Understanding the new Integrated Reporting Framework

The IIRC's final framework brings new developments.

IIRC'S new developments explained.

In December of 2013, the International Integrated Reporting Council (IIRC) met in London to finalise a new Integrated Reporting Framework, which will guide the way companies satisfy the growing demands of investors for information about performance beyond the bottom line.

Former CPA Australia chief executive and the first Australian member of the IIRC board, Alex Malley, was in London for this historic moment. Malley remarked at the time that Integrated Reporting (IR) is the way of the future when it comes to reporting on company performance.

“This new framework follows an extensive, international consultation and provides a clear roadmap for companies to begin taking a more transparent and holistic approach to the way they measure and report on performance,” Malley said.

So how will the new Framework apply and how can it add value to your business or organisation?

Stemming from the IIRC’s consultation processes, four substantive technical issues were debated and adjusted for in the final IR Framework released in December. It is valuable to briefly consider each of these technical issues as a basis for understanding key thrusts of the Framework as it now stands.

New developments in the IIRC’S final IR Framework

A short summary of the four issues and the IIRC’s responses are set out in the following:

Relationship with other information

The issue here concerns confusion around how an integrated report aligns with other reports and disclosures (mainly financial and sustainability), and whether IR’s principles and concepts should be applied to existing reporting/communications or constitute a separate report. The matters have been addressed through inclusion in the Framework of paragraphs 1.13 to 1.17, under the heading “An integrated report should be a designated identifiable communication”.


•    Stress is given that an integrated report deals with connectivity of information rather than being a summary
•    The integrated report can be prepared in response to an existing compliance requirement such as management commentary
•    The report can be standalone or prominently contained in other communications

It can provide an entry point and/or link to more detailed information. The second point is significant in Australia, where some active consideration (CPA Australia and others) is being given to how IR might work in relation to the statutory requirement for listed company operations & financial review (O&FR) and released ASIC guidance (RG247).

The IIRC considered developing diagrammatical representations, but concluded this would be problematic in the short term, given the wide variety in practices from one jurisdiction to the next. A “pathways” project is, however, under consideration in 2014, which could address these issues at a descriptive level.


The information utility considerations have been significant, with the IIRC stressing that notwithstanding the emphasis on providers of financial capital, other interests were capable of accommodation by inference. Consistently, though, there have been concerns from respondents to the proposal around:
•    An implication that financial capital takes precedence over all other five forms of capita
•    Investors’ interests are ranked ahead of others
•    Monetisation being both desirable and always necessary.

The IIRC, without causing fundamental change, has proposed new paragraphs 1.7 and 1.8, which de-emphasise the “primary” position of capital providers, draws greater focus on value creation and stresses consideration by providers of capital, factors beyond financial capital alone.

The finalised text is:

1.7 The primary purpose of an integrated report is to explain to providers of financial capital how an organization creates value over time. It therefore contains relevant information, both financial and other.

1.8 An integrated report benefits all stakeholders interested in an organization’s ability to create value over time, including employees, customers, suppliers, business partners, local communities, legislators, regulators, and policy-makers.

Value/value creation and capitals

It is potentially around this concept and these relationships that IR is most prone to confusion and open to wide interpretation. The range of treatment is encapsulated in the IIRC’s Basis for Conclusions:
•    The total of all the capitals
•    Benefits “captured” by the organisation
•    The market value/cash flows of the organisation
•    The successful achievement of the organisation’s objectives
•    Made up of two interrelated components, being value created for: (a) the organisation itself, and (b) others.
A further possible treatment could have been to: “require the organisation to explain what it means by value, or what its stakeholders see as value/ valuable.”
The adopted way forward has, however, been to:
•    Include a definition of “value creation” at paragraph 2.4:
Value created by an organization over time manifests itself in increases, decreases or transformations of the capitals caused by the organization’s business activities and outputs.

That value has two interrelated aspects – value created for:
The organization itself, which leads to financial returns to the providers of financial capital
Others (i.e., stakeholders and society at large)
•    Give appropriate emphasis in paragraph 1.6 that value creation is used in the Framework to include instances of where value is preserved and where it is diminished:
In this Framework, reference to the creation of value:
•    Includes instances when value is preserved and when it is diminished
•    Relates to value creation over time, i.e., over the short, medium and long term.

Those charged with governance

This issue illustrates the divided opinion in Consultation responses to the question as to whether IR should require a statement, from those charged with governance, acknowledging their responsibility for the integrated report.
Arguments “for’” are summarised in the IIRC’s Basis for Conclusions:
•    Demonstrate that those charged with governance accept their responsibilities for the integrated report
•    Assist in ensuring the reliability of disclosures and/ or the overall creditability of the integrated report
•    Increase accountability for the content of the report.
Argument “against” are also summarised in the Basis for Conclusions:
•    No statement being necessary because the Consultation Draft already stated that those charged with governance “are responsible for ensuring that there is effective leadership and decision-making regarding IR, including the identification and oversight of the employees involved in the process”.
•    The inclusion of a statement may result in additional liability/legal concerns, and the IIRC has not fully considered the impact of this, e.g., imposing a requirement to include a statement could present significant impediment to uptake of the Framework in some jurisdictions.

A balanced position has been proposed by the IIRC, which has about it an “if not, why not” theme contained in paragraph1.20:
An integrated report should include a statement from those charged with governance that includes:
An acknowledgement of their responsibility to ensure the integrity of the integrated report
That they have applied their collective mind to the preparation and presentation of the integrated report
Their opinion or conclusion about whether the integrated report is presented in accordance with this Framework

Or, if it does not, it should explain:
•    What role those charged with governance played in its preparation and presentation
•    What steps are being taken to include such a statement in future reports
•    The time frame for doing so, which should be no later than the organization’s third integrated report that references this Framework.
In forthcoming articles we will consider major issues for integrated reporting, including implication for the future of sustainability reporting and directors’ liability for forward-looking information disclosure.

John Purcell is CPA Australia’s policy adviser –  environment, social, governance.