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Six largest accounting networks link integrated reporting to increasing investment in infrastructure
July 6, 2014
According to a newly released report by a B20 panel (the Panel) comprising representatives from six international accounting networks, integrated reporting (IR) might be a key to improving private investment in infrastructure. (The B20 Coalition brings together leading independent business associations from G20 economies and advocates on behalf of more than 6.5 million small, medium and large companies).
In their June, 2014 recommendations, the Panel representing BDO, EY, Deloitte, KPMG, PWC, and Grant Thornton laid out three directives towards companies, standards setters and regulators that would address the inherent limitations in the existing corporate reporting model. More specifically, they point to the need to communicate the long term value creation capacity of companies, concluding:
• Improved corporate reporting should be more focused on key drivers for investment, such as the earnings and cash flow potential, risk profile or regulatory capital impacts of long-term infrastructure projects, providing a more holistic view of how value is created over time.
• The principles of integrated reporting are one possible way of achieving improved corporate reporting that provides investors with a longer-term perspective on shareholder value creation to complement the historical earnings perspective provided by financial statements.
• Companies should be allowed flexibility to experiment with the implementation of such principles. Accordingly, countries should focus on removing barriers to innovation in corporate reporting rather than trying to prescribe new forms at this stage.]
The Panel also points to the lack of information to assess long term projects within the context of investments in infrastructure. As a consequence, they conclude that this tends to place focus on short-term earnings. In order to provide a more complete picture of value, “corporate reporting needs to extend beyond merely a discussion of past financial performance....including more emphasis explaining the factors driving future performance and greater focus on explaining how an entity uses and develops its key resources. As these matters are generally not highlighted in financial reports, consideration should be given to corporate reporting improvements through initiatives such as integrated reporting.”
To read the full report “Unlocking investment in infrastructure. Is current accounting and reporting a barrier?” Click here.