Now, get ready for integrated reporting

Tata Steel leads India Inc in the movement to give wholesome information to stakeholders

Are your profits coming at the expense of society? Is your business a zero sum game? Integrated reporting (IR), which attempts to put a value to the social and environmental capital that goes into the functioning of an enterprise, is taking final shape. Jane Diplock, director, International Integrated Reporting Council (IIRC), said the draft global framework for integrated reporting was expected to be released by April.

IIRC is a global coalition of regulators, investors, companies, standard setters, the accounting professionals and NGOs. Speaking from New Zealand over a video call at a conference organised by the Asian Centre for Corporate Governance and Sustainability, Diplock termed IR as the next level of evolution of corporate reporting and holds the key for ‘restoration of financial stability’. She also pointed out how investors with over $3 trillion in assets under management, that represent about 20 per cent of the global investors, are already on the IR bandwagon.

Diplock pointed out that in India, Tata Steel was the first company to warm up to the concept. “Tata Steel is among the 100 large companies around the globe that are actively involved in the project.” Tata Group is closely associated in IIRC, with Kaushik Chatterjee, its group CFO, being the member of the working group that is developing the IR framework. The group will also provide practical guidance, develop positions and make recommendations as appropriate to the Board and Council on matters submitted for its review, in the context of the IIRC’s initiatives and activities.

Biren Bhuta, chief-corporate sustainability services, Tata Steel, said the company could easily relate to the concept, as it was in sync with much of what it was doing already. Bhuta, in a presentation, pointed out IR would help stakeholders move away from short-term thinking based on quarter-on-quarter numbers. IR is expected to reflect broad and long-term consequences of the decisions organisations make, based on wide-ranged factors, in order to create and sustain value. It is said to enable an organisation to communicate in a clear and articulate way how it is drawing on all the resources and relationships it utilises to create and preserve value in the short, medium and long term, helping investors to manage risks and allocate resources most efficiently. Bhuta said this would help stakeholders move to a “more medium and long-term thinking”.

Bhuta expected version 1.0 of the IR framework to be published by the end of 2013. According to advocates of IR, the current focus on an organisation’s financial statements does not accurately evaluate the value of the organisation. Financial reporting covers both financial performance and risk, and this will remain an important part of the reporting universe; it is, however, insufficient by itself to provide all the information that users now need for rational and high quality decision-making. In a scenario where the majority of information available to investors is historic, they are required to navigate a course around the next corner with reference only to a rear view mirror, as if there were no road ahead. IR seeks to be the route map that supports investment decision-making, reflective of the integrated thinking and decision-making within organisations.

Accountants see the concept getting wider acceptance in the coming years, but have some concerns. P R Ramesh, chairman, Deloitte, observed integrated reporting would involve some amount of judgment which is inherent to accounting. “The challenge would be to move away from qualitative parameters to more objective ones to facilitate comparison,” he said. Ramesh also pointed out how companies may be worried about disclosing too much as IR requires companies to reveal their business models.

Another issue would be the cost, especially for medium and small companies. Diplock said, “If large companies see value and merit, it will be equally sensible for medium-sized firms.”

THE ROAD AHEAD

• Release of topic-specific papers on materiality, capitals, connectivity, value, business model and assurance
   
• The IIRC pilot programme will continuously call upon more businesses and investors to join it
   
• From April 16, for 90 days, the IIRC will hold a Consultation Draft Period, to receive feedback, opinions and thoughts from all stakeholders on the International IR Framework
   
• A review and development of the IIRC’s governance structure to support the development and adoption phase of IR
   
• Version 1.0 of the International IR framework to be released by December 2013

Source: IIRC