The International Integrated Reporting Council (IIRC) held its 2020 annual global conference in early December. A key theme of the conference was that of 'trust and transparency'. Many conference presentations highlighted the need for credible and honest reporting by organisations to ensure that stakeholders are provided with a range of appropriate information to meet their needs. This is especially the case now, when the impact of the Covid pandemic will be significant for many businesses, so stakeholders need to understand how an organisation’s current and future value has been impacted by the current situation.
I work at a university. We do not produce an Integrated Report but if we did, we would be better placed to explain the impact of the Covid pandemic for our organisation. Our financial statements will of course focus on 'financial capital' (to use the terminology of the International Integrated Reporting Framework), and whilst I do not know the details, I imagine that our financial capital, has been depleted this year, for example because of a reduction in income from tuition fees and other sources. The same is probably true at most universities and for many other types of organisation where the financial situation may look at best gloomy, at worst disastous. However, the pandemic may have brought some benefits, or enhancements of organisational value, which integrated reporting could highlight and explain. For example, in my university department, huge efforts have been made to create innovative online teaching platforms and learning materials – an integrated report would explain this as an increase in intellectual property – something which of course would not be reflected in the financial statements. The skills of the lecturers have been enhanced through learning new methods of teaching, enhancing our human capital. Working from home must have a positive impact on natural capital – think of all of the long haul plane journeys, which are no longer happening as students study remotely, and conferences take place virtually.
This to me is a good illustration of how traditional financial statements simply cannot provide a complete set of information to an organisation's stakeholders. No one is saying that finances are not important – of course they are – and financial capital is a crucial part of the integrated reporting model. But a focus just on finance is not enough, especially in the unusual circumstances we find ourselves in.
Momentum for integrated reporting is gathering pace, with more and more organisations seeing the benefits and adopting each year. For example, 79% of Australian ASX200 companies are now adopting integrated reporting, according to a KPMG survey1. There is also a significant change in terms of regulation, with the announcement that the IIRC is to merge with the Sustainability Accounting Standards Board to create the Value Reporting Foundation. According to an IIRC press release2 'the merger directly responds to calls from global investors and corporates to simplify the corporate reporting landscape, providing the market with a clear solution for communicating about the drivers of enterprise value'. Such simplification of the regulations will surely encourage implementation of integrated reporting and provide more stakeholders with effective communications regarding long term value creation and sustainability, which is much needed in these uncertain times.
1https://home.kpmg/au/en/home/insights/2020/11/asx200-corporate-reporting-trends-2020.html
2https://integratedreporting.org/news/iirc-and-sasb-announce-intent-to-merge-in-major-step-towards-simplifying-the-corporate-reporting-system/
Lisa Weaver is an author for accountingcpd. To see her courses, click here.
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