IIRC publishes background papers in lead up to consultation draft of integrated reporting framework

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18 Mar, 2013

The International Integrated Reporting Council (IIRC) has published on its website 'background papers' on two aspects of integrated reporting (stylised as '<IR>'): the concepts of 'capitals' and 'materiality'. The papers are a precursor to the publication of a consultation draft of the IIRC's Integrated Reporting Framework, which is expected in mid-April 2013.

The IIRC's intention to publish the papers was signalled earlier in the year, and have the objective of providing additional background information for stakeholders to assist them in responding to the forthcoming consultation draft.  The papers have been prepared by the IIRC's Technical Collaboration Groups (TCGs) and do not necessarily reflect the views of the IIRC or the member organisations from which the participants of the TCGs were sourced.

Both background papers also are not designed as authoritative documents, but as guides and information.  Accordingly, they outline a number of matters where debate is continuing, and also outline issues and areas for further development.


The preparation of the background paper on capitals was lead by the Association of Chartered Certified Accountants (ACCA) and the Netherlands Institute of Chartered Accountants (NBA).

The paper explores the concept of multiple capitals being incorporated into the consultation draft of the <IR> framework by the IIRC.  Largely consistent with the IIRC's September 2011 discussion paper, the background paper discusses various 'capitals' that "represent stores of value that are the basis of an organization’s value creation", namely: financial capital, manufactured capital, intellectual capital, human capital, social and relationship capital, and natural capital.  Some of these were described using different terminology in the discussion paper.

The paper identifies a number of extracts from academic and professional literature that define and discuss each of the capitals considered by the IIRC, and also summarises responses to the discussion paper.  It also outlines examples of the interrelationships between the capitals, e.g. an investment in better training for employees will decrease financial capital but increase human capital.

Some of the observations made in the background paper include:

  • The TCG considered whether the term "resources and relationships" should be used instead of "capitals" but supported the continued use of "capitals"
  • The concepts of multiple capitals is new and will evolve progressively over time, including through the IIRC's pilot programme
  • It is not the objective of <IR> to require the measurement of all capitals, and in some cases "uses of and effects on the capitals are best (and in some cases can only be) reported on in the form of narrative rather than through metrics"
  • Capitals an organisation uses or affects may be owned by the organisation (e.g. intellectual property), owned by others, or may not be owned at all in a legal sense (e.g. access to unpolluted air)
  • There is debate about the relationship between intellectual capital, human capital, and social and relationship capital.  The TCG concluded that bringing together three capitals into one would not help understanding of the capitals model, but did recommend some modification to the description of 'intellectual capital'
  • A comparison and analysis of the differences between the <IR> framework and other notions of capital is also provided, including of the IASB's Conceptual Framework and practices in sustainability reporting under the Global Reporting Initiative (GRI) guidelines.

The background paper contains a useful summary of the matters discussed, including recommended categorisation and changes to the descriptions of the capitals.


    The preparation of the background paper on Materiality was lead by the American Institute of Certified Public Accountants (AICPA).

    The background paper explores the concepts of materiality for purposes of developing an integrated reporting framework, covering the following:

    • Defining materiality for < IR > and distinguishing it from materiality as it relates to financial reporting and sustainability reporting
    • Discussing the importance of materiality
    • Discussing the application of the materiality determination process in <IR>
    • Discussing disclosure considerations in an integrated report
    • Discussing potential constraints in the current environment.

    The paper contains the following definition:

    For the purposes of < IR >, a matter is material if it is of such relevance and importance that it could substantively influence the assessments of providers of financial capital with regard to the organization’s ability to create value over the short, medium and long term. In determining whether or not a matter is material, senior management and those charged with governance should consider whether the matter substantively affects, or has the potential to substantively affect, the organization’s strategy, its business model, or one or more of the capitals it uses or affects.

    The definition has been derived in the context of integrated reports being "principally aimed at providers of financial capital in order to support their financial capital allocation assessment", particularly those who take a longer term view of an organisation's performance.

    The paper outlines three steps in the process of determining whether a matter is material: (1) identify relevant matters for inclusion in the integrated report (2) assess the importance of the matter and (3) prioritise material matters.

    A further paper on the 'business model' concept is also expected in due course.

    Click for access to the background papers (link to the IIRC website).

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