Integrated reporting continues to be a hot topic for preparers, investors and regulators. Mark O'Sullivan, PwC's Director of Corporate Reporting, takes a look at where we are following the 2013 reporting season.

It is that time of year when many are taking a deep breath after the busy year-end reporting season, but what about integrated reporting? Has it been embraced or did it get lost among the rush of deadlines?

The Integrated Reporting Framework (the 'IR Framework') was launched by the International Integrated Reporting Council (IIRC) in December 2013. It was seen as an opportunity for entities to begin assessing connectivity across their businesses and how to communicate more relevant information more clearly. Application of the Framework is not mandatory but is it making a difference to how entities report?

What did the research say?

Research by PwC1 shows that management is already responding to the need for a change but significant challenges remain. The research covers 400 companies across 10 territories and more than 20 industries

Key findings

  • Many already report key elements of the IR framework, such as strategic priorities, key risks and key performance indicators.
  • Other guiding principles, such as connectivity and future orientation, are less well-addressed.
  • South Africa, the UK and Germany are leading adoption of many IR principles, perhaps because of regulatory changes.
  • Some industries are slightly ahead of their peers – particularly mining, chemicals and real estate. This reflects more advanced stakeholder demand for broader information sets.

The challenges

There are still a number of challenges.

  • Overcoming silos – reporting often shows a lack of connectivity. Better connection is seen as key to integrated thinking.
  • Looking to the future – many adopt the 'rear view mirror' approach, focusing on the last year rather than looking forward.
  • Value creation – many reports lack insight into how key relationships and resources outside the organisation create value.
  • Performance – reporting remains largely focused on financial performance rather than thinking of multiple "capitals".

2013 reporting so far

We have recently started looking at UK companies in the 2013 reporting cycle. The findings suggest that there is continued improvement in the reporting of strategy and business models and the integration of these concepts into other areas such as KPIs and risk. For more insight into FTSE 350, see corporate reporting blog.

How does IFRS fit in?

The IASB have signed a memorandum of understanding with the IIRC to deepen their co-operation in developing an integrated reporting framework. The IASB continues to work on its broad-based disclosure initiative. The initiative comprises a number of projects, including a look at materiality in practice, research into 'net debt' disclosures, and a review of existing IFRS disclosures to identify and assess conflicts, duplication, and overlaps.

The first stage of the project was an exposure draft which proposed certain narrow scope amendments to IAS 1. These proposals could provide IFRS preparers with more flexibility on how they comply with IFRS disclosure requirements. See straight away.

The longer term objective of the Disclosure Initiative is to explore how disclosure in IFRS can be improved. It seems clear that the mindset is moving towards a disclosure model that should support the principles of integrated reporting.

Footnote

1. http://www.pwc.co.uk/assets/pdf/integrated-thinking-flyer-dec-2013.pdf

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