Source: The Guardian
The release of the International Integrated Reporting Framework by the International Integrated Reporting Council (IIRC) is intended to make a tangible contribution to building a stronger, more financially stable economy, and a more sustainable planet. Development of the Framework has been a collaborative, market-led activity and is the result of extensive global consultation and market testing in more than 25 countries.
At the heart of integrated reporting are six tenets of better reporting which, when adopted, will create a multiplier effect in terms of the benefits to businesses, investors and society. These six straightforward ideas are:
- Communication about value creation: understanding and articulating the resources and relationships used by a business – what the Framework refers to as “capitals” – that are critical to the creation of value over time. Research shows us that only around one fifth of the value of a business today can be accounted for through the financial statements, as intangible factors such as intellectual and human capital make up a greater proportion of a business’ value proposition.
- Concise and clear communication: a laser-like focus on clarity, readability and conciseness.
- Articulation of strategy: research conducted by a major accountancy firm revealed recently that an increasing number of businesses are explaining their strategy, but this is not reflected throughout the reporting process. A clearer articulation of the strategy, and how risk management and performance indicators flow from it, is key to understanding more about the business, increasing business performance, and gaining a longer-term commitment from providers of financial capital.
- Connectivity of information: the recognition of the interconnectedness of different parts of the business, the dependencies between factors that affect the ability to create value over time, and a breaking down of silos to achieve greater efficiency and reduce duplication in the reporting process.
- Future orientation: so much of today’s corporate reporting is historic, when what investors need to know are the steps being taken by the business to enhance future value in a sustainable way. Is the business model being pursued sustainable over time? Integrated reporting encourages a greater mix between essential historical financial information, and more future-oriented information, which provides a qualitative assessment of the risks being managed and the opportunities being explored.
- Understanding the external environment: businesses do not exist or operate in a vacuum. The rise of the power, economic, social and environmental impact of the corporation has been one of the major transformations of the last half century – around half of the largest economic entities in the world today are businesses rather than countries. The external environment impacts on a business’ ability to create value and should be reflected in its reporting.
As an increasing number of businesses are voluntarily adopting integrated reporting, and reaping the transformative benefits of a more cohesive, efficient and valuable reporting process, there is an established pathway towards a reporting system focused on the concise communication about value over time…
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