The International Integrated Reporting Council has issued a consultation draft of its International Integrated Reporting Framework, which aims to create the foundations for a new reporting model that will enable a business to provide a concise communication of how it creates value over time.
In launching the framework Tuesday, the IIRC is issuing a worldwide invitation to stakeholders to respond to the consultation. Fifteen events are being held around the world to launch the framework, six of which are being hosted by stock exchanges.
The IIRC was established in 2010 and now has a presence in 25 countries. Businesses involved in its work include Coca-Cola, China Light and Power, Clorox, National Australia Bank, Unilever and Hyundai. More than 50 institutional investors have been involved in shaping and testing the framework, including Deutsche Bank, Goldman Sachs, Natixis, APG and Norges Bank.
Integrated reporting differs from the current financial reporting model in a number of ways, in particular with the concept of six “capitals,” through which organizations can assess and then report the degree to which they are creating, diminishing or destroying value over time. The capitals are financial, manufactured, intellectual, human, social and relationship, and natural.
Integrated reporting responds to the challenge faced by providers of financial capital, including investors, that intangible factors, such as intellectual property, brand, talent and environmental resource use are insufficiently integrated into the strategic decision-making and reporting by businesses, leading to the potential for a misallocation of resources and a higher cost of capital.
Speaking Tuesday at the South African launch of the consultation draft at the Johannesburg Stock Exchange, IIRC chairman Mervyn King said, “The world today faces two critical and interconnected dangers: financial instability and unsustainability. Both of these dangers pose threats to the livelihoods of communities across our planet—to their wealth and welfare. They are risks that have been under-managed and under-reported for too long. The corporate reporting landscape has not kept pace with the scale of the changes that have taken place in the world economy, business and society in recent decades. Businesses and investors have a central role in making capital allocation decisions that will ultimately determine the resilience of our financial system and the success of the economy over the short, medium and long term. Integrated reporting brings businesses and investors to the center of this debate. It charges them with the responsibility to communicate how they create value over time. It empowers them to create new tools and mind-sets that will improve the quality of decision-making by businesses and investors. And, crucially, it will lead to changed behaviour, a focus on the future as well as the past and a reporting model that reflects and communicates the reality of business, its operations and its impacts, in the 21st Century."
IIRC CEO Paul Druckman is expected to speak at the New York launch of the consultation draft at NASDAQ headquarters on Tuesday evening. “Over the last three years, the IIRC has built consensus around the idea that the current corporate reporting model must change to meet the needs of today's business and investment environment,” he said in a statement. “The framework is the product of business and investor input and testing involving over 300 individuals and organizations. The IIRC has recruited businesses and investors to its pilot program in 25 countries. So when I say this initiative is international in scope, and market-led in spirit, I mean it. That is why today we are issuing an invitation to businesses, investors, the accounting profession, regulators, standard setters and other interested parties to contribute to the consultation and shape this corporate reporting evolution which matters so much to the future of business and the global economy.”
The goals of integrated reporting are to achieve a more cohesive and efficient approach to reporting, inform capital allocation decisions, enhance accountability and stewardship, and support integrated thinking.
Important features of the framework include:
• Fundamental concepts, such as the capitals, business model and value creation.
• Guiding principles, such as strategic focus and future orientation, connectivity and materiality.
• Content elements such as organizational overview, opportunities and risks, strategy, performance and future outlook.
“The IIRC is rolling out the framework worldwide in a global launch that was supposed to be in 10 cities, and it’s now up to 14 around the world,” said Brendan LeBlanc, the executive director of Ernst & Young’s Climate Change and Sustainability Services practice group, who is a member of the IIRC Working Group that developed the consultation draft. “This framework will be unveiled, and then we’ll begin a public comment period. It’s a principles-based framework. It happens to tell a values creation story so companies can explain how it is that they create value and generate profits and how they manage the environmental and social context in which they generate profits.”
The framework has been developed with input from businesses, investors, regulators, standard setters, accounting bodies and NGOs. It seeks to build on existing financial and non-financial reporting practices, and responds to two current trends: the need for business transparency and responsiveness to stakeholders; and the need for material information that guides corporate strategy, risk management and resource allocation.
The framework will now be the subject of extensive consultation until July 15, 2013.
The International Federation of Accountants applauded the release of the proposed International Integrated Reporting Framework, which is expected to be a critical tool for businesses as they create integrated reports and drive integrated thinking in their organizations. IFAC noted that integrated reporting is the next step in the evolution of corporate reporting and communications, helping organizations to communicate a clear and candid picture of their performance to investors.
“The accountancy profession plays a vital facilitating role in bringing integrated reporting to more organizations, and the Framework will help guide organizations and professional accountants in this process,” said IFAC president Warren Allen, who is also a member of the IIRC Council. “Feedback from individual accountants and the profession on the proposed Framework is critical.”
IFAC has been a participant in the development of the framework and is a co-founder of the IIRC. In addition to Allen serving on the IIRC Council, Ian Ball, former IFAC CEO and current principal advisor, chairs the IIRC Working Group. IFAC also has a staff member who has been seconded to the IIRC on a full-time basis.
The IIRC is asking all stakeholders to provide feedback on the International Integrated Reporting Framework during its public consultation period, which closes July 15, 2013. The framework has been released in English but will also be available soon in additional languages.
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