The publication of the International Integrated Reporting Council's (IIRC) Draft Integrated Reporting Framework is an important step towards better business reporting that could ultimately address the gap between reporting content and business value, says KPMG.
Integrated Reporting provides an opportunity for companies to make their case for capital more effectively by focusing their reporting on their business story and value creation.
“Long term value creation is much more than the achievement of short term financial performance," says Ong Pang Thye, Head of Audit at KPMG in Singapore. "Companies need to recognise this, and Integrated Reporting provides investors and other providers of capital with a more complete picture for decision making.”
Whilst welcoming the Draft Framework as an important step in the evolution of corporate reporting, KPMG also called on the IIRC to address the many different interpretations of Integrated Reporting in the marketplace.
It hopes that the final version of the Framework would address any risk of misinterpretation and ensure reports stay focused on helping readers understand how the earnings potential of the business has been developed and protected.
The importance of IR for Singapore
Singapore companies can do more to improve on how they report not just their financial data, but also issues such as sustainability, enterprise risk, intangible assets and human capital, aspects that are often not well reported today.
Commenting on the immediate relevance of the Draft Framework, Ong said: “The test of success would be whether Integrated Reporting is able to provide investors with the information needed to make better judgements on businesses' ability to generate value over the long term. While the IIRC has focused on the production of an Integrated Report, companies would be most interested in Integrated Reporting as a means to improve their existing narrative reporting.”
The consultation period for the draft framework provides a good opportunity for companies from Singapore to express their views on how Integrated Reporting should be developed, ensuring that the regional perspective is included in any future framework.
IR also represents an opportunity to introduce a clearer focus on materiality and eliminate clutter that is a feature of so many reports today. It requires integrated thinking, and KPMG recommends a multi-disciplinary approach across multiple functions.
Why Integrated Reports
The aim of any Integrated Report is to serve as the primary source of corporate information for financial stakeholders or capital providers, says KPMG.
Integrated Reports do not necessarily replace existing financial and sustainability reporting.
However, they can provide better linkages between material organisational issues and providing relevant and focused disclosure.
KPMG believes that the concept of building narrative reporting around an organisation?s business model would be particularly attractive to management teams. It would result in investor dialogue moving beyond short-term earnings towards a focus on how the business has been developed.