Experts Call for Reassessment of Reporting System

Michelle Remo, “Big 4″ observer
September 12, 2011 /

Corporate reporting experts have called for a serious reassessment of the reporting system which can benefit investors by showing how factors like environmental, social and governance can be “hard-wired into a reframed reporting model.”

Responding to the International Integrated Reporting Committee’s (IIRC) release of its discussion paper today, PwC underlines the opportunity it creates for evolving the reporting model to better explain an organisation’s key relationships and use of different resources beyond the traditional bedrock of the financial statements.

At the same time, KPMG believed the discussion paper provides a potential new source of competitive advantage for business in the search for capital at a reasonable cost.

“Progressive companies should get actively involved in the discussion around Integrated Reporting,” said David Matthews, Partner in KPMG’s UK firm and a member of the IIRC’s working group.

“The prize for those that get it right is capital at a reasonable cost through a better relationship with investors and the capital markets,” Matthews added.

IIRC’s paper sets out a blueprint for the development of reporting system in the future, which PwC believed is a critical contribution.

The project is supported by HRH the Prince of Wales through his Accounting for Sustainability Project (A4S).

“At a critical time when companies are struggling with economic uncertainty and a lack of confidence in business prospects – and our profession is under the microscope – it is important to recognise that the relevance and value of reporting and audit need to be viewed with an eye on the future needs of the capital markets,” Ian Powell, UK chairman and senior partner, PwC, said.

In addition, the discussion paper will provide some important insights into the way reporting could change for those who are responsible for the corporate reporting system and for maintaining its health and relevance, according to Dennis Nally, chairman of PricewaterhouseCoopers International.

While the financial statements remain a key element, the reporting framework being proposed by the IIRC has some critical differences from today’s model.

The IIRC blueprint focuses more on the business model and how value is created. It emphasises the need to focus value creation on the resources consumed and on the impacts that arise from business activity, including those which have no monetary value in the way the economic system has evolved to date.

Many historical positions and views on these issues are changing, both through market pressures and regulation and the reporting model needs to be able to respond, KPMG noted.

The reporting model also recognizes resource usage and the risks and opportunities associated with business, stating they have to be considered across the value chain and cannot be constrained to the accounting definition of control for meaningful reporting to occur.

“This creates significant challenges for how companies report, but we are seeing examples – such as the recent environmental P&L account created by Puma – of companies breaking the traditional reporting mould for competitive advantage,” KPMG said.

The IIRC discussion paper is complementary to the report PwC launched at the end of May entitled – “Tomorrow’s Corporate reporting – a critical system at risk” This report highlighted the behavioural and structural challenge of changing the reporting system and includes a “road map” for change.

“When we launched our report a few months ago I explained we need to create a clear blueprint for the future of reporting, I see the IIRC’s discussion paper and the framework it contains as providing a platform from which some serious progress can be achieved,” David Phillips, head of corporate reporting, PwC, said.

“Given corporate reporting’s central role in our economic system we cannot afford to spurn this opportunity. The risks of inaction to the long-term prosperity of the whole world are too great,” Phillips added.

 

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