accountancy futures: accountants for business integrated reporting
Perspective: the academic
We put the same set of key questions about integrated reporting to two experts
in the field. First up, Professor Robert Eccles of Harvard Business School
Professor Robert
Eccles is a senior
lecturer at Harvard
Business School.
He undertakes
research on
corporate reporting,
and has written
three books on the
subject, including
One Report:
Integrated Reporting
for a Sustainable
Strategy (with
Michael Krzus). He
is also a steering
committee member
of the International
Integrated Reporting
Committee.
Q: How would you define integrated reporting?
A: It is reporting in a single document the
material measures of financial and non-financial
(ie environmental, social and governance)
performance and their relationships to each
other. It is also about an integrated website that
makes it easy for users to find and analyse in one
place financial and non-financial information,
including more detailed information of
particular interest to specific stakeholders.
Finally, integrated reporting is as much about
listening as talking. A company should use
its website for dialogue and engagement with
shareholders and all other stakeholders to
create a collective conversation.
Q: What makes it different from existing
concepts and models in this area?
A: Two things come to mind. The first is
corporate social responsibility or sustainability
reporting, typically in a report separate from
the company’s financial report; it was originally
referred to as the triple bottom line of
economic, environmental and social metrics.
The second is the balanced scorecard, which
includes financial and non-financial metrics.
Q: Why do we need it?
A: A sustainable society requires all its
companies to have sustainable strategies. A
sustainable strategy is one that creates value
over the long term. This is in contrast to a
focus on short-term financial performance
that imposes negative externalities on society.
Integrated reporting establishes the discipline
for integrated internal management of financial
and non‑financial performance. It is also the
best way to report on a sustainable strategy.
Q: What are the main challenges to adoption?
A: First, a company must truly have a
sustainable business rather than just say it has.
Second, a collaborative and multifunctional
process is required for producing the integrated
report; no one group has all the information
necessary for doing so. Third, internal control
and measurement systems for non-financial
information are typically not as sophisticated
and robust as those for financial information.
Fourth, internal sceptics have to be brought on
board. Fifth, a great deal of education will be
required of the users of the integrated report,
both shareholders and other stakeholders.
Q: Will it make annual reports even longer?
A: Not necessarily. An integrated report doesn’t
have to be the annual report. Southwest Airlines
morphed its Southwest Cares report into its
integrated report. The key thing to note is that
the integrated report is the material financial
and non-financial information, so it doesn’t have
to be long. Length often comes from detailed
disclosures required by regulation.
Q: What role do you see accountants playing in
integrated reporting?
A: Accountants have a major role to play, if
they are willing to do so. They are experts in
the measurement and reporting of financial
information. They need to broaden their
content knowledge to include non-financial
information, often working with others who
are expert in a particular aspect of it so
they can help the organisations they work
for to implement integrated reporting both
internally and externally.
Q: How can integrated reports be audited?
A: Integrated reporting requires integrated
auditing. There are a number of barriers to
overcome here. Better standards are needed
for non-financial measurement and reporting,
auditors need to develop the capability to audit
non-financial information, and there are also
liability concerns.
pg14 edition 03
accountancy futures: accountants for business integrated reporting
Perspective: the entrepreneur
Our second expert, Paul Druckman, allies business acumen to his work in
driving sustainability issues in the accountancy profession
Q: How would you define integrated reporting?
A: Integrated reporting brings together
financial and non-financial information in a
clear, concise, consistent and relevant format.
The goal of an integrated reporting framework
is to improve the quality of corporate reporting
so companies can provide a more strategic
picture of the issues critical to long‑term
sustainability
and
success.
Integrated
reporting includes information about natural
and social capital as well as financial capital.
This information provides important insights
for those interested in the way a company
thinks and acts. The framework should help
to create a more cohesive reporting model
by highlighting areas where convergence is
needed in standards and national regulations.
Q: What makes it different from existing
concepts and models in this area?
A: The strategic long-term perspective
across the entire company differentiates
it. Other models also address this concept
and are generating good ideas, but the
International Integrated Reporting Committee
(IIRC) uniquely brings together for the first
time financial standard setters, securities
regulators
and
sustainability
standard
setters with representatives from companies,
investors and civil society.
Q: Why do we need it?
A: The financial crisis has demonstrated the
need for reporting that gives better information
about how a business is performing against its
long-term strategy. At present various standard
setters and regulators are responsible for
individual elements of reporting. There is thus
a risk that multiple standards will emerge.
Q: Will it make annual reports even longer?
A: This question misses the point. We are
certainly not talking about combined reporting
but integrated reporting. Combined reporting
adds to the annual report but integrated
reporting changes some of the fundamentals.
Q: What role do you see accountants playing in
integrated reporting?
A: At present the ‘natural’ role for the
accountancy profession has been seen to be
in financial reporting. However, the training
of an accountant is not in numbers but in
information, the data that underpins an
organisation. Thus integrated reporting is the
domain of the accountant more than other
professions. It may need broader thinking
and the use of multidisciplinary teams
with specific skills and experience, but the
judgment and analytical skills inherent in the
accountancy profession are the key.
Q: How can integrated reports be audited?
A: The information reported (and withheld)
should be capable of being verified at some
point in the future. Possible assurance may
be in the form of an audit confirmation that
the management has embraced integrated
reporting framework principles. It is also
worth considering whether management and
auditors should confirm that the information
reported is a fair reflection of the information
used by management to run the business.
Paul Druckman
is chair of the
executive board
of The Prince of
Wales’s Accounting
for Sustainability
Project, and
co-chair of the
working group of
the International
Integrated Reporting
Committee. After
a highly successful
business career
as a technology
entrepreneur, he
is a non-executive
chairman and
director for
a number of
businesses.
Q: What are the main challenges to adoption?
A: These troubled economic times may lead
businesses to see priorities differently, plus
there is an expectation from many quarters
of deeper and more rigorous standards for
financial and non-financial reporting. The
convergence to integrated reporting appears
to have a momentum that will mean success
but there will also be the devil in the detail
when it comes to implementing the design of
the integrated reporting framework however
flexible a framework is conceived.
pg15 edition 03