As the International Integrated Reporting Council publishes answers to the most frequently asked questions on integrated reporting, its Chief Executive Officer, Richard Howitt, discusses why the time is right to adopt integrated reporting
Would it worry you to know that you might only be looking at 20 percent of the likely value of your organization?
Yet, that is the reality – up to 80 percent of the value of the company is not on the balance sheet.
Over the past 30 years there has been a growing willingness by companies and standard-setters to recognize relationships in the market and in society, the skills of the company’s own workforce and the knowledge and ideas contained within the company as “intangible assets” alongside their tangible assets like property and capital machinery.
Now, these intangibles are increasingly the true value drivers of a successful company in the 21st century, particularly so for modern economy sectors like technology.
The increasing importance of these intangible assets is at the heart of why integrated reporting is winning fast-growing acceptance among companies around the world. In the new era of “multi-capitals” in which the success of a business relies upon its intangible assets, these social and relationship, human, natural and intellectual capital assets are just as important to the company as their traditional “hard assets.”
It is also why the role of the accountant is changing.
The future is integrated
The International Federation of Accountants has spoken for the global profession with their position paper, saying “integrated reporting is the future of reporting.”
Those at the forefront of the profession recognize the need to understand and advise on more than just the health of an organization’s finances – and should detail all of the resources and relationships the organization uses, and how their use is harnessed to create long-term value.
Advances in globalization, technology, the rise of social media and the ever-increasing risks surrounding climate change are just some of the emerging drivers that have led to this new recognition that the health of a company is synonymous with interconnected financial, manufactured, social and relationship, intellectual, human and natural capitals.
Accountants play a key role in helping to embed this concept of “multi-capitalism” through the adoption of integrated reporting. In over 70 countries, including Hong Kong, accountants are supporting their organizations pursuing this new way of thinking, acting and communicating.
To support them, they are turning to the International Integrated Reporting Framework (<IR> Framework), developed by the International Integrated Reporting Council (IIRC) with the help of businesses and investors around the world and first published in 2013.
A worldwide consultation in 2017 – our Framework Feedback Exercise – reviewed the effectiveness of the <IR> Framework, and found strong evidence demonstrating that it is a robust and successful tool for supporting this new approach.
The consultation helped form the basis for the launch of a new global strategic phase for the IIRC – the “Momentum Phase” – with the world moving rapidly towards integrated financial and non-financial reporting becoming the global norm.
But whether you are an accountant new to integrated reporting or a practitioner helping companies to implement it, already well-informed about these developments, we recognize there are still many questions about how to approach its principles of integrated reporting.
Our way forward
Indeed, that 2017 consultation helped us highlight some of the key questions that are being asked by practitioners around the world.
That is why the IIRC recently published a set of answers to some of the most “frequently asked questions” about integrated thinking and reporting, where users can provide direct feedback to the IIRC about which answers were helpful – and which were not. The IIRC will use this feedback to develop the webpage over time.
This is part of a two-year programme of technical guidance about integrated reporting following our consultation, which we are developing and publishing through to the end of 2019.
Over the following months, we will release a “Getting Started” guide, as well as practice notes on the capitals and on the concept of value creation. Please use these free resources and share them with your colleagues and your clients.
Integrated reporting has been forged and is gaining momentum, led by global businesses and investors who recognize that it is key to future success.
The global accounting profession has a key role in our coalition in helping to deliver our mission – and as individual accountants, you have a great opportunity to forge this in your work for your clients or employers.
I encourage you to reflect on how much your organization truly understands the interconnected risks and opportunities within your business model.
I hope our new frequently asked questions will help you and them find the answers.