THE SIMULTANEOUS LAUNCH of the IIRC consultation on integrated reporting and the EC’s new rules on disclosure of non-financial information received fulsome praise from the profession.
This is quite right. Both seek to make financial reports of more value to investors, while the IIRC framework could very well be epoch defining in the way financial reports are prepared.
A concise report that integrates human, financial, social and environmental risks and performance across the corporate value chain is no mean feat. Annual reports that run to hundreds and hundreds of pages create a barrier to investors.
Companies are under no obligation to prepare an integrated report, and those that choose to do so will still be required to submit filings to their securities regulator, publish annual reports and a whole host of other financial information.
In of itself this is not a problem. The value of integrated reporting will no doubt outweigh any teething pains, and if it leads to shorter, more concise and valuable annual reports, any duplication of effort now will be a short term problem attached to a long term solution.
It may be that, in time, integrated reporting changes the way annual reports are compiled and presented. Yet in the meantime I can’t help thinking that the integrated report is just another measure that will add more disclosure, not less.
The new laws proposed by the EC require greater disclosure of non-financial risks and opportunities; extractive industries are to disclose their dealings with foreign governments; going concern statements are being enhanced; auditors are to disclose more explanations around their judgments on materiality, while the auditors’ report is generally becoming more informative with auditors expected to opine on views outside of their traditional purview.
All of these changes are sensible and indeed necessary to restore trust in audit and improve the value of corporate reporting. Yet they all add additional layers of disclosure. Regulators are very good at talking about the need to cut clutter from financial reports, but all too often the opposite is true. The pressure always seems to be to add ‘pagination’.
Richard Crump is deputy editor of Accountancy Age & Financial Director
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