Management Accountants & Integrated Reporting <IR>

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1 Management Accountants & Integrated Reporting <IR> A Program for People Empowerment CPA Evans Mulera CapaBuil.com 1

2 This is How Course Some People Outline View IFRS Why- What How - When? Why Integrated Reporting What is Integrated Reporting How and When is it applicable? IR Fundamentals The Capitals; Principles Value Creation Process Way Forward/ Next Steps The Lessons Your Commitment Conclusion Built on Better 2

3 MIND TEASER People Do what they see their leaders do not what they are told to do. 3

4 WHY Integrated Reporting Globalization Globalization and interconnectivity mean the world s finances, people and knowledge are inextricably linked, as evidenced by the global financial crisis. Financial Stability In the wake of the crisis, the desire to promote financial stability and sustainable development by better linking investment decisions, corporate behaviour and reporting has become a global need. Built on Better 4

5 WHY Integrated Reporting Simplicity Businesses require an evolution in the system for reporting, facilitating and communicating megatrends without the complexity and inadequacy of current reporting requirements. Financial Stability In the wake of the crisis, the desire to promote financial stability and sustainable development by better linking investment decisions, corporate behaviour and reporting has become a global need. Built on Better 5

6 WHY Integrated Reporting Accountability <IR> has been created to enhance accountability, stewardship and trust as well as to harness the information flow and transparency of business that technology has brought to the modern world. Capital Allocation Providing investors with the information they need to make more effective capital allocation decisions will facilitate better longterm investment returns. Built on Better 6

7 WHAT is Integrated Reporting The Framework is a tool for the better articulation of strategy, and to engage investors on a long-term journey to attract investment that will be crucial to achieving sustained, & sustainable, prosperity. Professor Mervyn King, Chairman, IIRC 7

8 WHAT is Integrated Reporting Integrated Reporting is an evolution of corporate reporting, with a focus on conciseness, strategic relevance and future orientation. Focuses on improving the quality of information contained in the final report. <IR> makes the reporting process itself more productive, resulting in tangible benefits. <IR> requires and brings about integrated thinking, enabling a better understanding of the factors that materially affect an organization s ability to create value over time. It can lead to behavioural changes and improvement in performance throughout an organization. 8

9 WHAT is Integrated Reporting As set out in the International <IR> Framework, an integrated report is a concise communication about how an organization's strategy, governance, performance and prospects, in the context of its external environment, lead to the creation of value in the short, medium and long term. The Framework enables a business to bring these elements together through the concept of 'connectivity of information', to best tell an organization s value creation story. 9

10 WHAT is Integrated Reporting <IR> has been created for any organization that wants to embrace integrated thinking and progress their corporate reporting. Businesses have reported breakthroughs in understanding value creation, greater collaboration within their teams, more informed decision making and positive impacts on stakeholder relations. For organizations or stakeholders interested in real world examples and practical advice about the journey towards <IR>, networks have been established to share experiences and learning. 10

11 HOW Practical advice and tools Integrated Reporting reflects how our company thinks and does business. This approach allows us to discuss material issues facing our business and communities and show how we create value, for shareholders and for society as a whole. Dimitris Lois, CEO, Coca-Cola HBC 11

12 HOW Practical advice and tools To help you with the report itself, the International <IR> Framework provides guidance on the practicalities of producing an integrated report. It establishes the Guiding Principles and Content Elements that govern the overall content of an integrated report, and explains the fundamental concepts that underpin them. The Framework was developed after extensive consultation with businesses and investors, and guided by the learning of 140 participants from 26 countries in the IIRC Pilot Programme. 12

13 HOW Practical advice and tools With a network of other adopters to learn from and a framework in place to shape your own reporting, the journey towards <IR> is not one taken alone. The momentum towards global adoption is building, and the bank of examples to support the case for <IR> is growing, showing how companies are approaching <IR> across the world. Guidance is also emerging from a number of organizations, offering practical tips and support for adopting <IR>. 13

14 WHEN Advocacy for Global Adoption Integrated Reporting can bring additional information, in particular about the longer-term costs of climate change, to feed into markets and inform decision-making and policy-formulation by institutions. If achieved, it will lead to better-informed and more sustainable long-term investment, for the benefit of society. Mark Carney, Governor of the Bank of England 14

15 WHEN Advocacy for Global Adoption There are now over 750 participants in <IR> networks worldwide, with, for example, 180 businesses currently practicing <IR> in Japan alone. More than 1,000 businesses globally are using it to communicate with their investors and there is increasing interest in <IR> by pioneers in the public sector. 15

16 WHEN Advocacy for Global Adoption IR> is on the agenda of international bodies, for example the B20 and IOSCO are both taking an interest in <IR> as part of the answer to market challenges worldwide. Regulators in countries such as Japan, India and the UK are among those taking a greater interest in <IR> as a route towards achieving more cohesive reporting and promoting financial stability, with the European Commission labelling <IR> as a step-ahead. 16

17 Why Should It Matter To MAs The World is Interconnected Stakeholders & the Business conversation - Inclusive <IR> Rebalancing reporting Reporting landscapecohesion 17

18 <IR> Content Elements Organizational overview and external environment Governance Business model Risks and opportunities Strategy and resource allocation Performance Outlook Basis of preparation and presentation 18

19 Which of the following is not an Objective of IR Enhance quality of information available to providers of financial capital- Efficient and productive allocation. Reduce organizational costs. Promote Cohesion& Efficiency- Draw on different Corporate Strands. Enhance Accountability& Stewardship for the Broad base of Capitals. Promote Integrated thinking and decision making. 19

20 OBJECTIVES OF IR Objectives of IR Enhance quality of information available to providers of financial capital- Efficient and productive allocation Promote Cohesion& Efficiency- Draw on different Corporate Strands Enhance Accountability& Stewardship for the Broad base of Capitals Promote Integrated thinking and decision making. Built on Better 20

21 Which of the following is not one of the Capitals indentified in the <IR> Framework? a) Financial Capital b) Human Capital c) International Capital d) Intellectual Capital e) Manufactured Capital f) Natural Capital g) Social and Relationship Capital. NB: You are not required to adopt this categorization of capitals 21

22 The Capitals FINANCIAL HUMAN INTELLECTUAL Built on Better 22

23 The Capitals MANUFACTURED NATURAL SOCIAL RELATIONSHIP Built on Better 23

24 Principles of IR Strategic Perspective Completeness Connectivity Materiality Reliability Conciseness Consistency Comparability 24

25 Value Creation Process Governance Business Model Strategy& Resource Allocation Risks and Opportunities Performance Outlook The capitals are stocks of value that are increased, decreased or transformed through the activities and outputs of the organization. Write Down Your Business Model: Inputs Activities- Outputs Outcomes 3 Minutes 25

26 Reporting Boundaries Financial Reporting Boundary Integrated Reporting Boundary 26

27 <IR> Research in 2010 by US merchant bank Ocean Tomo, an intellectual capital specialist, looking at trends over four decades, found that net assets of S&P 500 companies represented only around 19% of market capitalization in 2009 compared to 90% in the 1970s. In other words, intellectual capital and other intangible assets not captured on the balance sheet now drive market value. 27

28 <IR> PWC, in its 2010 paper, Trust: the overlooked asset, made this statement: In an era of increasing connectivity and intensifying public scrutiny, trust is the life blood of any organizationa critical asset in ensuring a business s long term survival and success. The aftermath of the recent financial crisis has demonstrated both the vital importance of trust and the severe consequences to economic prosperity when it is undermined by perceived un trustworthy behaviour. The report notes that Trust does not appear on the balance sheet and is therefore overlooked. 28

29 REFLECTION Never wish life were easier, wish that you were better Jim Rohn 29

30 Discussion Built on Better 30