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IIRC issues Discussion Paper on Integrated Reporting, proposes a new approach to corporate reporting

11 Sep 2011

The International Integrated Reporting Committee (IIRC) today released a Discussion Paper 'Towards Integrated Reporting – Communicating Value in the 21st Century'.

The IIRC seeks to bring together world leaders from the corporate, investment, accounting, securities, regulatory, academic, civil society and standard-setting sectors to develop a new approach to reporting.

The Discussion Paper is the first step in the development of an 'International Integrated Reporting Framework', with an exposure draft expected to be published in 2012. It seeks to build on existing developments in reporting such as the international convergence of accounting standards, sustainability guidance published by organisations such as the Global Reporting Initiative (GRI), and the IASB's IFRS Practice Statement Management Commentary.

Integrated reporting aims to combine the different strands of reporting (financial, management commentary, governance and remuneration, and sustainability reporting) into a coherent whole that explains an organisation's ability to create and sustain value. The focus of an Integrated Report would be a broader explanation of performance than traditional reporting, by describing and measuring where practicable, the material components of value creation and, more importantly, demonstrating the links between an organisation's financial performance and the social, environmental and economic context in which it operates.

The IIRC believes an Integrated Report should be an organisation's primary reporting vehicle, replacing rather than adding to existing requirements. Under the IIRC's vision, much information currently produced (including detailed financial reporting information, operational data and sustainability information) would move to an online environment enabled by technology, reducing clutter in the primary report so that report can focus only on the matters the organisation considers most material to long-term success.

The table below provides an overview of the proposed Framework:

The IIRC's Proposed International Integrated Reporting Framework

Guiding principles

The following guiding principles would underpin the preparation of an Integrated Report:

  • Strategic focus – providing insight into the organisations' strategic objectives, and how those objectives relate to its ability to create and sustain value over time and the resources and relationships on which the organisation depends
  • Connectivity of information – shows the connections between the different components of the organisation's business model, external factors that affect the organisation and its performance depend
  • Future orientation – management's expectations about the future, as well as other information to help report users understand and assess the organisation prospects and the uncertainties it faces
  • Responsiveness and stakeholder inclusiveness – insight into the organisation's relationships with its key stakeholders and how and to what extent the organisation understands, takes into account and responds to their needs
  • Conciseness, reliability and materiality – providing concise, reliable information that is material to assessing the organisation's ability to create and sustain value in the short, medium and long term.

Content elements

The guiding principles should be applied in determining the content of an Integrated Report, based on the following key elements:

  • Organisational overview and business model – the organisation's mission, principal activities, markets, products and services, it's business model, value drivers and critical stakeholder dependencies, and its attitude to risk
  • Operating context, including risks and opportunities – a more in-depth description of material issues, the process for determining which issues it considers material, and how the material issues affect the organisation's ability to create and sustain value over time
  • Strategic objectives and strategies to achieve those objectives – risk management arrangements related to key resources and relationships, linkages and what makes the organisation unique and able to realise value in the future, such as the extent to which sustainability considerations have been embedded into its strategy and give it a competitive advantage
  • Governance and remuneration – the organisation's governance structure, how it supports the strategic objectives of the organisation and relates to the organisation's approach to remuneration
  • Performance – a concise and connected assessment of how the organisation has performed against its strategic objectives and related strategies, including KPIs, organisational impacts (both positive and negative) on resources and relationships, and significant external factors impacting performance
  • Future outlook – opportunities, challenges and uncertainties the organisation is likely to encounter in achieving its strategic objectives and the resultant implications for its strategies and future performance.

Resources and relationships - the "capitals"

In order to assist in understanding the concepts underlying the Discussion Paper, it contains the following example resources and relationships that can be conceived as different forms of "capital":

  • Financial capital – pool of funds available to produce goods and provide services, obtained through financing or generated through operations or investments
  • Manufactured capital – manufactured physical objects, e.g. buildings, equipment and infrastructure
  • Human capital – people's skills and experience and their motivations to innovate
  • Intellectual capital - intangibles that provide competitive advantage including intellectual property, brand and reputation
  • Natural capital – an organisation's activities may impact positively or negatively on natural capital such as water, land, minerals and forests, and biodiversity and eco-system health
  • Social capital - institutions and relationships established within and between each community, group of stakeholders and other networks to enhance individual and collective well-being.
The Discussion Paper notes the development of Integrated Reporting will require a change in established thinking about decision making and reporting, and identifies regulatory change as one of many challenges. The IIRC is conducting a two-year pilot programme, commencing in October 2011, to test and further develop the International Integrated Reporting Framework (see our earlier story).

If, and until, Integrated Reporting is the primary report for all organisations, the report outlines a number of possible alternate pathways to integrated reporting, including combining the sustainability report with the management commentary or the full annual report, publishing a separate integrated report, modifying sustainability reports or adopting integrated reporting internally to underpin management information.

The IIRC is calling for comments on the Discussion Paper to be submitted by 14 December 2011. Click for: