Integrated reporting: Final IR Framework ready for launch

28 Nov 2013

The Integrated Reporting Framework is launching on 9 December. This follows a comment period that saw over 350 submissions from every region of the world – a robust process that the International Integrated Reporting Council (IIRC) characterised as overwhelmingly supportive.

Responses to the consultation did not avoid addressing significant issues however, with even the fundamental terminology – including the term “integrated reporting” – coming under stakeholder scrutiny for being allegedly too confusing or insufficiently defined.

Key technical issues raised in the comment process included:

  • The meaning of “value creation”
  • The level of assurance required on the report, and the areas over which it would be essential
  • The role of internal audit in integrated reporting
  • Whether the integrated report was additional to current communications, or a goal that businesses could move their existing report towards

Split on materiality

There were plenty of questions on materiality. Only 22% of respondents “fully agreed” with the IIRC’s proposed approach, while 39% disagreed and had a major qualification. But a further 33% agreed with minor qualifications - so overall more than half supported the materiality proposals. The split between providers of capital (on whom the framework’s principles are focused) and preparers of reports was very marked, with 88% of providers agreeing with the IIRC’s definition, and the majority of report preparers disagreeing (52%).

Deeper responses on materiality were varied. Concerns were raised over prioritising the providers of financial capital over other stakeholders; treating investors as a homogenous group; and confusion with a “growing pool of materiality definitions”. Respondents were clearly uncomfortable with the legal ‘baggage’ associated with materiality – including litigation risk arising from multiple materiality thresholds in other reporting frameworks.

“A difference of opinion isn’t worrying – the framework is a starting point”
- Mark O’Sullivan, PwC

The IIRC’s response to such concerns has been relaxed. In their view, the framework is seen as a work in progress that will evolve as practice evolves. “It’s important to understand that first,” said Mark O’Sullivan, a Corporate reporting director at PwC and one of the IIRC’s Working Group members “the framework was subject to comment from a multi-stakeholder group, so a difference of opinion isn’t worrying, and second, it is not and will not be final – it’s a starting point.”

Who’s taking responsibility?

Responses also demonstrated an appetite for “those charged with governance” to include a statement acknowledging responsibility for the integrated report. But they expressed confusion and concern over the legal implications of such a statement – especially over forward-looking information.

The IIRC itself is understood to be concerned about enforcing sign-off on every element of the report, because it may discourage companies from including the information that makes the report truly integrated.

With the framework published, the IIRC will turn their attention to analysing how integrated reports are being prepared. The rest of their work will focus on market testing, monitoring regulatory action and encouraging adoption.