Companies challenged to integrate reports
Publications too long and cumbersome — and can miss the point, writes
A FIRM challenge has been set for the 450 companies listed on the JSE in June 2010 to publish an integrated report or explain why they cannot do so.
SA is the first country to mandate integrated reporting for all listed companies. But one full set of integrated reports later and companies still have a long way to go.
Many countries have adopted corporate governance guidelines similar to the King 3 codes, though the drafter himself, Mervyn King, would like to see all capital markets go the route of SA. They may not be ready, but an initial, crucial step would be the adoption of voluntary filing programmes.
Riaan Davel, energy and natural resources audit director at KPMG, says some companies are implementing this new style of reporting better than others, but “sometimes the integration is not there”. It’s getting the integration to come full circle that seems to be the problem, where risk and opportunities link to forward-looking aspects and emotive issues such as how the board is remunerated.
“We are seeing a journey. It won’t happen in one year. It is a three- to five-year journey.”
Mrdavel’s main gripe is that not all stakeholder issues are being addressed and reports are too long and cumbersome. Would anyone truly complain if a big company delivered a succinct, 100-page document that addressed their major concerns, rather than the 400-page tomes now being dished out? It is highly unlikely.
Take mining companies as an example, says Mr Davel. “The perception is South African mining companies are discounted more heavily than their counterparts in the north. But sometimes investors don’t understand risk, as consistency in reporting is not there and there is no (single) standard.”
While major strides are being made as more companies look to standardise their reporting by adopting International Financial Reporting Standards (IFRS), this process will take far longer than it will take companies to adopt an integrated reporting structure in terms of King. Trying to get agreement on the different accounting rules is proving difficult and industry experts don’t expect a complete solution until about 2020.
It is proving very difficult to get simple harmony among extractive industry companies, such as oil and gas companies and metals miners, where each has different methods of reporting and treating capital expenditure, says Mr Davel.
There is also no specific IFRS reporting requirement for reserves, although many mining companies include a commentary in their annual reports. It’s not enough for investors. Mining reserve estimates are critical to properly evaluate a mining company.
What is needed is a fully “sensitivity analysis”, says Mr Davel.
“Maybe accounting is not the solution in the short or medium term. But we have the opportunity in integrated reporting,” he says.
Attempts by the International Accounting Standards Board to integrate reporting for insurance companies has taken 15 years. Big strides have been made in migrating to IFRS and in improving financial reporting and disclosure since the financial crisis, but some industries are lagging behind.
There are indications of a slow uptake on getting to grips with broader reporting, Mr Davel says. For example, only half of the companies that are obliged to establish a social and ethics board committee by May 1 have done so.
The chairman of the IFRS interpretation committee at the International Accounting Standard Board, Prof Bob Garnett, has said that IFRS adoption would enhance transparency and improve reporting standards that would reduce systemic risks. Accounting has become less risky than before IFRS.
He says also that the global knowledge and expertise reduce the risk of getting things wrong, emphasising that the adoption of the model will enhance transparency and help restore investors’ confidence in financial services.