2. Integrated Reporting

The International Integrated Reporting Council’s umbrella framework provides a basis for narrative information and metrics that enable organizations to more effectively communicate their ability to create value over time.

• IFAC believes that integrated reporting, bringing together the relevant information about a company, provides a holistic picture of performance and provides insights on an organization’s ability to create sustainable value over time.  Integrated reporting enables companies of all sizes and sectors and their stakeholders to focus on the key factors (or “multiple capitals”) relevant to long term value creation through the lens of governance, strategy, and the business model.
• Crucially, we believe that integrated reporting supports “integrated management thinking” - which fosters organizational decision-making and change focused on broader, longer term value creation. Integrated thinking will hopefully lead to better outcomes from corporate reporting that addresses systemic risks to capital and financial market systems and sustainable development challenges.
• We encourage regulators and standard-setters to use the International Integrated Reporting Framework as a foundation for incorporating and organizing information about value creation and impacts, including narrative reporting and metrics from the various standard-setting initiatives.  A common framework can facilitate the development of best practices and standardization.
• In many jurisdictions, the management report (“MD&A” or equivalent) might be the most appropriate channel for including integrated and supplementary narratives and metrics.  IFAC supports the efforts of the IASB to update guidance in its Management Commentary Practice Statement – intended to be compatible with jurisdictional requirements and various frameworks and initiatives such as integrated reporting.

3. Role of Accountancy Profession in Enhancing Corporate Reporting

The profession has a key role to play in the development and implementation of reporting frameworks and standard-setting initiatives that go beyond traditional financial reporting, including development of robust internal control processes and systems, assurance, as well as identifying, measuring, and reporting relevant metrics that are supported by best practices or reporting standards.

• IFAC believes that the technical skills, business expertise, and trusted professionalism of accountants are key requirements to working effectively with standard setters, reporting entities, regulators, and other interested stakeholders toward the goal of enhancing corporate reporting. Professional accountants, as employees in a business or as practitioners in a firm, help companies formulate strategies, measure and manage performance, implement reporting and internal control systems, analyze information, and develop governance and risk management policies.  These activities are key to the evolution of evidence-based decision-making, reliable  information gathering, and consistent and comparable reporting on matters of value creation, sustainability, or environmental, social and governance factors.
• IFAC believes that assurance is critical to confidence in corporate reporting and delivering relevant, reliable, and comparable information.  Efforts like the IAASB’s initiative on Extended External Reporting (February 2019) - intended to advance the assurance of non-financial information (including  integrated reporting, sustainability reporting, and other reporting about environmental, social, or governance matters) - can improve user confidence, enhance access to capital, assist companies in developing systems and processes, and promote comparability. IFAC supports additional work towards the evolution of assurance practice with respect to non-financial information.
• We believe engagement with the accountancy profession, given the trend towards enhancing the scope of corporate reporting, will maximize the benefit to reporting entities and their stakeholders.  The profession must meet the challenge of developing new areas of expertise necessary to support enhancing corporate reporting.

4. The Way Forward

The time for a global solution is now—to answer the demand from investors, policymakers and other stakeholders for a reporting system that delivers consistent, comparable, reliable, and assurable information relevant to enterprise value creation, sustainable development and evolving expectations. A fragmented approach perpetuates inefficiency, increased cost, and a lack of trust. Important work is underway (e.g., WEF/IBC metrics, IOSCO’s task force, EFRAG’s preparatory work, and alignment between the leading reporting initiatives), and these efforts should continue and ultimately contribute to the emerging global system.

Global Approach: A new standard setting board is necessary to build and coordinate a coherent global system of interconnected corporate reporting.

Structure

• The IFRS Foundation, with an enhanced remit and composition, should create an International Sustainability Standards Board (“ISSB”), leveraging the independence and success of IFRS governance (i.e., Monitoring Board and IFRS Foundation Trustees) to develop global standards and rationalize the current fragmented ecosystem.
• Clear support from global institutions like IOSCO and appropriate funding are critical to success.
• The IASB must remain focused on financial reporting standards. Coordination between the ISSB and IASB will be necessary to avoid overlaps and gaps (e.g., Management Commentary).
• Applicability of ISSB standards should be determined (e.g., SMEs vs. PIEs).
• The ISSB should engage with both IFRS and non-IFRS jurisdictions to encourage global adoption and use.

Building Blocks

• Block 1: Requirements for material non-financial information focused on company performance, risk profile, economic decisions and enterprise value creation should be the remit of the ISSB.  This focus is consistent with the work of the IASB and will attract broad global support.
• Block 2: The ISSB should also collaborate with respect to reporting requirements designed to address broader, material sustainable development and company impacts on economy, environment, and people. These requirements may ultimately be incorporated or endorsed into ISSB standards.
• Block 3: The system should accommodate supplemental jurisdictional requirements to support local public accountability. These should not detract from Blocks 1 or 2 and may be absorbed into them over time.
• Framework: Financial and non-financial information should be connected through a conceptual framework. Integrated reporting principles and the work of TCFD should serve as a starting point.

Completing the Ecosystem

• Corporate governance must evolve to provide effective oversight of expanded reporting obligations.
• Enhanced corporate controls and data systems will be necessary to generate high quality information.
• Assurance is a necessary component of the global system. The work by the IAASB will play a critical role.
• Reporting standards and assurance processes must be digital ready.
• Professional accountants and firms need to continue to enhance their competencies to prepare and assure this new information and work closely with experts in sustainability and other fields.
• Providers of sustainability/ESG ratings, rankings or indices should embrace the development of global reporting requirements so that consistent, comparable, reliable, and assurable information can be incorporated into their work.
• Public sector reporting should also evolve to require more comprehensive information.