South Africa is among the countries where companies are leading the adoption of new international Integrated Reporting (IE) principles which were passed and adopted in December 2013
This is according to PwC which has undertaken a study of how companies are coping with the new IE. The consulting firm, PwC, observed that South Africa the UK and Germany are leading the adoption of many IR principles. Many companies already report key content elements of the IR framework, such as strategic priorities, key risks and key performance indicators, said PwC.
The firm said the release of the International IR Framework is a positive step that provides an opportunity for companies to communicate information more concisely and clearly.The Framework follows a three-month global consultation led by the International Integrated Reporting Council (IIRC) last year, which obtained over 350 responses from all over the world, with an overwhelming majority in favour of the IR.
The framework, added PwC defines integrated reporting, integrated thinking and the integrated report. “It contains guiding principles for the preparation and presentation of an integrated report, as well as the elements of information that should be included.”
“The framework is intended to accelerate the adoption of IR across the world. It has been implemented in over 25 countries, 16 of which are members of the G20 group of nations.”
Zubair Wadee, PwC Assurance Partner, said “The framework outlines how businesses can better explain how they create, sustain and increase their value in the short and long term. The aim is also to enhance accountability and stewardship, and support integrated thinking and decision-making in the wake of increasing challenges to traditional business models.”
However, the framework does not come without challenges. Companies will be pushed beyond the traditional boundaries of reporting, providing information on inputs and outcomes along the value chain and insight into future actions. “Although this poses a challenge, it is often these areas from which companies derive the greatest benefits,” said Wadee.
PwC further noted that an integrated report is a concise communication about how an organisation’s strategy, governance, performance and prospects, in the context of the external environment, lead to the creation of value over the short, medium and long term.
PwC research shows that companies are already responding to the need for an evolved information set when it comes to the current model of corporate reporting but significant challenges remain. PwC assessed the external reports of 400 larger listed companies across more than 20 industries on aspects of the IIRC framework with a focus on the quality of information reported, as well as how that information is integrated.
However, said PwC, many guiding principles in the framework, such as connectivity and future orientation, are less well-addressed. “This makes it hard for stakeholders to understand the company’s value now or in the future,” said Wadee. A number of industries are slightly ahead of their peers, particularly mining, reflecting more advanced stakeholder demand for broader information sets.
“Our research and discussions with companies already experimenting with their business information and reporting tell us that changing from current thinking and reporting is not easy.” For instance, many reports tend to adopt the ‘rear view mirror’ approach, focusing on the last year’s performance. An integrated report should have forward-looking elements, using current information to shape strategic insight over the long term. Many companies’ reports also lack insight into how dependent they are on key relationships and resources outside the organisation to create value. Integrated thinking and reporting encourage a broader perspective, better understanding of the wider impacts and how these factors feed into the business model and drive sustainable value creation.
In spite of the practical implementation challenges that the research highlights, the majority of organisations (98%) agree that integrated reporting will lead to a better understanding of how the organisation creates value. Furthermore, it contributes to a better understanding of an organisation’s business model and gives it the opportunity to focus on the right key performance indicators.
Wadee said “It is expected that over time, integrated reporting will be the reporting norm worldwide. In order to get to a point where the reported information is reflective of the board’s collective thinking, companies must continue to build the necessary information collection and reporting structures internally. It is when the internal and external reporting are a fair reflection of each other that companies can truly say that they have embraced integrated thinking and reporting”