KEY CONCEPT

Creating an integrated report enables companies to communicate an holistic picture of their prospects, one that is broader than offered by traditional financial reports. Integrated reports cover strategy, governance, performance and forecasts. A new framework for ‘Integrated Reporting’ (IR) has been created to help organizations bring these elements together. Integrated reports benefit both external stakeholders and leaders within the organization.

IDEA SUMMARY

As our perception of corporate governance has evolved, the need for a new and comprehensive way to report on an organization’s performance and sustainability has become apparent. One that takes account not only of financial performance and compliance issues, but one that also looks at an organization's strategy, overall governance, performance and commercial outlook – the factors that lead to the creation of value in the short, medium and long term.

The International Integrated Reporting Council (IIRC) a global coalition of regulators, investors, companies, standard setters, NGOs and the accounting profession, was established in 2009 to promote ‘value creation’ as the next step in the evolution of corporate reporting and to help companies both to create value and to tell their story in an all-inclusive way.

The IIRC’s core mission was to create a globally accepted International IR Framework that would enable organizations to communicate information about their strategy, business model, governance, performance and prospects in a clear, concise and comparable format. The Framework, which was published in 2013, aims to underpin and accelerate the evolution of corporate reporting, reflecting developments in financial governance, management commentary and sustainability reporting.

The IR Framework proposes these ‘Guiding Principles’ and ‘Content Elements’ to underpin and be included in an integrated report. (It does not set benchmarks for such things as the quality of an organization’s strategy or the level of its performance). The Guiding Principles include the following:

• Strategic focus and future orientation: insight into the organization’s strategy and ability to create value, and to its use of and effects on the capitals
• Connectivity of information: a picture of the interrelatedness of the factors that affect value creation over time
• Stakeholder relationships: insight into the organization’s relationships with its key stakeholders, and how it responds to their legitimate needs and interests
• Materiality: disclose of information about matters that substantively affect the organization’s ability to create value
• Conciseness: an integrated report should be concise
• Reliability and completeness: inclusion of material information, both positive and negative, in an accurate and balanced way
• Consistency and comparability: information should be presented so that it is consistent over time and it enables comparison with other organizations

The Content Elements are the following: 

• Organizational overview and external environment: what the organization does and the circumstances under which it operates
• Governance: the organization’s governance structure and its ability to support value creation over time
• Business model: the organization’s business model
• Risks and opportunities: how the organization is dealing with the specific risks and opportunities that affect its ability to create value
• Strategy and resource allocation: the organization’s aspirations and its plans to achieve them
• Performance: the extent to which the organization has achieved its strategic objectives and its outcomes in terms of effects on the capitals
• Outlook: insight to challenges the organization is likely to encounter in pursuing its strategy, and the potential implications for its business model and future performance
• Basis of presentation: an explanation of how the organization determines what to include in the integrated report and how is information quantified or evaluated

BUSINESS APPLICATION

The purpose of an accurate and well-presented integrated report may be first and foremost to communicate to investors and external stakeholders, but it can also play an important role within the organization by enhancing the way leaders think, plan and communicate a clear narrative explaining how all of their resources are creating value.

IR can help business leaders think in a complete rounded way about their strategy and plans, make informed decisions, and manage key risks. IR can also enable better internal communication of strategy leading to greater employee engagement and improved future performance; all of which adds to building investor and stakeholder confidence. 

REFERENCES

International Integrated Reporting Framework. International Integrated Reporting Council (2013).

Tomorrow’s Business Success: Using Integrated Reporting to Help Create Value and Effectively Tell the Full Story. A Guide for Chairmen, CEOs and  CFOs. CIMA, Tomorrow’s Company, and International Integrated Reporting Council (October 2014).

Creating Value Series. International Integrated Reporting Council (2014).

Directors’ Guide to Integrated Reporting. Deloitte (March 2015).

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