The Seven Guiding Principles of Integrated Reporting

Integrated reporting is designed to give a more complete picture of how an organisation creates value over time. Rather than treating financial performance, strategy, people, relationships and other resources as separate subjects, it encourages organisations to show how they connect.

At the heart of the Integrated Reporting Framework are seven Guiding Principles. These aren’t prescriptive rules or a checklist to work through. Instead, they provide a framework for deciding what should go into an integrated report and how that information should be presented.

How each principle is applied will vary between organisations and requires judgement. There isn’t one principle that is more important than all the others, but some can prove more challenging to apply in practice.

Here are the seven Guiding Principles of Integrated Reporting.

1. Strategic focus and future orientation

An integrated report should explain the organisation’s strategy and how it relates to its ability to create value over the short, medium and long term.

This means looking beyond what happened during the last reporting period. The report should connect past performance with the organisation’s current position and its ambitions for the future, including how its strategy affects the capitals it relies upon or influences.

That future-looking element inevitably introduces some uncertainty. Forecasts and expectations cannot have the same certainty as historical financial information, but uncertainty alone isn’t a reason to leave useful forward-looking information out.

Organisations also don’t necessarily need pages of dense narrative to communicate their strategy. Diagrams and other visuals can often explain the relationship between strategy, the business model and value creation more clearly.

2. Connectivity of information

Connectivity is one of the ideas that really distinguishes integrated reporting from more traditional corporate reporting.

Financial and non-financial information shouldn’t sit in separate silos. An integrated report should show the relationships and dependencies between the factors affecting the organisation’s ability to create value.

That might mean connecting financial performance with areas such as people, innovation, brand and resource management. It also means linking past performance with current results and future ambitions, and connecting quantitative KPIs with the narrative that explains what those numbers actually mean.

There should also be a connection between what management and the board use to run the organisation and what is reported externally. If the KPIs presented to readers bear little resemblance to those management actually uses to make decisions, that raises an obvious question about how meaningful they really are.

3. Stakeholder relationships

Organisations don’t create value in isolation. They depend on relationships with customers, employees, suppliers, investors, communities and many other stakeholders.

An integrated report should therefore provide insight into the nature and quality of the organisation’s key stakeholder relationships. It should explain how the organisation identifies and understands legitimate stakeholder needs and how it responds to them.

That doesn’t mean attempting to report everything every stakeholder might conceivably want to know. Doing so would quickly conflict with another Guiding Principle: conciseness.

Instead, the aim is to demonstrate how important stakeholder relationships influence the organisation and its ability to create value over time.

4. Materiality

Materiality is familiar territory for accountants, but integrated reporting requires a slightly different way of thinking about it.

In financial reporting, materiality is often associated with a monetary threshold. With integrated reporting, something can be significant even when it doesn’t have an immediately quantifiable financial value.

A regulatory issue, for example, might initially have little direct financial impact but still present a significant threat to an organisation’s reputation, relationships or future prospects.

Applying materiality therefore requires judgement. The organisation needs to identify the matters that substantively affect its ability to create value over the short, medium and long term and decide how much information readers need about them.

For accountants accustomed to attaching a number to materiality, this can be one of the more challenging principles to apply.

5. Conciseness

The official principle is pleasingly concise: an integrated report should be concise.

That doesn’t simply mean making the report shorter. The challenge is to provide enough information for readers to understand the organisation and how it creates value without burying the important points beneath information overload.

Materiality is crucial here. Preparers should concentrate on significant matters, follow a logical structure, avoid unnecessary repetition and use clear language rather than jargon. Links to more detailed information elsewhere can also help keep the integrated report focused.

Conciseness and completeness have to work together. Leave too much out and the report becomes unhelpful; put everything in and the important information becomes harder to find.

6. Reliability and completeness

An integrated report should contain all material matters, both positive and negative, and present them in a balanced way without material error.

Reliability doesn’t mean every piece of information must be perfectly certain. Integrated reports may contain estimates, assumptions and forward-looking information. What matters is that information is presented faithfully and without inappropriate bias.

Completeness is equally important. Organisations shouldn’t quietly omit material information simply because it presents them in an unfavourable light.

A genuinely integrated picture of an organisation includes the things that haven’t gone according to plan as well as the things that have.

7. Consistency and comparability

Finally, information should be presented consistently over time and, where appropriate, in a way that allows readers to make meaningful comparisons with other organisations.

That might involve reporting the same KPIs from year to year and explaining any changes in how they have been calculated. Consistency doesn’t mean reporting something forever simply because it appeared last year: if circumstances or materiality change, the reporting should change too.

Comparability can be supported through recognised ratios, industry benchmarks and KPIs also reported by peers.

The important point is to make comparisons meaningful. Integrated reporting is organisation-specific, so comparability shouldn’t come at the expense of explaining what genuinely matters to the organisation’s own ability to create value.

Putting the seven principles into practice

The seven Guiding Principles aren’t seven separate boxes to tick. They overlap and sometimes create useful tensions.

Materiality helps achieve conciseness. Connectivity helps explain strategy. Stakeholder relationships can influence which matters are material. Reliability and completeness must be balanced against the need to keep the report focused.

That’s why judgement is so important to integrated reporting. The aim isn’t simply to produce another corporate report, but to communicate a coherent picture of how the organisation creates value, what it depends upon and where it is heading.