Future developments

An example of thinking on how reporting might develop can be found in the work of the International Integrated Reporting Council (IIRC), which was formed in August 2010 with the objective of creating a globally accepted framework for a process that results in communication by an organization about value creation over time.

The IIRC's long-term vision is a world in which integrated thinking is embedded within mainstream business practice in the public and private sectors, facilitated by Integrated Reporting (IR) as the corporate reporting norm. The cycle of integrated thinking and reporting, resulting in efficient and productive capital allocation, will act as a force for financial stability and sustainability.

There are three fundamental concepts underpinning IR:

1 Value creation for the organization and for others. An organization's activities, its interactions and relationships, its outputs and the outcomes for the various capitals it uses and affects influence its ability to continue to draw on these capitals in a continuous cycle.

2 The capitals. The capitals are the resources and the relationships used and affected by the organization, which are identified in the IR Framework as financial, manufactured, intellectual, human, social and relationship, and natural capital. However, these categories of capital are not required to be adopted in preparing an entity's integrated report, and an integrated report may not cover all capitals. The focus is on capitals that are relevant to the entity.

3 The value creation process. At the core of the value creation process is an entity's business model, which draws on various capitals and inputs, and, by using the entity's business activities, creates outputs (products, services, by-products, waste) and outcomes (internal and external consequences for the capitals).

There are academic papers and books on such concepts, but in my view the idea of reporting on more types of 'capital' than simply the financial capital numbers and values must be so subjective that the end result may well be less rather than more revealing.

Finally, there are two further considerations regarding narrative to published accounts and in the strategic report specifically:

1 Published statements and narrative are used by many 'stakeholders'. Information in the annual report will also be of interest to users other than investors. For example, creditors, customers, suppliers, employees and members of society more widely may wish to use information contained within it. The annual report should address issues relevant to those other users where, because of the influence of those issues on the development, performance, position or future prospects of the entity's business, they are also of significance to shareholders. The annual report should not, however, be seen as a replacement for other forms of reporting addressed to other stakeholders.

2 How material is the narrative? Information is material if its omission from or misrepresentation in the strategic report might reasonably be expected to influence the economic decisions shareholders make on the basis of the annual report as a whole. Such information should be included in the strategic report. Conversely, the inclusion of immaterial information can obscure key messages and impair the understandability of information provided in the strategic report. Immaterial information should be excluded from the strategic report.

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