Monday, July 1, 2019

Integrated Reporting - the intent and the reality in India

Integrated Reporting <IR> is a new approach to business reporting that lays stress on the ability of the business to create and sustain value in all timeframes. The need for <IR> has grown from a long felt lacuna in the current financial statements that businesses publish every quarter. These financial statements were designed by accountants to give a financial performance of the business for the reporting period in question. The Integrated Reporting Framework was first published in April 2013 by the IIRC (International Integrated Reporting Council), a global body of experts formed in August 2010 to expressly focus and make efforts for this purpose. The value creation cycle advocated by this framework is depicted below.

One of the guiding principles advocated in this framework is that the value creating elements within the business should be reported with conciseness and relevance, keeping in mind that the information so published should be of material significance to a potential investor of the business for the purpose of making an investment decision.

Creation of the integrated report broadly requires four stages

  • Determining material issues that impact the ability of the business to create value
  • Linking these material issues to the business strategy and categorizing them under the appropriate capitals
  • Identifying appropriate KPIs for these material issues for all timeframes and disclosing performance against targets
  • Disclosing course corrections and future outlook where required

All this is well and good – the intent is definitely in the right direction. But what is the reality on the ground? Have organizations adopted this framework voluntarily? Have regulators amended the relevant regulations to compulsorily require this type of Integrated Reporting? Have partners and consultants grown in the ecosystem to help businesses with these endeavors? Let’s take a fact check of the reality of <IR> from an Indian perspective.

SEBI, the Indian capital market regulator, recommended in Feb 2017 that the top 500 listed companies by market capitalization should voluntarily adopt <IR> from Financial year 2017-18. Note that SEBI made it voluntary for the top 500 companies to adopt <IR>, in striking contrast to regulators in other growing economies like Brazil and South Africa where it was made mandatory. Perhaps because it was made voluntary in India, none of the top 500 Indian companies published an Integrated Report for the financial Year 2017-18. Therein is the reality of <IR> in India. Even assuming the fact that businesses need more time to start such a deep rooted initiative, we should at least see a few Integrated Reports soon, for the financial year 2018-19. If indeed we do see a few Integrated Reports, India will be better off as a country for businesses and Investors alike.

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