Integrated reporting signals transformation in corporate reporting

CPA Australia acknowledges the International Integrated Reporting Committee’s release of its integrated reporting discussion paper this week. Integrated reporting encompasses traditional financial reporting with reporting on environmental, social and governance factors in an integrated format.

'The financial crisis, issues of equity and wealth distribution, depletion of natural resources and environmental degradation have all contributed to a serious rethinking of how business is conducted and reported on, resulting in the move towards a more holistic reporting approach,' said CPA Australia CEO Alex Malley.

Mr Malley said that our current accounting standards and securities exchange listing rules do not adequately reflect material environmental and social factors, nor do they adequately reflect how the current and future performance of an organisation contributes to the creation of a sustainable economy.

'The integrated reporting model commits to having reporting better reflect the information needed by management to run the business, while rebalancing performance metrics away from an undue reliance on short-term financial performance. In this respect, accountants have a key role to play to help merge understanding of economic value with environmental and social value,' said Mr Malley.

Among the key challenges in the adoption of integrated reporting are: 

• how the connectivity between financial information and non-financial information is to be achieved
• how, and the efficiency with which, more detailed information outside the integrated report will be accessed by both users and regulators
• clarity as to the audience of integrated reporting and their requirements
• striking the appropriate balance between disclosure which supports the legal, or otherwise valid, interests of stakeholders and the risk of disclosure of commercially sensitive information 
• the means by which national regulators and standard setters either compel or encourage the uptake of integrated reporting

CPA Australia has taken a highly active interest in integrated reporting and will contribute to both the informed debate on the merit of integrated reporting and the development of essential tools for practical applications. Significant research projects undertaken by CPA Australia in 2011–12 will include: an examination of the hurdles facing the collection, integration and reporting of environmental, social and governance information; an analysis of the financial and market characteristics of early adopters of integrated reporting; and an investigation of developments in embedding environmental and social considerations into traditional business decision-making processes.

CPA Australia is currently preparing integrated management reporting to its Board and will be moving to integrated reporting externally in the coming years.

'The release of this discussion paper is an important step as integrated reporting is at the cornerstone of building sustainable and stable capital markets and will play a vital role in re-establishing wide community confidence in the role of corporations,' said Mr Malley.