In case you missed it, the International Integrated Reporting Council (IIRC) recently (19 January 2021) published a revised <IR> Framework, the first revision since the framework was released in 2013.
IR 2.0 was launched after the council received suggested changes from almost 1,500 interested parties during a 90-day consultation process last year.
So what has changed? The short answer is . . . very little.
According to a council statement, analysis of the feedback by the Framework Panel identified “… opportunities to clarify concepts, simplify guidance for report preparers and underpin better quality integrated reports”. But reading the two versions side by side, it’s apparent that the panel didn’t find too much to change in the 1,470 submissions it had to wade through.
The council hasn’t as yet spelt out on its website what’s different about <IR> 2.0 so here are the new bits we’ve spotted:
There is some new wording under Responsibility for the integrated report. It seems there are some jurisdictions or instances where boards are not allowed to put their hands up and take responsibility for their IRs. So the new version says that in these instances the report should spell out what was done to ensure the integrity of the report. It also encourages disclosure on how the report was prepared and presented, including the role of those “charged with governance”. The first IR required a statement from the board that it took responsibility for the report and that it was satisfied it was a pukka IR done in accordance with the Framework. Or, if it did not contain such a statement, that the report should say “what role those charged with governance played in its preparation and presentation.”
Also new is a bit about two-tier boards but we don’t have such things in South Africa (do we?).
And this is also new: “Process disclosures are encouraged as a supplement to a statement of responsibility from those charged with governance as this information indicates measures taken to ensure the integrity of the integrated report.”
Value creation, erosion and preservation
IR 2.0 has quite a few new words explaining that the stock of capitals can decrease or be preserved by a company’s activities but these are really just paraphrasing what was in the original framework. (We suspect that the original contained at least one very fancy word – diminution – which the panel thought was unnecessarily extravagant and would not be understood by everyone.)
We thought the revised Framework might have something new to say about business models but, well, it doesn’t. The same value-creation diagram (Figure 2 in the original and also in this new version) is still there although the new iteration has some of those lines with arrows going all over the place which so many IR preparers like but which usually only confuse the reader. Otherwise there are just three tiny changes that we could spot including the replacement of that fancy “D” word with “erosion”. The second change involves spelling out that Outcomes can be positive or negative (it seems the IIRC thinks a lot of directors just didn’t get the memo about capitals going up or down). Thirdly, the word, “Purpose” makes an appearance on the top of the model.
(One new bit in IR 2.0 is this: “… nor is Figure 2 intended to be a fixed template for disclosure purposes”. It’s not clear why this had to be included in the new iteration at all and one can only guess that the council’s panel got fed up seeing so many versions of the same pretty picture with inputs going into one side of business models and outputs and outcomes coming out on the other side.)
IR 2.0 is more explicit about companies or organisations spelling out what their purpose is. IR 1.0 said this: “The mission and vision encompass the whole organization, identifying its purpose and intention in clear, concise terms.” The new version puts it slightly differently: “The purpose, mission and vision encompass the whole organization, identifying its intention in clear, concise terms.”
The new Figure 2 inserts the word Purpose, as in “Purpose, mission, vision”.
Now every business or organisation worth its salt has a mission statement, a vision and a set of values. But not all of them spell out what their purpose is.
This is where IR 2.0 could actually get interesting. If the purpose of an IR is to explain what the point of a business (its purpose) is beyond the financial bottom line, how many companies will commit themselves to saying something beyond what Milton Friedman so famously said, that the purpose of business is to make money? We shall have to wait and see.
General reporting guidelines
What the new Framework does have is a whole new section – Section 5 (General reporting guidelines) but there’s nothing new there; Section 5 is simply the old Section 4 I in new livery. IR 2.0 also has an Appendix, which its predecessor didn’t have. But it turns out the Appendix is just a two-page summary of reporting requirements.
Bottom line: if you’re not at your first IR rodeo, you really don’t have to go back to Integrated Reporting College; it’s business as usual. The old Framework, the IIRC has decided, wasn’t broke and it didn’t need fixing. We agree.