The International Integrated Reporting Council (IIRC) has released the consultation draft of its proposed International Integrated Reporting (IR) Framework, which seeks to widen the scope of financial reporting to allow organisations to demonstrate how they create value over time.
IIRC wants organisations to adopt what it calls 'integrated thinking' and to include information about a range of environmental and social factors in their reporting.
The draft framework says this information should be contained in an integrated report, which it defines 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 IR framework outlines the three fundamental concepts which must be combined to produce an integrated report. These are capitals (financial, manufactures, intellectual, human, social, relationship and natural); an organisation's business model; and its approach to value creation.
In its request for feedback on the draft, IIRC says it is looking for comments on issues such as the definition of the three fundamental concepts; principles-based requirements; interaction with other reports and communications; and the IR approach to materiality.
Michael Izza, chief executive of ICAEW said the process of developing the framework 'offers a challenge to the profession to consider how this is done and how the quality of information provided is maintained.'
Dr Jeremy Osborn, integrated reporting leader at Ernst & Young, said the new reporting framework could have 'radical significance' by providing an opportunity for a company to demonstrate to its core stakeholders the 'tangible connections between non-financial impacts and underlying commercial performance'.
David Matthews, partner and leader of KPMG's IR team, said: 'IR provides an opportunity to re-align corporate reporting with investor decision-making. It is an opportunity to shift the reporting focus from short term financial performance to long term value creation.'
But while agreeing the IR framework could drive better business reporting, KPMG warned that the IIRC will need to address the many different interpretations of IR in the marketplace, to ensure reports stay focused on helping readers understand how the earnings potential of the business has been developed and protected.
KPMG also said it believed companies would be most interested in IR as a way of improving their existing narrative reporting, rather than as a means of producing a separate 'integrated report'.
The consultation draft is open for comment for a three-month period, with comments until 15 July 2013 and is available on IIRC website. IIRC aims to publish the finalised framework by the end of 2013.
