‘Integrated reporting must complement a company’s strategic goals’

There is a growing momentum for change in corporate reporting, with each initiative seemingly calling for greater alignment between the information reported to users of corporate reports and that used internally by directors and managers for effective decision-making.

This broadening of the domain of the management accountant is something we at CIMA are already engaged with. I had the honour of being asked to sit on a Financial Reporting Council (FRC) advisory panel to examine ways of simplifying corporate reports, and am also a member of the International Integrated Reporting Committee, which looks at how organisations can produce reports that better integrate strategic, financial, environmental and social information. In addition, CIMA is participating in the Department of Business, Innovation and Skills’ (BIS) review of narrative reporting.

The FRC project has the working title “Cut the Clutter”. As the name implies, its aim is to identify information presented in corporate reports that obscures the key messages and to propose more engaging and effective ways to present the material. Producing effective “de-cluttered” reports requires a thorough understanding of both the business and the market in which it operates. It also demands an efficient management accounting information system to provide the source data and narrative content. The FRC’s report on how financial reporting could be improved is available from its website (www.snipurl.com/27dhxs).

The International Integrated Reporting Committee (IIRC) has also been established to promote what it calls an “Integrated Report”. This will require organisations to provide a concise, clear, comprehensive and comparable integrated reporting framework. This should be structured around the organisation’s strategic objectives, its governance and business model, as well as integrating material financial and non-financial information.

The IIRC project has been driven by developments in South Africa under the auspices of Professor Mervyn King and the Prince of Wales’ Accounting for Sustainability initiative.

And as a committee member, I am helping to shape an initial consultation document that will be published this summer. It is important to me that the IIRC recognise the key imperative of a board of directors, which is to ensure the long-term success of their business. The integrated report should only contain financial and non-financial information relevant and material to that aim.

A third reporting initiative that is also under way, in which CIMA is playing an active role is the BIS narrative reporting review. One of the commitments of the coalition government was the reintroduction of the Operating and Financial Review. This developed into a wider review of the state of narrative reporting and is now being pursued within the Vince Cable-led review “A Long-Term Focus for Corporate Britain”.

CIMA’s response to the review said: “It’s important to understand and communicate the major drivers of long-term success, such as quality information and reporting, as well as clear articulation of the business model. The key question to ask is: ‘What are the performance factors that create world-class, successful businesses?’”

In my view, the answer to this question is that companies should focus on the aspects of their business models that will ensure their short-term actions support a long-term future. These elements are: cost leadership, durability of the supply chain, a motivated and skilled workforce, attracting and retaining customers and innovation.

One of CIMA’s main objectives is to produce “financially qualified business leaders”. As part of this commitment, I believe it is important that we continue to be involved in all aspects of business life, including external communications through effective corporate reporting.

The Financial Reporting Council’s report on improving financial reporting can be found via www.snipurl.com/27dhxs

19/04/2011

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