A stepping stone to Integrated Reporting

Liz Prescott, Head of Relationships, East Asia and Australasia at IIRC, based in Melbourne, gives us her reaction to the Australian Securities & Investments Commission (ASIC)’s release of Regulatory Guide 247 ‘Effective disclosure in an operating and financial review’ 

In Australia, we saw the March release of Regulatory Guide 247 from ASIC which aims to improve disclosure in annual reports. The Corporations Act 2001 sets out the requirements for the operating and financial review (OFR), also referred to as the management discussion and analysis (MD&A) or management commentary.  The directors’ report of a listed company is required to include information that members would reasonably require to make an assessment of an entity’s operations, financial position and business strategies, including prospects for future financial years.

A well written OFR should enlighten the reader’s understanding of an entity’s financial performance, position and cash flows and provide investors with information necessary to evaluate a company and make informed investment decisions.

Along with the guidance provided by RG 247, the Group of 100 Guide to Review of Operations and Financial Conditions also makes the case for the importance of transparent corporate reporting. But there is growing global recognition that the range of issues and opportunities affecting long term business value is much broader than can be reflected in a set of regulated financial statements.

<IR> provides a framework for disclosures on a reporting entity’s business model, strategy, risks, opportunities, value drivers and future outlook. It is not a new or separate report, but an opportunity to enhance and integrate aspects of current reporting, which are often spread across a variety of corporate reports and disclosures.

There are many consistent themes across current legislation governing the contents of the OFR, the guidance provided in RG 247 and <IR>, which will drive similar disclosure requirements. The OFR can therefore be seen as a useful stepping stone to <IR>. Applying the International <IR> framework as a guide for OFR content will allow companies to meet their statutory reporting obligations, and help to drive a reporting structure and content that helps to better meet the information needs of stakeholders.

We are in exciting times to see this type of guidance now emerging and I hope to see similar guidelines produced across other regions over the next year.