To whom should the integrated report be addressed, that is, who is the target audience of the organization’s integrated report?
This question has been asked by preparers of integrated reports in South Africa. It is relevant because of South Africa’s Company law and the King IV Report on Corporate Governance for South Africa, 2016 (King IVTM).
It is the view of the IRC, after consideration of the above, that the organization’s integrated report need not state a specific target audience because the integrated report is an explanation of the organization’s value creation process over time. As such, the integrated report will appeal to all stakeholders interested in the organization’s ability to create value and is positioned as the ‘first read’ after which stakeholders may choose to access more detailed information (explained in the Octopus Model approach to the corporate reporting suite on page 2, second bullet point).
Basis of conclusion
In terms of South Africa’s Company law the governing body should act in the best interests of the organization. What this means is that the governing body should take into account the legitimate interests of stakeholders in making decisions that are in the best interests of the organization. In effect, the governing body is accountable to the organization and through the organization there is accountability to all its stakeholders.
King IV (like its predecessors) adopts the stakeholder-inclusive approach as fundamental to governance and reinforces this throughout its 17 principles. It advocates that in the execution of governance roles and responsibilities the governing body should adopt a stakeholder-inclusive approach that balances the needs, interests and expectations of material stakeholders in the best interests of the organization over time1. On reporting, King IV’s principle 5 states: The governing body should ensure that reports issued by the organisation enable stakeholders to make informed assessments of the organisation’s performance, and its short-, medium- and long-term prospects. In achieving principle 5, it is recommended, inter alia, that an annual integrated report be prepared.
When preparing and presenting integrated reports most organizations in South Africa use the guidance of the International Framework ( Framework) released by the International Integrated Reporting Council in 20132.
In the <IR> Framework, paragraphs 1.7 and 1.8 cover the purpose of an integrated report and are relevant to audience: The primary purpose of an integrated report is to explain to providers of financial capital how an organisation creates value over time. It therefore contains relevant information, both financial and other. An integrated report benefits all stakeholders interested in an organisation’s ability to create value over time, including employees, customers, suppliers, business partners, local communities, regulators and policy-makers.
Also of relevance is paragraph 1.14, which states: An integrated report may be prepared in response to existing compliance requirements… If that report is also prepared in accordance with this Framework it can be considered an integrated report.
The IRC considers that local requirements in South Africa apply when considering whether or not a target audience for the integrated report should be stated. As mentioned in the second paragraph above the integrated report is the story of the organization’s value creation process and need not specify a target audience as it will be of interest to all stakeholders interested in the organization’s ability to create value.
Other points of interest
- King IV’s fundamental concepts include those of the Framework – namely, the capitals, Integrated Thinking and Value Creation – and King IV acknowledges this stating: … when drafting King IV, reliance was placed on the International Framework as issued by the International Integrated Reporting Council. The Integrated Reporting Committee of South Africa has endorsed the International Framework as good practice on how to prepare an integrated report and its further guidance on integrated reporting should be followed3.
- When applying the Octopus Model approach (see FAQ: The Octopus Model on this website) to an organization’s corporate reporting suite, the integrated report is positioned as a high-level, concise report on the organization’s value creation over time (as the head of the octopus) and as such is the ‘first read’ of any stakeholder in understanding the organization, its performance and prospects. Detailed, subject-specific information can be accessed in the organization’s other external reports, Financial Statements, Sustainability Report, Governance Report etc. (with each report seen as an arm of the octopus).
- The nature and form of the integrated report is a concise account of the organization’s value creation process over time containing all of the organization’s material matters. It is unlikely, however, to meet every information need of every stakeholder and it should rather be seen as an ‘’entry point” to more detailed and linked information (that is, the Octopus Model).
- In applying the principles of King IV and the requirements of the <IR> Framework the organization’s governing body ensures that the integrated report is relevant, understandable and accessible.
1 In carrying this out, King IV acknowledges the balancing of interests over time by way of prioritising and, in some instances, trading off interests.
2 Endorsed by the IRC of SA in April 2014 as good practice in preparing an integrated report.
3 Part 2: Fundamental Concepts, “Highlights of the King IV Code”