Following the global financial crisis in 2008, there is a growing trend in both the private and public sectors around the world to adopt what has commonly become known as integrated reporting. It is widely anticipated that this novel way of reporting on both financial as well as non-financial information to stakeholders is going to become the new standard of reporting both for companies and their stakeholders in the future. This mode of reporting is also expected to have a material impact on the role of the auditing profession.

While Integrated Reporting has grown exponentially internationally, as of February 2016 there are no known applications in the Caribbean, and it is expected that the first adopters can gain significant advantages. In essence, the objective of integrated reporting is explain to all stakeholders, especially those providing financial capital and others who can materially affect the organization, how the organizations create and sustains value, how the board governs and management’s stewardship of the business. The aim is to engage stakeholders, to enable them to assess more readily important matters that shape its value in the long-term, plans for the medium-term, and patterns and trends in achieving strategic and operational objectives.

In simple layman terms, stakeholders of the business should be able when reviewing an integrated report to determine whether the governing structure of the organisation has reasonably identified social, environmental, economic and financial issues that could affect the future sustainability of the organisation.

Whereas the traditional way of reporting by companies in the past has predominantly focused on historical financial performance and compliance related matters, integrated reporting looks at both historical performance, as well as future performance by assessing a wide range of financial and non-financial factors including risks and opportunities which are likely to impact the business and determine its future sustainability.

The most frequently asked questions by boards of directors of companies when confronted by their stakeholders (or in some jurisdictions the regulators) to produce an integrated report is how does one go about preparing such a report and are there model reports available against which to benchmark an integrated report.

In dealing with the latter first, a distinguishing feature of an integrated report compared to the more familiar annual reports which corporates the world over have become accustomed to and which are more compliance based in nature, there is no one size fits all or model integrated report. Every integrated report must be structured around the unique circumstances of the organisation concerned and requires a completely different mind-set in the preparation thereof compared to the traditional annual report.

Thankfully though, guidance regarding the preparation of an integrated report has been provided by The International Integrated Reporting Council (IIRC) through its publication of The International Framework – Integrated Reporting publication which can be found on the following website http://integratedreporting.org/resource/international-ir-framework/

The Framework produced by the IIRC establishes guiding principles, as well as content elements in terms of what needs to be reported. The guiding principles essentially underpin the preparation of an integrated report and spell out how the information is to be presented whereas the content elements set out what should be contained and addressed in an integrated report.

The guiding principles include:-

• strategic focus and future orientation;
  
• connectivity of information;
  
• stakeholder relationships;
  
• materiality and conciseness;
  
• reliability and completeness; and
  
• consistency and comparability.
  
• Content elements require that the following be addressed in the report:-
  
• Organisational overview and external environment;
  
• Governance;
  
• Business model;
  
• Risks and opportunities
• Strategy and resource allocation;
• Performance;
  
• Outlook; and
  
• Basis of presentation.
  

Whereas with annual reports, boards can approach the same in a linear fashion by thinking in silos, integrated reporting leading to the production of an integrated report, requires the board to think in an integrated manner by evaluating the six capitals identified by the IIRC namely; financial capital, manufactured capital, intellectual capital, human capital, social and relationship capital and natural capital in relation to the organisation.

As highlighted above, the primary purpose of an integrated report is to explain to all stakeholders including shareholders how an organisation creates value over time by applying the six capitals in the context of its business model and operating environment underpinned by materiality, inclusivity and responsiveness. Materiality requires a robust interrogation of the various risks and opportunities facing the organisation which may or are likely to affect its future sustainability. Inclusivity addresses the extent to which the organisation has engaged with all of its stakeholders in respect of the six capitals, while responsiveness focuses on how the company has dealt with the material risks and opportunities facing the organisation and communicated these to its stakeholders.

Aside from the obvious benefits to stakeholders by gaining a deeper and more holistic appreciation of the organisation from an investment perspective, other advantages to organisations which report in an integrated manner include, among others, the alignment of strategy to risk, the development of a culture of innovation, increased competitiveness in its chosen markets, significant cost savings, heightened transparency and greater stakeholder confidence.

The Caribbean Corporate Governance Institute (CCGI) has taken a leading position in the sphere of integrated reporting within the Caribbean community and will be pleased to assist all boards of organisations within the region which may be interested in pursuing this fast evolving method of reporting. 

For further information in this regard please contact Denise Deonarine at

denise.deonarine@caribbeangovernance.org.

Written on behalf of CCGI by Andrew Johnston, member of the Auditing and Accounting

Committee of King III Report, Chairman of the Johannesburg Stock Exchange Corporate Secretary Forum, Member of the ICGN Remuneration Committee, and Corporate Secretary of Altron Group of Companies.

The CCGI is a regional, independent, non-profit, professional membership organization registered with the Accreditation Council of T&T. CCGI is the award body that provides the Certificate and Diploma in Corporate Governance and the Chartered Director qualification throughout the Caribbean. The CCGI welcomes membership applications and participation in its courses and events throughout the region.