There is strong interest among Malaysian businesses, investors and others to learn more about Integrated Reporting (<IR>), as a new tool for better corporate reporting, finds a survey conducted by the Malaysian Institute of Accountants (MIA) and Association of Chartered Certified Accountants (ACCA).
Tone at the top is definitely important as the survey revealed that the percentage of preparers of corporate reports indicated that their companies would consider adopting <IR> have increased from 27.7% to 53.8% where <IR> has been discussed at the Board level.
“Our research found that over two-thirds of corporate report users are dissatisfied with the adequacy of current reporting, stating that they are unable to gain enough information on a company’s value and value-creating potential,” says Chiew Chun Wee, ACCA Head of Policy-Asia Pacific.
When asked if <IR> can improve corporate reporting, over half the report preparers (51.4%) and users (58.4%) believe it will.
<IR> has been hailed as a game changer for corporate reporting as it requires companies to look beyond financials and compliance-driven reporting to communicate how they draw on a broader range of resources, including human, societal and natural, to create value over the short, medium and long term.
It is not just about better reporting; the process of <IR> brings about integrated thinking, a better appreciation of the different resources used and affected by the companies in their value-creation process, and should lead to improved performance as a result.
Respondents are also aware of the larger benefits of <IR>; over half (54.1%) believe that the widespread use of <IR> by companies in Malaysia would make it a more attractive place to do business.
A higher percentage (61.8%) believes that the use of <IR> would make Malaysian businesses more attractive to investors.
MIA’s Vice President, Datuk Zaiton Mohd Hassan, said: “The MIA will continue to engage and collaborate with relevant agencies and professional accountancy bodies to facilitate successful promulgation and adoption of <IR> in Malaysia. This is done by continuously engaging with the public listed companies and investors to help them understand the benefits of <IR>.”
A lot of work
“Clearly, a lot of work needs to be done to drive the adoption of <IR> among the organizations,” says IRSC Chairman Datuk Johan Idris.
The Integrated Reporting Steering Committee (IRSC), which was established within the MIA on 18 December 2014, is tasked to facilitate in helping the successful adoption of <IR> in Malaysia.
Among the objectives of the committee include shaping the mindset and adopting an “integrated thinking” approach.
“Imbalance of information can lead to short-termism towards current year earnings instead of the long-term sustainability and business prospects which is the underlying core health of the business,” notes Datuk Johan Idris.
This call for a more future-looking Integrated Reporting culture is echoed by Dato’ Dr Lukman Ibrahim, President of the ACCA Malaysia Advisory Committee, who also emphasized the need to energize the “pull factor” among the investor community so that <IR> is expected and demanded, as a way to generate the momentum for <IR> in Malaysia.
“Integrated Reporting is helping businesses in markets such as South Africa and Japan change the way they define value. Japan, in particular, has become the biggest success story outside of South Africa.
“Since <IR> was introduced in 2013, there are currently over 200 companies in Japan producing integrated reports through voluntary uptake,” shared Dato’ Dr Lukman in his opening message.
Regulation seen as key to success
In Malaysia, it appears that a majority think that successful <IR> implementation will have to be driven by regulation in some form. However, there is disagreement over the nature of the regulatory approach, with 38.7% stating that <IR> should be required on an ‘apply or explain’ basis while another 26.9% think <IR> should be mandatory.
The survey further reveals that the top three challenges to the increasing uptake of <IR> are perceived to be costs of preparation (47.0%), lack of guidance on how to prepare an integrated report (46.1%), and the lack of connectivity and integration process within the organisation to enable adoption of integrated report (40.9%).
Despite cost being quoted to be a major hurdle, very few respondents see value in putting in place financial incentives to motivate greater <IR> adoption.
A large majority (71.9%) believe that if <IR> is to become a norm in Malaysia, technical and preparation advice would be the most useful form of support that the government, its agencies and industry associations can provide.