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Future of corporate reporting

Date recorded:

The IASB staff presented a view of the future of corporate reporting, noting that many of the developments were being driven by users and facilitated by developments in technology. In addition, the demand for a more holistic view of the business, making linkages between financial and other information available, was growing and initiatives like Integrated Reporting were a response to these demands. The staff noted the IASB’s current remit, setting financial reporting standards for private sector firms—i.e., a subset of corporate reporting—and the tensions that exist in the current financial reporting model.

Dr Teixeira provided an overview of Integrated Reporting, its genesis and what it intends to achieve. The staff went on to explain how the IFRS Foundation might work with technology, especially its XBRL Taxonomy and by adopting a common ‘ontology’ (i.e., a common set of definitions/ dictionary that would be used in standard-setting and the development of the XBRL Taxonomy).

Dr Teixeira was asked about the role of the IASB, and what the IASB should do in response to the <IR> initiative. He noted that some wanted the IASB to modify its Practice Statement on Management Commentary to move it towards being an Integrated Report. However, the IASB has not made any determination at present, preferring to work with the International Integrated Reporting Council under its MoU as <IR> develops.

In response to a question on what the IASB was doing about the duplication of disclosure in corporate reporting, Dr Teixeira noted that much of the duplication is the result of conflicting regulatory requirements, not conflicts within financial statements. The IASB’s Disclosure project would be an opportunity to eliminate as much as possible any conflicts within the financial statements.

A Council Member stated that, for users at least, the next big question is ‘who sets the standards’ for the capitals other than financial capital – such as human, intellectual, social, etc.?  She mentioned the work of the US-based Sustainability Accounting Standards Board and suggested that the IASB work with it, or consider formal links with it.

The Council then moved to discuss the issues in break-out groups.

Report-back from break-out groups

Group 1

The principle message was that the IASB does not need to own this space, but should be involved to ensure that the (important) financial reporting piece remains relevant.

The IASB needs to ensure that the confirmatory value of historical financial statements in an era of forward-looking data is maintained.

The key driver for change is not <IR> but integrated thinking.

The IASB has a role to play in providing advice and a framework as reporting frameworks for the other IR capitals are developed. These need the same level of rigour and the IASB’s experience will be valuable. 

Issues and challenges around providing assurance on an Integrated Report were touched upon—but these challenges were not for the IASB to solve.

Group 2

This is a developing field – but in the long-term the IASB has a role to play in <IR>, though should not attempt to lead the initiative. The IASB’s key role is to ensure that financial information is incorporated in an Integrated Report is appropriate and that erroneous linkages between financial data and other capitals are avoided.

The role of new technologies, where these might have an impact on financial reporting, needs to be monitored and addressed as necessary.

Elevating the Management Commentary Practice Statement to the level of a Standard was not advised, as this could have unintended consequences in jurisdictions that incorporate IFRSs directly into law, without formal endorsement.

Non-GAAP measures were a concern to the group: these might highlight lacunae in IFRSs that could be codified.

Group 3

While the IASB need not own the <IR> process, it needed to maintain a high degree of interaction with the IIRC, gradually shifting towards a more strategic focus.

Some concern over who within a corporation would own the Integrated Report – probably the Audit Committee.  The provision of assurance on the Integrated Report was also critical to its credibility.

Non-GAAP measures were also addressed, with some suggesting that the IASB might have a role in providing rigour to any such measures reported.

Group 4

This group was made up primarily of investors and focused on <IR>. The focus of <IR> on forward-looking information as part of the value creation story was important, and provided information that traditional financial statements could not. Investors still need and want the assurance provided by audited financial statements as a confirmation of management’s information.

The role of technology was addressed, and there was support for the IFRS Foundation’s role in developing an IFRS XBRL Taxonomy.

General comments

There was some discussion of future-oriented financial information, supporting assertions about cash flow generating potential of the entity. The extent to which this might involve standards was challenged by the IASB Chairman, who thought that historic financial statements and forward-looking financial information both had a role in predicting future cash flows.

Other Council members stressed that the IASB had struck the right balance in its relationship with the IIRC, and should stick to its own core competencies. It should seek to establish similar relationships with other stakeholders in this space, including those developing sustainability, climate disclosure standards and other matters.

John Hitchens (PwC) noted that the IASB had to keep its eye on the ball and keep financial reporting in the investor information arena. He reminded the Council that a UK government proposal in 2011-12 had suggested that financial statements become a compliance document—a position that was subsequently reversed. The role of financial statements in providing useful and relevant information to the market must continue to be made clearly and firmly.

The Capers representative was more in favour of the IASB taking ownership of some of the measurement standards implied in <IR>, in particular those involving the measurement of natural (resource) capitals.

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