Role of Internal Audit

in Implementing Integrated Reporting

 Value Creation through
Integrated Reporting
Integrated report is a forward-looking single
report that holistically represents an
organization’s strategy, governance,
performance, and prospects in a way that
reflects the commercial, social, and
The growing global concerns over
environmental context within which it operates.
environmental and economic volatility are
It is the most current global reporting framework
changing the outlook and focus of business
that centers on managing business sustainability
practices around the world. The depletion of
which expands upon the triple bottom line – a
natural resources and energy, surge in waste
process by which companies manage their
production, increase in the cost of materials and
financial, social, and environmental risks,
transportation, and economic instabilities are
obligations, and opportunities.1
adversely affecting businesses. There is also
increased pressure on corporates from
The framework for integrated reporting was
regulators, customers, and stakeholders
rolled out in 2013 by the International Integrated
towards social and economic responsibilities.
Reporting Council (IIRC), a coalition of regulators,
investors, companies, standard setters,
In light of this complex and interconnected
accounting professionals, and non-governmenta
business environment, organizations are 2
l organizations (NGOs) . This framework provides
beginning to acknowledge the importance of
guidelines to produce a concise and
sustainable development as a critical part of
consolidated report on how organizations can
good governance. Sustainable development is
create value in the context of their strategy,
the balanced synthesis between an
governance, performance, and external
organization’s economic, social, and
environment.
environmental priorities, obligations, and
opportunities. Integrating sustainability to
The Framework, as illustrated in Figure 1.1,
business strategies not only addresses
categorizes all the resources and relationships
corporate transparency and accountability but
engaged by an organization into six areas:
also creates economic value and contributes to
financial, manufactured, intellectual, human,
healthy ecosystems.
social and relationships, and natural. It refers to
these resources and relationships as “capitals”,
To achieve this, there is a need for organizations
and describes the business elements and
to disclose the financial stability of their business
processes likely to affect these capitals as “
and highlight both positive and negative
content elements”. There are eight content
non-financial influences with emphasis on
elements in an integrated report: organizational
long-term business viability. The numerous
overview and external environment; governance;
reports on financial performance and
the business model; risks and opportunities,
sustainability that organizations release
strategy and resource allocation; performance;
periodically to stakeholders often contain
outlook and mission and vision 3 . Underlying
significant gaps and fail to make the connection
these are the Guiding Principles which govern
between the organization’s socio-economic
the preparation and presentation of an
strategy and financial performance.
integrated report (IR) in line with the Reporting
Guidance for an organization.
This led to the evolution of corporate reporting
where integrated reporting is maturing as a best The Framework provides the following visual
practice for companies focusing on sustainability representation, conceptualizing the relationship
and competitive advantage. between the capitals and the content elements.
1. Business Sustainability Marshall Business Network, April 2015
2. IIRC - Integrated Reporting
3. The International IR Framework, Integrated Reporting Organization, 2013
The prerequisites for creating an integrated Conformance to internal and external
report are bringing together disparate business reporting requirements: Integrated
functions and aligning an organization’s reporting enables organizations to be
sustainability strategy with its business strategy. compliant with regulations, and effectively
This should be supported by an effective manage regulatory risks. This fosters better
governance framework for inclusive view of the communication and resilience by
activities overseen by skilled resources. understanding opportunities and risks.
Technology is used for analyzing and
consolidating the information, while a combined However, the integrated reporting brings with it
assurance framework must cater for assurance the additional challenge of ensuring the accuracy
of information. of measures and procedures used to capture the
data required for reporting, the need to
Organizations are beginning to adopt the understand the different factors involved, and
integrated reporting methodology, and are the various connections and interdependencies.
putting new structured processes in place to How do you ensure that controls are effective,
streamline business activities in a collaborative the right things are measured, and processes are
manner. In doing so, they embrace the concept in place? This assurance is important to establish
of integrated thinking for internal business the credibility of a company’s sustainability. This
management, which acts as a catalyst for increases the responsibility of Internal Audit to
bridging operational silos and adopting a take a strategic role in the organization’s
common focus on business targets, preparation for, implementation of, and journey
performance measures, issues, and corporate towards a mature integrated reporting process.
strategies. Internal Audit can play a key role in Internal Audit’s broad presence across an
facilitating knowledge sharing and integrated organization, knowledge of the source of
thinking by building on its relationships with key information, and understanding of the risks and
teams in the organization. controls makes it the relevant function for this
purpose.
Integrated thinking helps promote the value
creation process for integrated reporting
through meaningful management of knowledge Internal Audit’s Contribution
and data. Although integrated reporting is still in Towards Integrated Reporting
a nascent stage, businesses are identifying the
numerous benefits it has to offer, including: Internal Audit’s role, as an independent
assurance provider, supports the integrity and
transparency underlying integrated reporting,
Improved stakeholders’ engagement and
giving shareholders the necessary reassurance
lowers reputational risks: Integrated
on the business sustainability.
reporting increases transparency, enhances
accountability, facilitate inclusiveness and
Internal Audit’s assurance role can be achieved
more information that provides
through different types of engagements such as
stakeholders with deep visibility into the
assurance on various financial and non-financial
finances and materiality of the organization.
functions, governance assessment, risk
management, and control processes supporting
Sustainability and business performance:
the main objectives of integrated reporting.
Integrated reporting provides intelligence
Additionally it also supports the management’s
on the execution of an organization’s
process design with recommendations for
socio-economic objectives and performance
improvements during the rollout phase of
indicators. This leads to better decision
integrated reporting, and establishes a culture of
making on business model innovation and
integrated thinking within the organization.
revenue growth.
 However, Internal Audit’s involvement is not
limited to assurance alone, and can evolve to
provide a range of advisory and consulting
Conclusion:
services in the area of integrated reporting, An integrated report helps build a
depending on the maturity of the reporting sustainable and resilient organization by
process and the roadmap of the organization. A shifting the focus from meeting short-term
well-resourced, appropriately positioned, and financial goals to meeting long-term
technologically enabled Internal Audit function strategic and sustainability goals. While the
has the potential to assist in identifying key management, board, and technology are key
trends and opportunities to create or protect to effective integrated reporting, the Internal
strategic business value or revenue. Additionally, Audit function can play a prominent and
it can proactively report on progress in terms of proactive role by providing assurance and
sustainability, financial performance, and issues. advice related to governance and the
processes required to create an integrated
Technology can be leveraged by Internal Audit in report. In order to achieve this, Internal
order to bring in data consistency and integrity, Audit may have to expand its current
stronger collaboration among functions, concise capabilities. However, it is uniquely
information, and real-time visibility to help positioned in the organization to enable
identify key areas of focus. It also enables effective integrated reporting and improving
effective and continuous monitoring of data, as business performance.
well as advanced analytics to identify gaps, key
risks, metrics, and common issues.

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