resources

what are the limitations of financial reporting

1. historical

2. do not report on intangibles - their value far outweigh that of tangible assets

3. investors’ lack of confidence in financial reporting and prospects

4. provide historical information but don’t give full picture on how entity is performing

• how business is managed

• its future prospects

• policy on environment

• attitudes towards CSR

5. does not reflect needs of users adequately

what is the IIRC

The International Integrated Reporting Council

• global coalition of regulators, investors, companies, standard setters, the accounting profession and non-governmental organisations

• communication about value creation is key in corporate reporting

what is an integrated report

• the equivalent of annual report

• report to providers of financial capital on how an organisation creates value in the short, medium, and long term:

  • strategy

  • governance

  • performance and prospects

  • in the context of its external environment

• objective is to capture both financial and non-financial factors that contribute to value creation (integrated thinking)

what are the aims of integrated reporting

• Improve the quality of information available to providers of financial capital, leading to a more efficient and productive allocation of capital

• promote a more cohesive and efficient approach to corporate reporting - communicates full range of factors that materially affect the ability of an organisation to create value over time

• enhance accountability and stewardship for the broad base of capitals (financial, manufactured, intellectual, human, social and relationship, and natural) and promote understanding of their interdependencies

• support integrated thinking, decision-making and actions that focus on the creation of value over the short, medium and long term

what are the fundamental principles of IR

• reporting should incorporate value creation for the reporting entity and others (stakeholders)

• value creation process is the entity’s activities, and the ways those activities interact and affect different forms of capital

• Contribution to value creation from non-financially driven investment eg staff well-being, motivation & skills, natural resources, reputation & community

what are the capitals

the resources and relationships used and affected by the entity

names and definitions of categories of capital (6)

• Financial - pool of funds available to the entity

• Manufactured - manufactured physical objects used by the entity to produce goods and services eg roads, bridges, ports

• Intellectual - organisational knowledge-based intangibles eg patents, licenses, software, copywrights

• Human - people’s competences, capabilities and experience and their motivation to innovate

• Social and relationship - relationships with communities and stakeholder groups, and the ability to enhance collective well-being

• Natural - renewable and non-renewable environmental resources

what are the 8 content elements if integrated reporting

• organisational overview and external environment

• governance

• business model

• risks and opportunities

• strategy and resource allocation

• performance

• outlook

• basis of presentation

explain the basis of presentation

• reporting boundary - what parts of the organisation and value chain are included in the report

• the reporting period - time frame covered

• reporting frameworks and criteria used - IFRS, GRI, SASB, or internal methodologies

• The process used to determine material matters - how the organisation decides what information is material to include

integrated reporting - considerations

• size and nature of company - global, quotation, type of industry, competition

• advantages and disadvantages of transparency

• cost v benefits

• potential duplication in reporting

• implementation - practicalities

benefits of integrated reporting

• increased level of forward-looking info

• increased disclosure

• improved transparency and stakeholder reputation

• potential efficiencies within organisation

limitations of integrated reporting

• subjective reporting. potential bias in report and lack of comparability

• fear of competitively reporting sensitive info

• may provide too much info for users to understand