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Integrated Reporting (one)

Ngoni Shuro
Integrated reporting (IR) is now the buzz word in accounting circles. In 2013, the International Integrated Reporting Council described integrated reporting as “… a concise communication about how an organisation’s strategy, governance, performance and prospects, in the context of its external environment, lead to the creation of value over the short, medium and long term”. The integrated report (IR) is a combination of the annual financial statements (AFS) and the corporate social report (CSR)/sustainability report (SR), and other critical information about an organisation.

Integrated reporting promotes a more cohesive and efficient approach to corporate reporting and aims to improve the quality of information available to providers of financial capital to enable a more efficient and productive allocation of capital. The IR is more than the annual report as it has content that discloses more about the business’s relationship with all its stakeholders (internal and external). The IR aims to improve the quality of information provided by the entity in its reporting, combining the financial and non-financial information in a concise presentation and disclosure of the information. Both, AFS and CSR, are given the same importance/prominence in an IR, to the extent that an auditor’s opinion is provided on the non-fin

The Institute of Chartered Accountants of Zimbabwe (ICAZ) through its mission which reads, “To enhance the international standing and recognition of the qualification Chartered Accountant (Zimbabwe) for the benefit of its members, to support them in providing quality services in the public interest”, has an obligation to take a leading and prominent role in embracing and adopting the developments taking place in the international accountancy fraternity regarding integrated reporting and strive like what the other leading professional accountancy organisations (“PAOs”) are doing to promote IR.

Leading PAOs and money markets regulators in various jurisdictions have made it mandatory for listed entities to provide integrated reports and have moved away from the old “standard” annual report which focused predominantly on disseminating financial information. This is a welcome development as IR provides more disclosures on the listed entities to enable the stakeholders to evaluate the activities of the respective entities so that they may make informed and better judgements.

The “only way” chartered accountants report to their respective clients and serve the public interest is through the reports they produce and sign off, and these are expected to meet the expectations of a broad range of stakeholders as well as meet the extant IR reporting requirements.

 History of IR
The global financial crisis of 2008 gave rise to the need of IR in order to avoid another crisis that may arise due to minimum disclosure and non-disclosure of critical information. Up to that point in time most companies used to provide financial information mostly and, as a result, the need for IR was conceived and discussed by leading PAOs in order to avoid another global crisis due to non-disclosure of non-financial information.

IR incorporates financial commentaries, management commentaries, governance and sustainability reports thereby reflecting an integrated thinking. The need for companies to engage with the community resulted in the development of the IR by the International Integrated Reporting Committee (IIRC).

The IIRC was established in 2010 and developed the discussion paper titled Integrated Reporting – Communicating Value in the 21st Century. In 2012 the International Integrated Reporting Framework (IIRF) was developed and since then over the passage of time it has continued to be refined with the latest IIRF published in January 2021.

IR promotes the use of internationally accepted frameworks for reporting by companies The development of these frameworks has resulted in professional accountants being able to sign off audit reports on the same.

The refining of the IR framework is a result of globalisation; improved policies worldwide on financial, governance and environmental issues; demand for corporate accountability and transparency; environmental concern; and scarcity of natural resources.  In this process the PAOs as well as the companies have played and continue to have a critical role in the continued refining of the IR frameworks so as to make quality information readily accessible to various stakeholders.

Corporate social reporting
Sustainability reporting is the reporting of other information over and above the annual financial statements. Sustainability reporting is defined in the Global Reporting Initiatives (GRI) as follows: “Sustainability reporting is the practice of measuring, disclosing and being accountable to internal and external stakeholders for organisational performance towards the goal of sustainable development.

‘Sustainability reporting’ is a broad term considered synonymous with others, used to describe reporting on economic, environmental and social impacts (e.g. triple bottom line, corporate social reporting, etc.). A sustainability report should provide a balanced and reasonable representation of sustainability performance of the reporting organisation, including both positive and negative contributions.” (Global Reporting Initiative, 2011).

Sustainable development goals have become of critical importance such that governments as well as companies aim to achieve them in their operations by meeting the 2030 target.

The UN Global Compact 2021 Leaders’ Summit aimed to elevate ambition for strategic collective action, with focused objectives and clear paths to recovery from the continued climate crisis, global pandemic, economic disparities and social inequalities.

The annual Summit was attended by leaders from business, Government, the UN, and Civil Society, to take stock of the state of progress, highlight the areas for greater influence, and drive collective action on focused issues to make lasting change. It is summits like these which incentivise companies produce integrated reports.

 ESG elements
SR can be referred to CSR and integrates the reporting by the company on the elements of environmental, social and governance (ESG) and other critical non-financial information.

Even though companies previously reported about their CSR activities, it was noted that they were not reporting adequately on all the elements in detail. The reporting on the elements of CSR should be done by all companies in different industries.

For example, a financial institution should report on the environment in much the same way as a mining company. What may differ is their impact on the environment as a financial institution might have an indirect impact through the projects it funds whilst a mining company’s impact would be more direct.

With reference to the element of environment, a company should not report only about the positives it is doing such as planting trees, but should also tell the users of the IR about the negative impact the company has had on the environment. The issue of climate change has become a critical matter in recent years. Companies are providing more detail on carbon emissions.

Of critical importance in the disclosure by the companies is the use of globally acceptable frameworks to measure their impact on the environment. Additionally, companies should disclose more on the environment management systems they have in place.

There is a social relationship between the company with the external and internal stakeholders. For the benefit of internal stakeholders, the company should disclose matters relating to health and safety, training and development of the staff members and other labour related matters. For the external stakeholders the company can discuss its relations with regulators and the community.

Due to the developments in IR, companies have moved away from reporting about their governance only in order to meet the requirements of the law. Companies have gone further to meet the requirements of reporting frameworks on governance such as the King IV, SABIC’s governance framework; and The UK Corporate Governance Code (formerly known as the Combined Code) amongst others.

There are different frameworks which are used for SR which are internationally accepted. But most of them discuss the ESG elements.

Part 2 will discuss “The Status of IR in Zimbabwe”

Shuro  is CA(Z), PhD Financial Governance (Unisa), Master of Accountancy (UKZN) and head of AMG Advisory Services Namibia. — ngonishuro@gmail.com

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