International Integrated Reporting FrameworkPosted: May 6, 2013
My guess is that most of you have not been following the developments International Integrated Reporting Council (IIRC) and the recent issuance of its draft framework for integrated reporting. It’s not like public or private companies in the U.S. or most countries in the world are about to be required to adopt an entirely new reporting model as a result of this report. This does not have the authority of an IASB, FASB or regulator behind it, but it is a widely supported effort that standard setters and regulators are paying attention to and it will result in impacts to corporate reporting across the globe at different paces depending on where your corporate headquarters is located.
The IIRC Integrated Reporting Draft Framework (IRDF) was issued on April 16 and will be open for comments until July 15, 2013. There are many important concepts introduced in the IRDF, but for this blog I want to focus on the six “capitals” that are the subject of an integrated report. Those capitals are:
- Financial – The pool of funds used in the production of goods or the provision of services
- Manufactured – Manufactured physical goods that are available for use in the production of goods or the provision of services
- Intellectual – Knowledge based intangibles such as patents, software, organizational knowledge, brand and reputation
- Human – People’s competencies, capabilities, and experience and their motivations to innovate
- Social & Relationship – The institutions and relationships within and between communities and groups of stakeholders including the ability to share information and enhance individual and collective wellbeing
- Natural – All renewable and non-renewable environmental resources
The main idea behind integrated reporting is to report on and tie together the increases and decreases in all six of these capitals as they were impacted by the activities of the reporting organization. The intended target audience of this new type of reporting is still the provider of financial capital, but other stakeholders will often find such reporting useful as well.
There have already been attempts at reporting on each of these capitals, but those attempts have generally been through a silo approach only addressing one or maybe two of these capitals at a time with no significant attempt to integrate them together into a single coherent story. Whatever your personal feelings are about the intent of this type of reporting, it is important for everyone in business and industry to at least become aware of these principles and begin to think about how they relate to your organization. Standard setter and regulators are certainly paying attention and it will only benefit you and your organization to at least keep up with this important development.