Beyond the financial reporting complexity issues, there is the reality that the tangible assets included in financial statements reflect a steadily diminishing component of shareholder value. Since 1983, when tangible assets represented 83% of market value, to 2009, when they represented only 19%, there has clearly been a change in business models that may not be fully reflected in traditional financial statements. Current financial statements often do not include the “true” value of inputs from, or reliance on, natural capital and other forms of capital. Conditions are ripe for new ideas.
Today, companies produce an increasing array of reports not necessarily linked to the financial statements. Governance issues, including executive pay, are sometimes reported on, as well as some of the impacts of the business on society and the environment. But, these are often reported to different audiences, in different formats and at different times. In this context, the idea of simplifying all the reporting under a consistent banner—integrated reporting—is very attractive.
Just as most of the world has moved steadily toward the adoption of International Financial Reporting Standards (IFRS), the progression toward a single, global, common framework for integrated reporting seems all but inevitable. Less clear, however, is the timing of adoption, which may be affected by a variety of economic, political, social and other factors.
To learn more, read the complimentary article reprint “Integrated Reporting: The New Big Picture” in Deloitte Review, Issue 10, January 2012 (also available online).
