The International Integrated Reporting Council (IIRC) on Tuesday released the consultation draft of an accounting framework that it says will enable business to provide an understandable, concise communication of its internal value creation.

The International Integrated Reporting Framework proposed an alternative means of financial reporting than that traditionally employed, through which the assessment, measurement and reporting of six "capitals" were used to determine the degree to which companies were creating or destroying value over time.

These capitals were financial, manufactured, intellectual, human, social and relationships, and natural.

Developed in partnership with, and with input from, businesses, investors, regulators, standard setters, accounting bodies and nongovernmental organisations, integrated reporting aimed to build on existing financial and nonfinancial reporting practises.

Its objective was to respond to two current trends – the need for business transparency and the provision of varied information for different stakeholders; and the need for relevant, material information that guides corporate strategy, risk management and resource allocation.

Speaking at the Johannesburg launch of the draft framework, IIRC chairperson Professor Mervyn King said the corporate scandals of the late twentieth century and early twenty-first century had driven practitioners to the conclusion that traditional financial statements did not accurately reflect a company’s value.

“This is evidenced by an analysis of companies listed on the great stock exchanges of the world, which found that, while up to 20% of the company’s market value comprised of additives that would be included on the balance sheet according to financial reporting standards, 80% was not being reported,” he noted.

While financial reporting had been practiced almost universally since the Great Depression of the 1930s, he continued, financial accounting became more complex and “incomprehensible” to the average user as multinational enterprises developed.

“Not even every chartered accountant has kept up to date with international reporting standards,” King said.

Conversely, he believed that integrated reporting was a process that resulted in communication by an organisation, most visibly through a periodic integrated report, on value creation over time.

The report itself was a clear, concise, and understandable communication about an organisation’s strategy, governance, performance and prospects in the context of its external environment.

Key features of the framework included fundamental concepts such as the six types of capitals, business model and value creation; guiding principles, such as strategic focus and future orientation, connectivity and materiality; and content elements, such as an organisational overview, opportunities and risks, strategy, performance and future outlook.

While the Government Employees Pension Fund environmental, social and governance manager Adrian Bertrand said the fund – which was the largest investor on the JSE – had long been an advocate of integrated reporting, there were some concerns by capital providers around certain aspects of the proposed framework.

“Not all investors are fully on board yet,” he said on Tuesday.

Fundamental concerns expressed at the launch centred on the framework’s inability to provide international reporting compatibility across industries, which the IIRC acknowledged, but said it intended to address as the framework evolved.

The consultation draft would be open for comments and responses until July 15, after which the IIRC hoped to release version 1 by December.