Integrated Reporting a Game Changer for NFPs

New research from the Australian School of Business shows Not for Profits stand to be significant beneficiaries from new global integrated reporting standards.

Despite being targeted at the private sector, integrated reporting, the new proposed international corporate reporting framework, is of greater benefit to Australia’s Not for Profit sector, according to the Australian School of Business.

The International Integrated Report Council (IIRC) is currently analysing submissions from Australian companies on its integrated reporting framework.

The Australian School of Business says there is a global move towards integrated reporting and, while it is regulated in South Africa, many major listed companies around the world, including in Australia, the UK and US, are progressing in its voluntary adoption.

Roger Simnett, Professor of Accounting at the Australian School of Business, and member of the IIRC’s technical task force, said his research shows that integrated reporting provides a significant opportunity for NFP companies.

“Integrated reporting provides a broader measure of company value than the current
financially-focussed annual reporting model.

“Integrated reporting also allows funders and supporters to measure all aspects of company value such as strategy, management, social good and governance.”

“Demand for integrated reporting is coming from the private sector, particularly large institutional investors such as pension funds. The irony is that while integrated reporting will be a good thing for the private sector, it will be a game changing development for NFP companies that have never been well catered for under the current reporting model.

“When I am looking to assess the value of a social business, I’m only marginally interested in how much profit the company made or how it made that profit. Social businesses are not established to make a profit so to assess their value according to a financial reporting model is unhelpful,” he said.

The research goes on to find that the current regulatory burden on the limited resources of NFP companies in Australia is significant and in need of streamlining and reform.
“Fragmentation, disconnection and inefficiencies stem from largely prescriptive reporting systems which often differ between states. For example, the Australian Red Cross is required to comply with seven disparate sets of fundraising legislation reporting requirements each year in different states,” Prof Simnett said.

Professor Simnett said while the roll-out of the Standard Chart of Accounts for NFPs constitutes a major step in standardising and harmonising existing reporting frameworks, its focus on financial input and output figures means the true value of integrated reporting is not being realised.

“NFPs are particularly well placed to benefit from moving beyond compliance-based reporting to a report that emphasises trust and transparency,” Professor Simnett said.

Much of the resourcing of NFP companies involves intellectual capital and time which is provided on a voluntary basis. The research finds this is not recognised by current reporting standards and that a move to integrated reporting will allow for this, often significant, resourcing structure to be properly accounted for.

“We know that many NFP companies are chronically undercapitalised and in urgent need of greater funding and support. This is often hindered because potential funders cannot easily assess how companies are currently resourced. Greater transparency will result in more money flowing into the NFP sector,” Professor Simnett said.

“Because integrated reporting is a principles-based system, it will likely lead to an increase in reporting requirements over the short term while the appropriate framework is tailored and established for individual NFP companies.

“Overtime, however, the reporting burden will decrease because NFP companies will be able to address their statutory requirements in a holistic, rather than siloed, manner,” he said.

During the last 10 years the scope and size of the NFP sector has grown to incorporate more social businesses, think tanks and government affiliated organisations than ever before. The research finds that as the sector has grown, so too has the need for a new reporting framework better suited to its scope.