Beyond the balance sheet

There’s more to corporate reporting than financial data. The era of integrated reporting is upon us.

As much as 80% of the value of a company is not represented on the balance sheet. Brands, people or a unique business model – these are just a few of the many intangibles we can’t put a financial value on.

In the years since the financial crisis, we’ve seen these non-financial considerations receive more attention as part of calls for greater corporate responsibility. Accountants are well placed to encourage organisations to look more closely at human and intellectual capital. That’s why AAT backs the concept of integrated reporting (IR) and the work of the International Integrated Reporting Council (IIRC).

In 2013, the IIRC released a clear IR framework for companies to follow. The IIRC defines integrated reporting as “a process founded on integrated thinking that results in a periodic integrated report by an organisation about value creation over time and related communications regarding aspects of value creation”.

What does that mean? Essentially, IR means adopting a holistic approach to measuring a company’s performance, with reporting that helps senior managers to see the bigger picture when it comes to the value of the business. Early adopters include the likes of Marks & Spencer, Unilever and Aegon. AAT has also taken IR into account in the production of its own annual report, and is moving closer towards a fully integrated approach in the future.

Some countries, such as South Africa, have even made IR compulsory for listed companies, on an ‘apply or explain why not’ basis. IR is a concept that needs to be taken seriously.

Why IR makes sense

The benefits of IR are varied. One clear advantage is breaking down barriers between divisions in an organisation, which will often lead to better business performance. However, the benefits don’t stop there. Recent research from AAT indicates that transparent and ethical accounting is good for business.

People are more willing to interact with companies that engage in best practice; IR is a great way of showing that your company does so. In AAT’s research, 70% of respondents stated that a business’ ethical behaviour affects their decision to transact with that business.

This suggests there’s a strong argument for effectively communicating ethical achievements and behaviours through annual reporting. More than a third of respondents (36%) said it was important that companies delivered maximum transparency with regard to company accounts.

Encouraging companies to share information about the good they deliver for employees – addressing the gender pay gap, encouraging volunteering, and investing in skills and training – is one way to increase transparency.

Highlighting the company’s value to wider society – through, say, action to promptly pay small suppliers, charitable giving and recycling – is another. As the case study to the right shows, integrated reporting is not the preserve of FTSE 100, 250 or 350 companies. It’s something that companies large and small, national and international, public and private can take advantage of. AAT would certainly encourage its members to help push IR up the reporting agenda.

Phil Hall is AAT's Head of Public Affairs and Public Policy.