IFAC has issued an updated paper on corporate reporting outlining its position that integrated reporting is the way to achieve a more coherent corporate reporting system, but some stakeholders while welcoming the announcement expressed contrasting views.
In its updated version of Policy Position Paper 8, Enhanced Organizational Reporting: Integrated Reporting Key, IFAC stated that integrated reporting fulfils “the need for a single report that provides a fuller picture of organisations’ ability to create value over time”.
IFAC also stated that the integrated report can be used as an “‘umbrella’ report for an organisation’s broad suite of reports and communications, enabling greater interconnectedness between different reports and recognizing that there is a range of different frameworks and regulations available and under development”.
This is a significant shift from the original paper which acknowledged the existence of a range of different organisational reporting frameworks and that it was important to examine the relationship between these frameworks.
Climate Disclosure Standards Board (CDSB) policy and external affairs manager Michael Zimonyi told The Accountant that CDSB agreed that integrated reporting can be an ‘umbrella’ for corporate reporting.
“In today’s fragmented reporting landscape, the International Integrated Reporting Council (IIRC) can act as an integrator between the mainstream and sustainability reporting models,” he said. “CDSB and the IIRC acknowledge the complementarity of their respective roles, on the basis that reporting corporate dependencies and impacts on natural capital is integral to Integrated Reporting, and a key pillar on which is based.”
Equally, Nick Topazio, head of corporate reporting research at the Association of International Certified Professional Accountants told The Accountant: “We definitely see integrated reporting as the way forward as it is a way of broadening the information set that is reported.”
CFA Institute interim head of financial reporting policy Vincent Papa agreed that due to its holistic nature integrated reporting could be an umbrella initiative. “IIRC is effectively a framework of connecting different types of information within the corporate reports but it will not address the shortfall within specific domains.”
However he argued that it was too early to identify integrated reporting as the way forward ahead of other existing initiatives. “Where IIRC is more holistic than most other initiatives, other initiatives have a distinctive and complementary contribution and we are not at a stage where one body can or ought to have pre-eminence over others. For example, SASB has recommended industry specific sustainability disclosures that can enhance the quality of reporting material sustainability factors for about 90 industries.”
In its update, IFAC points at the risk of having numerous frameworks saying it will potentially present significant problems in coming years especially for businesses operating across borders.
“It potentially diminishes the ability of stakeholders to make proper assessments and resource allocation decisions about multinational organisations, and creates potential regulatory arbitrage opportunities when such reporting is mandated,” the report read. “Consequently, IFAC considers it vital that regulators, standard setters, and others involved in the development of reporting frameworks recognize and promote not just the need for enhancing organisational reporting but also the need for globally consistent and convergent practices and arrangements.”
Topazio says the fragmentation is clearly apparent when talking to preparers who often ask how to marry all the requirements of the different existing initiatives but he believes that integrated reporting, if followed, should suppress that fragmentation.
Papa suggested that some alignment and consolidation of frameworks addressing the same underlying core information, for example sustainability disclosures, would be beneficial for investors and other stakeholders.
Asked whether he could see some initiatives fade away or disappear, Topazio, said it would be ideal both from a preparer and a user point of view. Pointing at the corporate reporting dialogue which brings together eight stakeholder groups, he said: “A logical conclusion from that would be that overtime we would reduce significantly the number of initiatives and we would say they should reduce to revolve around IR principles.”
However IFAC’s updated paper left some questions unanswered notably on the regulation side of things, stating that it was not possible at this stage to recommend whether corporate reporting beyond financials should be mandated or driven by the market.
“There is need for extended outreach and some maturation of integrated reporting principles before considering making it mandatory,” Papa said. “There is always the risk of boiler plate, bare minimum communication even under a mandatory reporting framework especially as IIRC is a principles based framework and there is still a struggle to churn out integrated reports that conform to the ideal of being incremental informative across all strands of information and integrated at the same time. In many cases there is still a gap between the aspiration and the actual reporting quality.”
Topazio said it was difficult for IFAC to take a stand on this issue due to its global nature: with member bodies from all over the world, some will be in favour of mandatory requirements while others will prefer voluntary.
“We think that it is great if it becomes a mandatory requirement for example the strategic reporting requirement in the UK it is effectively integrated reporting,” he added. “But where there are markets and constituencies where it is more problematic to have mandatory requirements, I’m thinking of the USA with liability issues, then a voluntary take up is understandable in the short term. What we want is IR to be widespread how different market get to that point can vary.”
Breakthrough for IR
Speaking to The Accountant in December 2016 shortly after taking his role of CEO of the IIRC, Richard Howitt said that the IIRC still had to work on raising awareness and getting high-level support and endorsement, as such he said one of his major objectives for the year ahead was to get regulatory endorsement particularly at the G20 level.
In light of these remarks, IFAC’s updated paper seems to kick off 2017 on a high note for integrated reporting.
Howitt welcomed what he said was a significant endorsement. “The IIRC has long held the belief that the adoption of Integrated Reporting enhances decision making both internally and by external stakeholders. We are delighted that IFAC supports this view and has recognized the leadership role professional accountants can play. We look forward to continuing to work closely with IFAC to ensure the full delivery of the benefits of Integrated Reporting."
Accountancy Europe (formerly FEE) is currently finalizing its follow-up to its Cogito Paper on the Future of Corporate Reporting. We support Integrated Reporting <IR> as the most developed and promising initiative in the area of corporate reporting. In our paper, we debated the concept of a CORE & MORE report that summarises the corporate affairs of a company: <IR> has the potential to become that CORE report. To fully achieve this, Accountancy Europe wants to be a constructive, but critical partner for the IIRC,’ Hilde Blomme, deputy CEO at Accountancy Europe said.
David Wood, executive director, policy leadership at ICAS said: “We are very supportive of integrated reporting as a means of more holistic corporate reporting and improving the focus on value creation over the short, medium and longer term. It may not be the only solution, but it is gaining increased international support.”
At the time of publication the following organisations had not answered The Accountant call for comment: GRI, SASB, ACCA, ICAEW, PwC, Deloitte, EY, KPMG.
The paper can be found on IFAC’s website