The movement advocating integrated financial reporting appears to be gaining steam.
The International Integrated Reporting Council (IIRC) and the International Accounting Standards Board (IASB) announced Thursday an agreement that will deepen their cooperation on the IIRC’s mission to develop an integrated corporate reporting framework.
The heads of the two organizations signed a Memorandum of Understanding that recognizes:
- The role of the IFRS Foundation, the IASB’s parent body, in developing internationally accepted financial reporting standards.
- The IIRC’s role in developing and maintaining an internationally accepted integrated reporting framework.
The organizations agreed to respect and defer to each other’s primary roles. They also agreed to communicate, work together, and strive for compatibility in their work.
“We support the IIRC’s vision of the evolution of corporate reporting, and through this agreement we will cooperate on important areas of mutual interest,” IASB Chairman Hans Hoogervorst said in a statement.
Integrated reporting is the merging of financial reports with information about an organization’s strategy, governance, performance, and prospects that reflects its social and environmental context.
An important step in the integrated reporting movement will occur April 16, when the IIRC is scheduled to release a consultation draft of the International Integrated Reporting Framework it is developing. The final framework is scheduled to be published in December.
The AICPA has played an important role in the development of this movement, forming the Jenkins Committee in 1991 to enhance the value of business reporting and launching in 2005 the Enhanced Business Reporting Consortium, which is the U.S. member representative to the World Intellectual Capital/Assets Initiative. The AICPA also has participated as a founding member of the accounting bodies network of The Prince’s Accounting for Sustainability (A4S) project that supported the launching of the IIRC.
The Chartered Institute of Management Accountants (CIMA) has been a substantial contributor to the development of integrated reporting through its involvement in the A4S and with efforts such as the Report Leadership Initiative, the Operating and Financial Review in the UK, the IASB’s Management Commentary Guidance, and the Tomorrow’s Corporate Reporting project. CIMA Chief Executive Charles Tilley is a member of the IIRC.
“Financial statements are very, very important,” said former FASB Chairman Bob Herz, who’s an official ambassador for the IIRC. “They’re a very important component of reporting to investors and other stakeholders. But there’s other very key information needed to properly understand a company’s risks, opportunities, and its prospects. That includes the whole realm of key nonfinancial value drivers of the business.”
Another sign of the rise of integrated reporting is that it is starting to appear in regulatory requirements. South Africa requires companies listed on the Johannesburg Stock Exchange to file an integrated report that includes economic, social, and environmental information.
The IIRC also has a major pilot program under way in which businesses have begun to put into practice the concepts and principles underlying integrated reporting. CIMA is among the participants in the project. Coca-Cola, Microsoft, Unilever, SAP, Hyundai Engineering & Construction, and AB Volvo also are among the many well-known companies participating.
Herz said he is optimistic that integrated reporting will continue to grow and that it will provide investors with more useful information about companies. He also said that traditional financial reporting will remain critically important as integrated reporting becomes more common.
“It’s still going to be a very important part of integrated reports,” Herz said. “Financial statements are still a key element of all that. All we’re saying is that more is needed, and it has to be done in an integrated way.”
—Ken Tysiac (email@example.com) is a JofA senior editor.