Many companies entering a new financial year are still grappling over the issue of how best to report on the past year’s performance.
The answer, according to the Institute of Directors’ (IoD) King Code on Corporate Governance (King III), is unequivocal: issue a detailed integrated report.
King III requires companies to compile yearly integrated reports to allow stakeholders to make a more informed assessment of their economic value, says Natasha Bouwman of the IoD’s Centre for Corporate Governance. “Strategy, risk, performance and sustainability have become inseparable. Therefore, integrated reports should provide information on a company’s environmental, social and governance performance, in addition to its financial performance,” she says.
Furthermore, to enhance credibility, the report should be independently assured. “The resulting integrated report will undoubtedly lead to increased stakeholder trust, confidence and support, while also legitimising a company’s operations.”
According to Bouwman, King III emphasises the importance of substance over form when it comes to integrated reporting. “The integrated report should provide sufficient information on the company’s positive and negative impact on the community in the past year, as well as how it plans to improve the positive impact and eliminate or reduce the negative impact in the following year,” she adds.
“The integrated report should therefore aim to give adequate information on its operations, sustainability issues relevant to its business, financial results and results regarding operations and cash flows.”
The integrated report may be issued as a single report or dual reports. According to King III, a truly integrated report consists of one document, but, if companies choose to issue more than one document, the documents should be released simultaneously and be evident to be an integrated report.
Also, due to the nature of the integrated report, the information it contains may prove to be voluminous and complex. “Companies should therefore make available a summary of the integrated report for the benefit of its users,” says Bouwman.
Finally, it is the board’s duty to ensure the integrity of the integrated report. “The fact that the audit committee should assist the board in this regard does not remove from it the ultimate responsibility for integrated reporting,” she concludes.