Investors to IR Firms: Disclose Materiality Assessment Processes


by | Oct 25, 2013

IRTo further advance integrated reporting (IR), businesses should close perceived or actual information gaps by disclosing their materiality assessment process, say investors.

To understand the strengths and shortfalls of IR from investors’ perspectives, the International Integrated Reporting Council (IIRC) asked its pilot program investor network to critique reports from its pilot business network. Fourteen financial capital organizations analyzed reports from 21 pilot businesses and made recommendations for report preparers.

About 40 percent of the critiques noted real or perceived information gaps, IIRC says. Investors want additional risk-oriented information and are interested in how market trends or regulatory changes might affect a reporting firm’s strategy. Investors also want to see greater insight into industry-specific examples, such as safety track records or results of supply chain audits, the 2013 Investor Critique says.

While about 60 percent of investors said they were satisfied with the conciseness and completeness of the reports, they did see opportunity for brevity in the IR process. Some information was extraneous to investment decision-making and would be better placed on the companies’ websites or in a stand-alone sustainability report, the investors say.

Improved formatting could also increase the reports’ brevity. For example, reporting firms could condense explanations and reduce page counts by using hyperlinks, according to the critique.

The majority (80 percent) of investors agree that relative to traditional corporate reports, the pilot firms’ IR samples provide a superior view of operating context and future strategy. However, they also see opportunities to more clearly define the time frames associated with milestones and targets and say reporting companies should continue to look beyond the short and medium term to a longer-term view.

As of Oct. 11, only seven American companies are participating in IIRC’s pilot: Microsoft, Prudential, Clorox, Coca-Cola, Jones Lang LaSalle, PR company Edelman, and mining and metals firm Cliffs Natural Resources.

The Association of Chartered Certified Accountants has pointed to one factor that may be holding back IR adoption. The ACCA said IIRC should provide case studies of best practices across a range of organizations. Without this, understanding of the IR movement has been low.

In its response to IIRC’s framework draft, released in April, the ACCA also says the plans are “right in principle,” but gaps in the framework remain. The association said there is an unclear relationship between the integrated report and other forms of reporting, such as sustainability and statutory narrative reports. The framework also needs to address how hard preparers should strive to keep down the size of reports, ACCA said.

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