Many paths, one direction: The compass of integrated reporting that shows the way

Posted
18 April, 2019

India is one of the fastest growing economies. Yet, corporate reporting in India faces many headwinds.  Regulatory pressures have led to companies producing many different reports – annual reports, CSR reports, Business Responsibility Reports (BRR), sustainability reports and reports that indicate compliance with emission and effluent standards. This has led to a multiplicity of reports that leave users confused. At the same time accounting standards in India are gradually transitioning towards International Accounting Standards (IAS). Thus, there is a significant difficulty for international investors in evaluating Indian financial reports. Wouldn’t it be much better if the multiple reports were dovetailed and reported in a common language? Integrated reporting by the International Integrated Reporting Council (IIRC) attempts to do just that by streamlining the varying requirements and cutting down the plethora of reports that companies need to generate and simplify the reporting of wide-ranging disclosures through the six capitals that underlie any business.

In our book, Balance: Responsible Business for the Digital Age, Namrata Rana and I bring the need to move towards integrated reporting to the forefront. Indian financial reporting is unique in the level of detail that one finds on different expense heads and fixed assets. Not many countries around the globe provide this level of detail. For research analysts, this is a big positive. At the same time, India has a multiplicity of regulators who require companies to report the same information in many different ways and formats. This makes financial analysts struggle to make sense of data.

Like the rest of the world, India is changing rapidly. Technology is changing the ways of doing business. All companies with a large retail footprint now have digital stores as well. Data is becoming the lifeblood of corporations. Artificial intelligence, machine learning and big data are becoming essential tools that companies use in decision-making. Integrated reporting builds focus on two key aspects – technology and future looking. Traditional reporting focussed on paper-based, post-mortem of financial numbers. Integrated reporting looks to change all that.

At the same time, companies are moving from being asset-heavy to intangibles-heavy. This creates a demand for metrics different from those that have been used traditionally. These metrics must meet investor standards, have the rigour of good accountancy principles and be readily applied in integrated reporting.

India is not a monolithic block. It comprises of 29 states and seven union territories. Each state in the country tends to have different requirements for non-financial reporting. Emission and effluent norms vary across states. Thus, non-financial reporting gets more complicated. Integrated reporting implementation in India needs to be mindful of these complications.

The IIRC has made significant progress in India. The Tata group, the Mahindra Group and Yes Bank are some of the early adopters of integrated reporting in India. In February 2017, SEBI (Securities Exchange Board of India) released a circular that encouraged India’s top 500 companies to adopt the International Integrated Reporting Framework. The circular delivers on the IOSCO Principle 16 that states ‘there should be full, accurate and timely disclosure of financial results, risks and other information that is material to investors’ decisions’. As more companies start adopting integrated reporting the benefits of integrated Reporting will begin flowing faster.

However, as we caution in our book, companies may still end up using differing reporting formats stating that the requirements of various stakeholders are different. Though if companies were to report more uniformly, comparison across firms will be more valuable and greater insights can be drawn.

As integrated reporting gains traction in India and the IIRC works with regulators, stock exchanges, companies, accounting bodies and other regulators, better quality of information will become available to all. Complete alignment of various standards and frameworks is utopian. However, attempt to bring about significant coherence and simplification in itself will be a great help to readers of corporate reports.