IR reporting: Some STI firms already on board

[SINGAPORE] As the world begins to embrace the new phenomenon that is Integrated Reporting (IR), some Singapore companies have already incorporated aspects of IR into their annual reports.

A study conducted by PwC, the first of its kind here, examined the 30 component companies on the Straits Times Index (STI) and found that many of their annual reports already include certain aspects required by the IR framework, such as information about strategy, business model and risks.

However, PwC said these companies need to better link these elements to holistically communicate a more relevant value creation story to stakeholders.

The study, titled "Towards more relevant reporting", was undertaken to better understand where leading Singapore companies stand with regard to IR, which is a more holistic form of corporate reporting that looks at financial and non-financial aspects of value creation by a business.

The IR framework was launched in December 2013 as a means to provide greater insight into the resources and relationships ("capitals") used and affected by a company; it seeks to explain how the business interacts with the external environment and the capitals to create value over the short, medium and long-term.

The framework, which codifies these aims in a principles-based set of guidelines, will be used to accelerate the adoption of IR across the world, where it is currently on trial in over 25 countries. Singapore's DBS Bank is one of the 100 companies worldwide road-testing the framework, and also among the 30 companies studied by PwC.

"Integrated Reporting has the potential to deliver greater trust in reporting through integrated thinking," says Yeoh Oon Jin, executive chairman of PwC Singapore. "The framework promotes the breaking down of silos within the organisation to consider its key capitals, its business model and communicate the value creation process to the various stakeholders of the organisation. This helps the organisation to push the boundaries with excellent and innovative reporting beyond a compliance mindset and sets it apart from its peers.

"It is encouraging that the Singapore companies analysed are already disclosing some content elements required by IR," he added.

PwC's study assessed the annual reports of the 30 companies according to a set of 110 questions, which covered seven content elements in the IR framework including organisational overview and external environment and governance. The questions assessed the quality of the information presented and how well that information was integrated throughout the annual report.

It found that most of the STI constituents already disclosed some of the elements set out in the IR framework - in particular, some have started disclosing more information about their strategic priorities, business models and external environments.

But, the study also observed that, while there were a lot of disclosures, there was a lack of linkage between the information provided. It pointed out that the strength of IR lies not in the individual disclosures for each content element but in the interconnectivity between all the content elements to tell an integrated value creation story.

It also found that most companies still tend to have a compliance mindset - ie. they disclose boilerplate information to be in line with the requirements or their peers. For example, they may list out the risks facing the business but rarely disclose what the company is doing to mitigate them or translating them into opportunities as part of their strategy.

Historical and financial reporting also tends to remains the focus for companies, with many still reluctant to have a more extensive discussion on what the future may hold for them. There is also a lack of discussion around non-financial variables which affects a company's ability to deliver value.

Chen Voon Hoe, Integrated Reporting leader at PwC Singapore, says that IR will help Singapore companies bridge the gap. "The challenge is always to make the report more relevant to the readers amidst the perception that it's too complex, too historical and too financial focused. The IR framework allows companies to make their reporting more relevant. However, achieving this is not just about providing more information but about a change in mindset."

DBS, whose annual report applied the various principles set out in the IR framework including connectivity, strategic focus and future orientation, said that "IR enabled us to better communicate how we were executing against our strategy and creating value to the various stakeholder groups".

Mikkel Larsen, managing director and group head of Tax and Accounting Policy at DBS, added: "It is also important to note that in reality IR is a just framework to promote high quality financial communication but that, it does not mean that all annual reports have to be an integrated report."

Mr Yeoh concludes: "As a firm, we believe that technical excellence is crucial to staying ahead in this competitive landscape. We are confident that landmark studies such as this one, will help Singapore's efforts at becoming a global accountancy hub and also serve our clients well in their journey towards Integrated Reporting."