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IIRC and IFAC publish guidance on materiality in the context of preparing an Integrated Report

  • IIRC (International Integrated Reporting Committee) (green) Image
  • IFAC (International Federation of Accountants) (lt gray) Image

07 Jan 2016

The International Integrated Reporting Council (IIRC) and the International Federation of Accountants (IFAC) have released a publication (“the publication”) which explains materiality and the materiality determination process in the context of preparing an integrated report.

The report indicates that a matter is material, and hence should be included within an integrated report, “if it could substantively affect the organisation’s ability to create value in the short, medium or long term”.  In terms of determining materiality, this will be entity-specific being based on factors such as industry factors.

Only material information should be included within an integrated report.  This, the IIRC says, should “improve internal and external decision-making by limiting extraneous information and focusing disclosures on the core issues managed by the organisation”. 

When preparing an integrated report, organisations will first need to go through materiality determination exercise.  The publication indicates that there is no rule to determine the frequency of this process but advises that previously identified matters should be revisited at a minimum at each reporting cycle to test their continued applicability.

The publication outlines the following key considerations for the preparation of an integrated report and determination of what to include:

Identifying relevant matters

When identifying relevant matters, consider topics or issues that:

Could substantively affect value creation.

Link to strategy, governance, performance or prospects.

Are important to key stakeholders.

Form the basis of boardroom discussions.

May intensify or lead to opportunity loss if left unchecked. 

Evaluating the importance of relevant matters

When evaluating the importance of relevant matters, consider:

Quantitative and qualitative effects.

The nature, area and time frame of effects.

Magnitude of effects and likelihood of occurrence. 

Developing report content

When developing report content:

Consult the guidance provided in Paragraph 4.50 of the [Integrated Reporting]Framework.

Ensure content meets the Completeness principle as described in Paragraphs 3.47-3.53 of the [Integrated Reporting] Framework.

Present information according to the matter’s relative importance.

Demonstrate the connectivity of information per Paragraphs 3.6–3.9 of the[Integrated Reporting] Framework.

Consult Paragraphs 3.36-3.38 of the [Integrated Reporting] Framework for tips on conciseness. 

Deciding the depth and frequency of the materiality assessment

When deciding on the depth and frequency of the materiality assessment, consider:

The timing of the last comprehensive assessment.

The influence of external factors, including changes in economic conditions, resource availability or consumer tastes.

The influence of internal changes to leadership, strategy or business model.

Shifts in the needs, interests or profile of key stakeholders.

The emergence of new techniques for evaluating the magnitude of effects. 

The full publication, Materiality in Integrated Reporting, which expands on these concepts further, is available on the IIRC website.

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