15 July 2013

IFAC's comment letter to IIRC on the international integrated reporting framework

IFAC believes that high-quality reporting lies at the heart of strong and sustainable organisations, financial markets and economies, as the disclosure of useful information is crucial for stakeholders.

As organisations depend on their stakeholders for their sustainable success, it is in their interest to provide high-quality reports. In addition, high-quality reports are integral to the successful management of the business, as they promote better internal decision making and are one of the major drivers of sustainable organisational success.

Effective reporting should ensure that all internal and external stakeholders receive appropriate high-quality organisational reports in a timely fashion. In that light, IFAC welcomes the publication of the draft Framework, which can be truly called a landmark step forward in the evolution of organisational reporting, as it provides direction for how integrated reporting might look. We offer the following suggestions for further improvement of the Framework.

Stimulate Professional Judgment through Principles-Based Application of the Framework

IFAC strongly supports the principles-based approach to integrated reporting that the IIRC takes and notes that taking this approach is more likely to result in a Framework that will be capable of application in a manner proportionate with the size of an entity. However, various sections of the draft Framework use language that is difficult to reconcile with such a principles-based approach. For example, “to be in accordance with the Framework, an integrated report should comply with the principles-based requirements” (see the Overview section of Summary of Principles-Based Requirements). By referencing compliance with requirements, the Framework implies that there is only one prescribed way for integrated reporting. Throughout the document, these sentences could be rephrased from “complying with the requirements” to “properly applying the principles” to better capture the spirit of principles-based application of the Framework, thus stimulating professional judgment.

Organisations Should Determine the Intended Audience

IFAC believes the reason an integrated report should be prepared “primarily for providers of financial capital in order to support their financial capital allocation assessments” is not sufficiently explained (paragraph 1.6 and other sections). Paragraph 1.7 indicates that other stakeholders will also benefit from integrated reporting. Furthermore, it seems that a focus on providers of financial capital might be inconsistent with the wording in other parts of the Framework—such as in section 3.C, Stakeholder Responsiveness—where the broader concept of “key stakeholders” is used. Therefore, IFAC recommends the IIRC adopt a position whereby it suggests that each individual organisation should determine its intended users of an integrated report based on its own particular circumstances, especially as the various stakeholders’ interests are “likely to align over time” (see wording in paragraph 1.8). This would allow organisations to identify for themselves the primary stakeholder groups they would like to communicate/engage with through integrated reporting.

Implementation

IFAC commends the IIRC on conducting a pilot programme for integrated reporting. Clearly, the IIRC will learn a great deal from these pilots to assist in advancing the Framework and guiding future implementation. However, there are two areas where IFAC believes improvements could be made to the Framework that will assist in its implementation.

• Clearly defining and explaining some of the key concepts outlined in the Framework;  
• Streamlining, and better coordinating, figures used to help describe the Framework.

Ideally, many of the lessons learned from the pilot programme, including the suitability of the Framework for the various types and sizes of organisations, could be taken into account when the IIRC finalises the Framework. In addition, IFAC encourages the IIRC to consider developing guidance on how the Framework might be applied to smaller entities (e.g. via case studies, illustrative examples, etc.).

Suitable Criteria and Assurance

IFAC believes it is imperative that the Framework promotes reporting that provides suitable criteria against which preparers can consistently determine the appropriate content of an integrated report and assurance can be provided. The main characteristics of reported information that are generally considered suitable encompass relevance, completeness, reliability, neutrality and level of understanding.

Assurance enhances the degree of confidence of intended users in the information being provided. Assurance on the integrated report should be provided in accordance with high-quality, internationally-accepted assurance standards. To achieve this end, IFAC believes it is important for the IIRC to liaise with the International Auditing and Assurance Standards Board in the development of the Framework.

Press release

Full comment letter

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