Liz Hughes, head of ACCA Ireland, on the value of a new approach to financial reporting
The term “integrated reporting” may not yet be a part of your current accountancy vocabulary but the likelihood is that it will become a standard feature of reporting practices in the near future. Its move to prominence is being driven by three related developments.
Firstly, increased recognition that the traditional use of the financial statement as the sole measure of a company’s health and wellbeing can no longer go unquestioned. Secondly, the widespread introduction into entities’ reporting practices of a number of specialist reports, for example, reports on corporate governance policies and practices. Finally, and more generally, the steady increase in company disclosure requirements, which has led to corporate annual reports becoming extremely lengthy documents, sometimes running to hundreds of pages. This trend, while understandable, is contrary to the goal of achieving transparency in reporting practices.
There is now a developing body of opinion that we need to promote a new approach to corporate reporting, one that brings together all the material factors impacting on an entity’s standing and performance, and communicates them in a coherent ‘integrated’ way. Crucially, it is argued that an entity needs to weave these different strands of information into a coherent narrative that is driven an explanation of its strategy, i.e. plans it has to achieve its business objectives. The essence of this new concept then, is not to add to the proliferation of reported information but to identify the factors that are most material to a full explanation of what a reporting company is trying to achieve, and to make sure that a full and rounded explanation is conveyed.
The concept is now being taken forward by the International Integrated Reporting Council (IIRC), a new body based in London that is enjoying widespread support from business, the profession and regulators. IIRC is currently developing a framework to guide companies in how they should go about producing integrated reports, through a consultation paper on this framework. Depending on the feedback received, a final version will follow by the end of 2013. More information can be obtained at www.theiirc.org
This article first appeared in Accounting and Business, Ireland edition, April 2013