February 2014

Update Q&A Extended

A Corporate Reporting Evolution

Internal auditors can play an important role in the adoption of the Integrated Reporting Framework, says International Integrated Reporting Council CEO Paul Druckman.


What is integrated reporting?

Integrated reporting (<IR>) is the means by which companies communicate how value is created over the short, medium, and long term. <IR> enables investors (providers of financial capital) to evaluate a company’s performance, prospects, and strategy based on the discussion and disclosure of its management allied to its use of various types of capitals. <IR> aims to facilitate better alignment of external reporting with internal decision-making and to improve the quality of information used by investors to support their capital allocation decisions. It is not about reporting more, but leading an evolution in corporate reporting, resulting in information in context.


How will adoption of the framework impact internal auditors?

Early evidence has shown that <IR> helps break down silos and enhance the connectivity and interdependencies of its resources and relationships. Internal audit’s ability to affect and improve the consistency of communication across various business units will be critical. Furthermore, risk management and governance are two important aspects of both the <IR> Framework and the International Standards for the Professional Practice of Internal Auditing. As companies begin to evaluate and implement <IR>, internal audit will need to be involved in discussions and decisions made about strategy and governance to ensure compliance with corporate policies and procedures.


What role will internal auditors play?

Internal auditors are well-positioned to play a crucial role in the implementation of <IR> within an organization due to their visibility and involvement with the board of directors and management. Further, internal auditors’ experience in identifying potential risks and their ability to create controls to mitigate those risks, coupled with their familiarity with the organization’s existing processes and controls, will bring a degree of credibility and reliability to the <IR> process and the disclosures included in the integrated report.

How can <IR> improve governance in an organization?

A key element contributing to the reliability and usefulness of an integrated report hinges on the degree to which an organization’s governance structure supports its ability to create value over time. The <IR> Framework forces a company to holistically consider its leadership structure, decision-making processes, appetite for risk, and remuneration policies. By integrating the way information is communicated, <IR> serves as a catalyst to improve transparency and visibility into the corporate governance process. This increased accountability will enable investors to more effectively incorporate governance issues into their investment decisions, thereby rewarding companies with strong governance policies in place.

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