The Integrated Reporting Framework, launched on 9 December 2013 by the International Integrated Reporting Council (IIRC), is an ambitious attempt to reshape the direction and focus of corporate reporting.
Its aim is to provide investors with a more complete picture of business value by extending reporting beyond historical financial performance.
The Framework is likely to be of particular interest to those companies already looking to improve the quality of their narrative reporting as a basis for a better dialogue with their investors.
The IIRC has defined a principles-based framework that would leave businesses to tell their story on their own terms, rather than through a checklist of disclosures.
This would require a cultural shift from report preparers to better communicate the value they are creating. The reporting suite would be used as a platform to explain what drives the underlying value of the business and how management has acted to develop and protect this value.
Integrated Reporting does not necessarily intend to replace other reporting streams such as financial, corporate social responsibility, or corporate governance reporting.
The IIRC’s vision is that preparers should draw together relevant information produced under other more detailed reporting frameworks – e.g. IFRS – to explain the key drivers of business value.
The IIRC also clarified that the focus of the integrated report would be on information most relevant to investors, explaining how the business creates shareholder value.
“It is time to move business reporting beyond merely a discussion of past financial performance. Integrated Reporting can play a key role in the drive for better business reporting.”
Larry Bradley, Audit Partner, KPMG LLP (former Global Head of Audit)
By linking content across a number of key components, an integrated report can build the story of the business from a basic description of the business model, through the external factors affecting the business and management’s strategy for dealing with them and developing the business.
This will provide a foundation to discuss the performance, prospects and governance of the business in a way that focuses on its most important aspects. The result should be a report focused on the key drivers of business value, typically built around a thread of five or six key issues.
Many businesses and regulators will adopt an evolutionary approach to Integrated Reporting, seeing it as the future of reporting, rather than something that can be achieved at a single stroke.
Management should consider how the Framework could support their existing investor communications, and assess how they might achieve this.
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