Details

  • Service: Advisory
  • Type: KPMG information
  • Date: 2/20/2012

A transformation in corporate reporting 

We are at the start of an era of convergence in reporting. Traditionally company reporting primarily consists of financial information. The balance sheet, the profit and loss account and the accompanying directors’ report together outline the company’s performance. In the past decades a shift has occurred in how companies report on the impact they have on their stakeholders.

By the end of the last century trendsetting companies started to explain their impact on the environment and wider society in CSR (Corporate Social Responsibility) reports and a growing number of companies are now following their example. Over the last decade CSR reporting has grown significantly – from 35 percent in 1999 to 80 percent of the ce are at the start of an era of convergence in reporting. Traditionally company reporting primarily consists of financial information. The balance sheet, the profit and loss account and the accompanying directors’ report together outline the company’s performance. In the past decades a shift has occurred in how companies report on the impact they have on their stakeholders. By the end of the last century trendsetting companies started to explain their impact on the environment and wider society in CSR (Corporate Social Responsibility) reports and a growing number of companies are now following their example. Over the last decade CSR reporting has grown significantly – from 35 percent in 1999 to 80 percent of the companies listed in the Global Fortune 250 in 2008.

 

Over the last years, a selected number of companies have started to integrate CSR reporting into the annual report. As of today, only 3 percent of the companies worldwide are reporting on an integrated basis. However, this figure is increasing. Moreover, there is a shift in integrating corporate responsibility into the business. For an increasing number of leading companies corporate responsibility starts to be at the heart of the business – in the company strategy, in governance and values and in the products. No longer is corporate responsibility only about managing reputation risk, it is seen by many as a means to value creation for shareholders, employees and other stakeholders.

 

Finally, regulatory and other reporting initiatives are embracing the concept of integrated reporting. The EU Directive on Transparency requires companies to report on relevant CSR information, as does the King III Code for South African companies. The Global Reporting Initiative and sustainable investors associations such as EUROSIF are also supporting the concept. XBRL reporting incorporates other-than financial business-impacting information into the model and frameworks are being developed to connect annual reporting and CSR reporting, such as the Connected Reporting Framework developed by the Prince of Wales’ Accounting for Sustainability Project.

 

The basic assumption behind these initiatives is that reporting on CSR performance should be part of mainstream reporting, as a logical outcome of the integration into daily business.

 

It seems time for a transformation in corporate reporting: from a focus on financial information to a concept where all types of relevant information for assessing and evaluating a company’s quality, performance, value and impact are reported in a comprehensive way.

 

At KPMG we believe there is a clear need for this transformation. However integrating reporting ‘for the sake of integrating’ is set to fail and disappoint stakeholders. In our view only companies with a profound connection of their sustainability efforts with their strategy and the management cycle should start taking steps towards integrated reporting.

 

Companies should also ensure that the needs of all relevant stakeholder groups who use the information are satisfied. We refer to these as the management perspective and the communication perspective respectively, which should fuse together in order to create successful integrated reporting.

 

Recently, KPMG organised a meeting with 20 leading organizations to discuss the opportunities, the challenges and possible pitfalls on the road to integrated reporting. It was a clear conclusion by the participants in this meeting that integrated reporting is the way forward in corporate reporting.

 

The author is David Leahy (davidleahy@kpmg.co.ke).

 

David is a Partner in Risk Consulting, KPMG East Africa, responsible for Internal Audit, Risk and Compliance Services.

 

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