This article first appeared in the Summer 2016 issue of The Record.
The current corporate reporting framework needs to evolve to reflect the wide range of factors that affect corporate performance, particularly as the current focus on an organisation’s financial statements is insufficient to provide a positive answer to the critical question: “what is the value of the organisation?” Financial reporting covers both financial performance and risk, and this will remain an important part of the corporate reporting scope. It is, however, insufficient by itself to provide all the information users now need for informed, rational, and high quality decision making.
In an environment where the majority of the information available to investors is historic, they are required to navigate a course around the next corner using only a rear view mirror – as if there were no road ahead. Integrated reporting (IR) is the route map that supports integrated thinking and investment decision making within organisations. It is focused on the value created by the company and incorporates forward-looking measures.
The key question is how do companies make all of this happen and bring all the required information for all different stakeholders together? This is both a technical and an organisational challenge because different people and departments are responsible for reporting on different areas, such as risk, strategy, performance and future outlook. Corporations need to ensure that both financial data and non-financial data – such as information about the company’s social responsibility – is collected, analysed and reported in the same standardised way to ensure that it can be easily compared. This will enable them to produce integrated reports that give a complete and reliable holistic overview of all activities within the company.
The finance department can be the driver of IR, but it should not be solely responsible for the entire process of bringing together all of the information needed to provide that holistic view. Instead, a single system should be adopted to achieve this holistic view, with contributors and accountability distributed across the organisation.
IR is the ultimate goal, but companies should start their progress towards this aim now. To ensure success, they should start with some of the more time consuming, cross-departmental reports that they need to produce today, such as board books, annual reports and internal management reports. This will set them on the right course for reporting on value, while enabling them to address today’s reporting challenges. This gives a quick win and provides value to the organisation while they map their route to full IR.
Marco Van der Kooij is the general manager at Tagetik Benelux
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