Please note that this pertains to South African Legislation, the King Requirements, and Best Practice.
The topic on the table today is Integrated Reporting and Disclosure.
So what is this and where does it come from?
The Integrated Reporting and Disclosure is a King III requirement and it deals with the integration of the financial information with any other company information for disclosure purposes.
It has three principles and these are: –
1. That it is the responsibility of the Board to “ensure the integrity” of the final integrated report.
2. The financial reports should be “integrated” with the Company’s “sustainability reporting and disclosure.”
3. That it is important to have the sustainability and disclosure “independently assured.”
How is the report made up?
The Integrated Report needs the following:-
– It needs to be published on an annual basis. This means it should be prepared and then the publication released after the Company’s Year-End results are finalized.
– It needs to be made up of “substance over form” and should not just be a ‘copy and paste’ type exercise.
– It should be “complete, timely, relevant, accurate and accessible and comparable with past performances of the company.” Ideally, it should be compared with the previous years’ performance, to evidence both improvement as well as decreases, and where applicable and appropriate to several previous years in order to highlight growth patterns.
– It should also contain ‘forward-looking information.’ This should include current plans based on trends as well as plans for the future in terms of diversification.
– It should be used to ‘document the company’s performance with respect to economic, social and environmental issues.’
– King III states that it should ‘reflect the choices made in the strategic decisions adopted by the Board in the context in terms of ‘economic, social and environmental issues.’ This just means that the reason those particular choices were made and what you hope to achieve.
– It should include the company’s ‘operations and plans to improve the positives and address the negatives.’
– It should describe how the company made its’ money. Highlighting the ‘best sellers’ in terms of product or service and their values should be documented here.
– In terms of the Annual Financial Statements, the report should include whether the company will continue to be ‘a going concern in the financial year ahead.’
– If there are any concerns about whether the company can continue to trade as “a going concern” in the new financial year, then the plans that have to be implemented in order to address this must be tabled.
– Sustainability of the company is of the utmost importance and any issues around this should be reported honestly and openly.
So what are the key questions that the Directors should be asking?
1. In view of the fact that ‘sustainability” is of the utmost importance, the leading question should be whether the Company has a Sustainability strategy and policy in place?
2. Obviously whether sustainability is considered part of the ongoing business activities should be discussed, agreed upon, and documented.
3. “Are sustainable development issues integrated into the business management systems and departments, such as (but not limited to) risk, environment, legal and financial.”
4. Has any of the sustainability principles been built into all of the individual performance agreements?
5. Does the company have suitably qualified Directors and executives who will have the responsibility for the company’s sustainable development?
6. Is there someone in the company that can be the custodian of the content as well as the integrated report?
7. Do we have to follow the GRI G3/G4 (Global Reporting Initiative) guidelines? If it is a requirement then this should be recorded as well as what steps need to be taken to ensure that the information is recorded in compliance with the GRI.
Obviously, if you are an SMME or even a middle of the market type company, this would seem like overkill. That said large Corporate and Listed companies certainly would need to have this discussion at the Board level at the very least and certainly more than once a year.
Next time we will have a look at Business Rescue and the important role that this plays within any size business.