April 20, 2018
By: Yen- pei Chen is a Corporate Reporting and Tax Manager in ACCA’s Professional Insights team
Against a backdrop of declining public trust in businesses and business leaders, integrated reporting provides a tool to help businesses regain the trust of investors and other key stakeholders, from customers to employees.
ACCA has collaborated with the IIRC for the second year running to review the corporate reports prepared by organizations in the <IR> Business Network for accounting periods ended up to 31 March 2017 (2016 findings: Insights into Integrated Reporting).
Insights into Integrated Reporting 2.0: Walking the Talk highlights some significant improvements made by <IR> Business Network participants over the past year, but also suggests organizations can reap more benefits if boards and executives embed integrated thinking more firmly within internal decision-making processes.
Some of the organizations interviewed have seen concrete benefits, such as stronger customer engagement and improved credit ratings. However, in order for the reporting output to convince stakeholders, change has to be driven from within.
Commitment to Integrated Reporting Continues to Grow
Observations from a review of 45 corporate reports are supplemented with a survey of 20 <IR> Business Network participants from 12 different countries, and interviews with experienced integrated reporters from 6 organizations. Best practice examples are drawn from 10 integrated reports.
The most striking progress observed this year? Growing commitment to integrated reporting: 76% of the reports reviewed made explicit reference to the International <IR> Framework, up from 59% in 2016 (58% of the reports reviewed stated they were integrated reports, up from 51% in 2016).
Encouraging improvements were also observed in terms of the consistency and conciseness of the reports. Reports have shown a marked increase in the use of consistent performance measures from year to year, so much so that consistency, one of the lowest-rated areas in last year’s review, became one of the highest-rated this year. It’s also positive to observe reports getting shorter in length overall: while nearly half of the 2016 reports exceeded 150 pages (excluding the financial statements), half of the 2017 reports contained less than 100 pages.
Innovative approaches are emerging in as organizations measure the value that they create for their stakeholders, demonstrate their commitment the UN Sustainable Development Goals, and use technology to make reports more concise and user-friendly. Innovations may also be emerging from audit firms: significantly more integrated reports have received some form of external assurance, in addition to the statutory audit (60%, up from 46% in 2016).
While these results are promising, new challenges have also come to light. ACCA’s survey and interviews with <IR> Business Network participants show that solving these challenges would require preparers to think beyond reporting practice and process, and to consider organizational management implications. Examples of the internal changes due to integrated reporting include redefined business models, updated strategic planning processes, new mechanisms for stakeholder engagement, and revised metrics for business unit performance.
Key Challenges and Good Practice Ideas
– Linking capitals to strategy and performance
– Tying strategy to value creation over the short, medium and long term
– Developing a more proactive approach to managing future uncertainty
– Determining the basis for preparation
– Viewing materiality through the lens of value creation
– 10 questions to get you on the way to integrated reporting and thinking