Entire integrated company reports may have to be audited
Companies could in the future be compelled to subject their entire integrated reports to auditing if the guidelines being developed by accounting regulatory bodies become law.
South African companies produce integrated reports in which nonfinancial information, such as sustainability reports are included. However, for most, only the financial report is externally audited.
“When you pick up the integrated report, you reasonably assume that everything is true and has been audited,” director of standards at the Independent Regulatory Board for Auditors (Irba) Imran Vanker said on Tuesday.
Vanker was speaking during the South African leg of engagements hosted by the International Auditing and Assurance Standards Board (IAASB), aimed at shaping guidelines for reporting non-financial information.
He said most of the material information about companies sat in other parts of the integrated report and investors were already using these parts for decision-making, not realising that some of the information was not audited, hence the IAASB developing guidelines for companies to report material non-financial information. However, for now, the guidelines would remain voluntary.
Vanker said that if investors pushed for auditing of all material information on integrated reports, it could become a requirement. “Our leading position in the world will hopefully lead to some regulation being embedded around this issue.,”
If external assurance became a prescribed framework, it would enable the regulatory body to subject reported facts to inspection, Vanker said.
Investors attending the discussion were concerned that many companies were leaving material information out of their integrated reports if it painted them in bad light and wanted the guidelines to indicate the kind of information that should be included as material and subjected to auditing.
An example was the tendency by companies to report indicators about water usage in their sustainability reports despite their operations having little to do with water, but leave out core issues that their risk committees deal with.
Marek Grabowski, chairperson of the extended external reporting task force at the IAASB, said SA was already leading other markets when it came to reporting non-financial information and the regulatory body did not want companies to worry that it was going to stifle innovation. “It’s for this reason that we are not writing new standards, we are only writing guidelines. But we are trying to find a path through the middle of those two extremes,” he said.
The IAASB wanted to get input from practitioners, who would have to apply these guideline, he said, and the revised guidance would be significantly rewritten to incorporate feedback received.