In 2013, the International Integrated Reporting Council (IIRC) released the first version of its framework for integrated reporting. This followed a three-month global consultation and trials in 25 countries.

The framework established principles and concepts that govern the overall content of an integrated report. An integrated report sets out how the organisation’s strategy, governance, performance and prospects lead to the creation of value.

The primary purpose of an integrated report is to explain to providers of financial capital how an organisation creates value over time. An integrated report benefits all stakeholders interested in a company’s ability to create value, including employees, customers, suppliers, business partners, local communities, legislators, regulators and policymakers, although it is not directly aimed at all stakeholders. Providers of financial capital can have a significant effect on the capital allocation and attempting to aim the report at all stakeholders would be an impossible task and would reduce the focus and increase the length of the report. This would be contrary to the objectives of the report, which is value creation.

Historical financial statements are essential in corporate reporting, particularly for compliance purposes, but do not provide meaningful information regarding business value. Users need a more forward-looking focus without the necessity of companies providing their own forecasts and projections. Companies have recognised the benefits of showing a fuller picture of company value and a more holistic view of the organisation.

The International Integrated Reporting Framework encouraged the preparation of a report that showed performance against strategy, explained the various capitals used and affected, and gave a longer-term view of the organisation. The integrated report enabled stakeholders to make a more informed assessment of the organisation and its prospects.

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Principle-based framework

The IIRC set out a principle-based framework rather than specifying a detailed disclosure and measurement standard. This enabled each company to set out its own report rather than adopting a checklist approach. The report acts as a platform to explain what creates the underlying value in the business and how management protects this value.

Integrated reporting will not replace other forms of reporting, but encourages preparers to pull together relevant information already produced to explain the key drivers of their business’s value. Information will only be included in the report where it is material to the stakeholder’s assessment of the business.

The integrated report aims to provide an insight into the company’s resources and relationships that are known as the capitals and how the company interacts with the external environment and the capitals to create value. These capitals can be financial, manufactured, intellectual, human, social and relationship, and natural capital, but companies need not adopt these classifications. The purpose of the framework was to establish principles and content that governs the report, and to explain the fundamental concepts that underpin them. The report should be concise, reliable and complete, including all material matters, both positive and negative in a balanced way and without material error.

Integrated reporting is built around the following key components:

  1. Organisational overview and the external environment under which it operates
  2. Governance structure and how this supports its ability to create value
  3. Business model
  4. Risks and opportunities and how they are dealing with them and how they affect the company’s ability to create value
  5. Strategy and resource allocation
  6. Performance and achievement of strategic objectives for the period and outcomes
  7. Outlook and challenges facing the company and their implications
  8. The basis of presentation needs to be determined, including what matters are to be included in the integrated report and how the elements are quantified or evaluated.

The framework did not require discrete sections to be compiled in the report but required that there should be a high-level review to ensure that all relevant aspects are included. The linkage across the above content should create a key storyline and determine the major elements of the report such that the information relevant to each company would be different.

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Relationship with stakeholders

An integrated report should provide insight into the nature and quality of the organisation’s relationships with its key stakeholders, including how and to what extent the organisation understands, takes into account, and responds to their needs and interests. Further, the report should be consistent over time to enable comparison with other entities.

An integrated report may be prepared in response to existing compliance requirements – for example, a management commentary. Where that report is also prepared according to the framework, or even beyond the framework, it can be considered an integrated report. An integrated report may be either a standalone report or be included as a distinguishable part of another report or communication. For example, it can be included in the company’s financial statements.

The IIRC considered the nature of value and value creation. These terms can include the total of all the capitals, the benefit captured by the company, the market value or cash flows of the organisation and the successful achievement of the company’s objectives. However, the conclusion reached was that the framework should not define value from any one particular perspective because value depends upon the individual company’s own perspective. It can be shown through movement of capital and can be defined as value created for the company or for others. An integrated report should not attempt to quantify value as assessments of value are left to those using the report.

The preparation of an integrated report requires judgment but there is a requirement for the report to describe its basis of preparation and presentation, including the significant frameworks and methods used to quantify or evaluate material matters. Also included is the disclosure of a summary of how the company determined the materiality limits and a description of the reporting boundaries.

A company should consider how to describe the disclosures without causing a significant loss of competitive advantage. The entity will consider what advantage a competitor could actually gain from information in the integrated report and will balance this against the need for disclosure.

Companies struggle to communicate value through traditional reporting. The framework can prove an effective tool for businesses looking to shift their reporting focus from annual financial performance to long-term shareholder value creation. The framework will be attractive to companies who wish to develop their narrative reporting around the business model to explain how the business has been developed.

In January 2021, the IIRC published a revision of the framework that provided more clarity and enable more decision-useful reporting.  In June 2021 the IIRC merged with the Sustainability Accounting Standards Board (SASB) to form the Value Reporting Foundation (VRF).

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