Integrated reporting offers organisations a framework to address the fact that the range of risks and opportunities that can affect long-term value generation are not always captured by the reporting boundaries of current year financial measures, according to a KPMG report.
“Integrated reporting provides a basis to address this by re-focussing reporting around an organisation’s business model and operational priorities,” KPMG said in its Integrated Reporting Issue 2. “the aim is to reflect the model opportunities and challenges that affect the business – the same issue that management are dealing with on a daily basis within the organisation.”
The totality of business value is contained in three areas, all of which need to b explained – “business as usual”, or the shape and performance based on current year financial and operational performance; the likely effect of management’s plans, external issues and opportunities; and the long-term value of the business “beyond its detailed operating-horizon”, which KPMG identifies as game-changing opportunities and threats.
Integrated reporting is designed as a tool for investors. The combination of financial and non-financial information and the forward looking outlook of the integrated reporting draft model is designed to help investors gain a more complete view of a business by integrating information on all three areas through telling a contextual story.
The KPMG report examined the experience of applying integrated reporting through the experience of South Africa, which since March 2010 has required companies listed on the Johannesburg Stock Exchange (JSE) file integrated reports or explain why not. KPMG said that the concept has been bedded down, and reporters are fitting into four categories in their integrated reporting – early adopters and business-case driven, compliance approach, wait and see; and laggards. KPMG believes that it will take up to three years for integrated reporting to be a fully established way of reporting, but suggested that the most successful implementing companies are those where the CEO and executive committees are closely involved.
“The key to successful integrated reporting implantation is the ability of the business to achieve integral thinking and integrated management in the organisation,” the report said. “… [T]he key challenge for the integrated reporting project leader is to get buy-in and ensure involvement from all the main internal stakeholders. There needs to be ‘one view’ of the business and consensus on one set of material issues that need to be addressed through one combined strategy.”
KPMG said it was too early to establish the way in which the intended audience – ie investors – were utilising integrated reports in South Africa, but that early experience has shown several areas for future improvement by reporters to develop best practice – identifying qualitative materiality issues, establishing assurance process, making logical links and flows and other issues.
The report also notes that many South African companies are rebranding their annual reports as “integrated annual reports”, with integrated reporting replacing the front end of the report and IFRS-based reporting statements either in the same document or published separately.
“In the longer term, integrated rebirth may become a self-contained, clear and concise articulation of business value and stewardship,” the report said. “Integrated reporting may be distributed electronically, or even be an electric repository from which readers can drill down to other reports for detail.”