By Henning Drager, Sustainability Partner, BDO Ukraine
In December 2013, the International Integrated Reporting Council (IIRC) launched its Integrated Reporting Framework, marking a new era in corporate reporting. As part of our series of guest blog posts, Henning Drager, BDO’s full time secondee to the IIRC, explains what it means for our profession and our clients.
For the past two years BDO has been an active contributor to a potentially game-changing programme that has been looking at ways to make corporate reporting more meaningful.
As many of our readers have seen already, the International Integrated Reporting Council (IIRC) announced a new Integrated Reporting Framework in December, heralding a new era in corporate reporting. By focusing on a broader range of forward-looking financial and non-financial risks and opportunities, the Framework evolves business reporting beyond a review of financial performance into a concise communication about an organisation’s strategy, governance, performance and prospects in the context of its external environment - ultimately leading to the creation of value in the short, medium and long term.
What has prompted this change and what does it entail?
The International Integrated Reporting Council (IIRC) is a global coalition of over 500 global regulators (including the IASB, IFAC and European Commission) investors, companies, standard setters and representatives of the accounting profession - including BDO. Together, this coalition shares the view that better communication about value creation, strategic allocation of resources and the interconnectedness between financial and non-financial impacts should be the next step in the evolution of corporate reporting – and this is what we have delivered with this Framework.
The very fact that the Framework exists reflects the changing commercial, social and environmental context in which we and our clients are operating. It was important that BDO played a central role in the formation of the Framework so that we could ensure that the views of our colleagues and clients around the world were taken into consideration. Our involvement in this milestone announcement therefore has many parts.
Leading from the front is our Global CEO, Martin van Roekel, representing BDO on the Council and setting strategic objectives for the popularisation of IR. I am proud to be BDO’s only full time secondee to the IIRC. My role is to secure progressive companies’ adoption of IR, gain support from major industy and business associations, target investor groups and provide the BDO network with insights and updates on material issues. But I don’t work alone - our contribution to this achievement has drawn on the expert insights of our colleagues around the network and the input from a number of technical and specialist colleagues from the UK, US and South Africa has been invaluable in shaping the role BDO has played in the development of this Framework.
What does this Framework mean for businesses, investors and audit professionals?
The IR Framework is a significant departure from exisiting financial and non-financial reporting practices. It prescribes a range of reporting parametres which are almost absent in today’s corporate reports, including:
Extending beyond large and mega cap: Most importantly, in my opinion, the Framework extends beyond globally-listed companies to SMEs, medium caps and private entities. We at BDO have worked closely with the IIRC over the past two years to shape the final version of the Framework, and have consistently championed the importance of a solution that works for businesses of all sizes – if integrated reporting is to be successful it must also reach SMEs, not just the largest companies listed globally.
We know from our work around the world that SMEs form the backbone of many economies. That’s why at BDO we pushed for the creation of a Framework that gives these businesses the right kind of reporting: not over-reporting, but the flexibility to tailor it to ensure it creates value for their stakeholders –this is especially important to us at BDO. And we believe that this has been achieved.
Strategic focus and future orientation: The priority for us as accountants and business advisers must be on helping organisations to ‘future-proof’ their business plans. This Framework therefore includes provision for detailed insight into an organisation’s strategy and how it relates to its ability to create value and mitigate any value destruction in the short, medium and long term.
Capitals: All organisations depend on various forms of capital for their success. Information about the use of relevant financial, manufactured, intellectual, human, social / relationship and natural capital will be a cornerstone of Integrated Reporting, adding value for investors and management teams alike.
Connectivity of information: An integrated report should show a holistic picture of the combination, interrelatedness and dependencies among the factors that affect an organisation’s ability to create value over time. It provides an opportunity to articulate strategic aspects of an entity’s business without compromising its competitive advantage. As such, it creates a platform for demonstrating how unique business models are responding to changing stakeholder needs, threats, opportunities and the expectations in the market. Organisations successfully embracing this approach will not just have a better report, but also information that can drive short-term operating benefits and at the same time future-proof the ability to deliver shareholder value in the medium and longer term.
So what will come next?
The Framework will now be used used to accelerate the adoption of IR across the world, where it is currently being trialled in 25+ countries by over 100 companies.
There is no doubt that the launch of the Framework marks a major milestone in the future of meaningful corporate reporting – but there remain a number of questions that I’m looking forward to working on with my colleagues at the IIRC in the coming months. For us, the priorities include:
• What will the IR Framework for non large caps will look like?
• When will robust IR assurance criteria be available?
• Can IR lead to a reduction of the significant corporate reporting burden?
• Will there be IR sector guidance considering the different reporting requirements?
Our ongoing work with the IIRC to further this evolution will mean that, as a profession, we can continue to take great strides towards better and more transparent business reporting that will ultimately underpin economic growth.