Integrated financial reporting looms on the horizon. The International Integrated Reporting Council (IIRC) has published a consultation draft proposing standards and issues to be considered in the design of principles-based integrated reporting, consultant Brad Monterio reports. The standards will address a wide range of financial, business, environmental, and social concerns and will include not only historical data but also assessments of future conditions and performance. Future-oriented discussions will cover short-, medium-, and long-term considerations. Integrated reports ideally will be linked to other reports and disclosures made by the company and will include macroeconomic assumptions as well as sector and company projections and analyses. The goal is to give investors the widest possible knowledge base in evaluating a company's prospects as well as current worth.
Comparability and consistency of data critical. Companies operate with fluctuating resources in a fluctuating economic environment, the author acknowledges. Integrated reports need to identify major sources of value and capital through time, then balance these sources with costs and demand. The integrated reports will need to compare multiple sources accurately, with variables defined in similar ways. Although the framework proposed in the IIRC's consultation draft does not include an XBRL taxonomy, one section of the draft mentions XBRL as a possible solution to standardizing taxonomies. XBRL would make the data readily available to multiple types of users and compatible with numerous other reports and disclosures.
XBRL could facilitate international integrated reporting. Any successful integrated reporting would require a sophisticated technological platform. Standardized taxonomies, internal and external data links, computer-readable formats from various sources, and accessibility to investors and regulators would be an absolute requirement. Already in wide use, XBRL standardizes definitions across reports, countries, and industries. Although the IIRC proposal for integrated content goes beyond current reporting topics, taxonomies could be extended to include the new concerns being proposed by the IIRC for future reporting. As with any new taxonomy, agreement would be necessary when defining and testing new variables, the author points out. More complex rules would apply to some of the variables being proposed, since not all would refer to historical facts. Yet because XBRL is already being used successfully, applying it to the proposed additional report requirements would be more efficient than starting from scratch with new technology.
The referenced working paper, Integrated Reporting And The Potential Role Of XBRL By: Brad Monterio, published by Institute of Management Accountants, 10 Paragon Drive, Montvale NJ 07645. To subscribe, call (800) 638-4427 x1547; or visit www.strategicfinancemag.com.