On September 12, 2011 The International Integrated Reporting Committee released its Public Discussion Paper “Towards Integrated Reporting: Communicating Value in the 21st Century” containing a draft framework for integrated reporting.
The International Integrated Reporting Committee (IIRC) was formed on August 2, 2010 by The Prince’s Accounting for Sustainability Project (A4S) and the Global Reporting Initiative (GRI) and the International Federation of Accountants (IFAC) to create a globally accepted integrated reporting framework.
The International Integrated Reporting Committee (IIRC) has brought together world leaders from the corporate, investment, accounting, securities, regulatory, academic, civil society and standard-setting sectors to develop a new approach to reporting.
More information on the IIRC can be found at www.theiirc.org.
This brief will summarize some of the key questions about this new development in financial reporting and how the AICPA is taking an important leadership role in the emerging area of sustainability accounting and reporting.
What is the Prince’s Accounting for Sustainability Project?
The A4S project was launched in 2004 by HRH The Prince of Wales to develop decision-making and reporting systems that take into account the longer-term and broader consequences of actions and are capable of responding to the sustainability challenges faced in the 21st century.
Core principles of the A4S include embedding sustainability into the day-to-day decisions of an organization and the concept of connected, or integrated reporting.
The AICPA is one of the founding members of the Accounting Bodies Network formed in 2010 to support the work of the A4S in the accounting profession worldwide. At the December 2009 meeting attended by representatives of the AICPA the A4S agreed on a proposal to form the IIRC.
What is the Global Reporting Initiative?
Global Reporting Initiative is a network-based organization that has pioneered the development of the world’s most widely used sustainability reporting framework. The GRI Framework sets out principles and indicators that organizations can use to measure and report their economic, environmental and social performance.
The GRI Framework has evolved into the de facto standard for sustainability reporting. Many large corporations use or reference the GRI Reporting Framework in their sustainability reports. These reports, to date, have generally been “stand-alone” reports that have a multi-stakeholder focus and encompass a broad array of issues.
What is Integrated Reporting?
The IIRC Public Discussion Paper states that an Integrated Report should be an organization’s primary reporting vehicle, describing Integrated Reporting as follows:
Integrated Reporting brings together material information about an organization’s strategy, governance, performance and prospects in a way that reflects the commercial, social and environmental context within which it operates. It provides a clear and concise representation of how an organization demonstrates sustainability and creates value.
Why do we need a new reporting framework?
Numerous studies and projects have been conducted over the past several years addressing the complexities and challenges in financial reporting and the needs of investors. One of the common denominators of these studies and projects is the need for clear and understandable financial and non-financial information about how management runs the business.
The AICPA has been instrumental in efforts to improve business reporting. In 1991, the AICPA formed the Jenkins Committee to enhance the value of business reporting. The work of the Jenkins Committee led to the Enhanced Business Reporting Consortium, launched by the AICPA in 2003 (AICPA EBR). The EBR Consortium in turn, became a founding member of the World Intellectual Capital Initiative (WICI) which is dedicated to improving reporting information. EBRC and WICI have done extensive work in developing a voluntary, open-standard global framework for measuring and reporting corporate performance to shareholders and other stakeholders. The IIRC Framework builds on these and other efforts to improve business reporting.
Are there any regulatory requirements for Integrated Reporting?
Effective March 2010, the King Report on Corporate Governance in South Africa 2009 (King Code III) authored by Professor Mervyn King applies to all companies listed on the Johannesburg Stock Exchange (JSE). King III requires companies to file an integrated report that encompasses economic, social and environmental performance. Denmark also requires public companies to file integrated reports.
External reporting in most jurisdictions around the world is a complex mosaic of requirements. Many of the content elements of the proposed integrated reporting framework are already encompassed by one or more existing requirements, allowing companies to draw upon existing disclosures in the preparation of integrated reports.
For more information on integrated reporting go to http://www.theiirc.org/.