Our governance in action in 2012:
4. Conclusion and future steps
Audit committee
One half of our audit committee members are independent directors and this proportion is well above the guidelines proposed by the Code of Corporate Governance. External auditors are appointed by the audit committee, and the committee believes that the service period of an external auditor is pivotal to auditor independence. A too-short period can reduce auditor productivity and contribution, as an auditor requires time to become acquainted with the organisation, and a too-long period can undermine independence for a variety of reasons such as complacency and build-up of inter-personal relationships between external auditor and staff members. The audit committee therefore decided that the maximum continuous tenure of an external auditor will be limited to four years.
4. Conclusion and future steps
An integrated report attempts to tell a story about an organisation’s journey towards reaching its vision, reporting about its historical and intended performance. The intended performance is presented with assumptions and the judgements underlying them. These assumptions and judgements can serve as a hedge against litigation. Most importantly an organisation should demonstrate that its focused tactics and strategies underlie its values and are enacted towards reaching the vision during the reporting period.
Integrated reporting should make accountability and performance in an organisation transparent, but depends on the ethical qualities (such as honesty, fairness) embedded in the organisation’s values being upheld. Accountability and performance are bounded by content and context factors in which the
organisation operates, such as competitive secrecy, but withholding such information should only protect the organisation’s position and practices from untoward malpractice by others, and not mislead the stakeholders.
Integrating financial performance with the social and environmental performance of an organisation requires modification to the business model. A business model is the process whereby an organisation creates and sustains value, and changes to the business model alter the sources of risks and uncertainty, and how these risks and uncertainties are managed. Integrated performance can thus require alterations to the business model which assigns importance to multiple dimensions of organisational performance relating to the past, present, and future. Reporting about multi-dimensional performance brings new challenges to auditors. Organisations must now provide detailed information in an integrated report about assumptions behind disclosures, measurement bases, and sources of uncertainty estimates of disclosure, to help auditors develop an informed opinion about information outside financial reports.
Auditors must then form an opinion on whether such disclosure is relevant to users of reports, and faithfully (i.e., in a manner that is complete, neutral, and free from error) represents the phenomenon disclosed. These two qualities (stakeholder relevance, and faithful representation of the phenomenon) relating to disclosures are fundamental, as more emphasis is placed on reporting about the future (vision) that includes uncertainty. Faithful representation means the information is described clearly and accurately as being an estimate, explaining the nature and limitations in the estimation process assumptions; neutral means that information is presented as is, and is not slanted or manipulated to present disclosure
favourably or unfavourably; finally, free from error means there are no misstatements or omissions in describing the phenomenon, but should not be taken to mean it is perfectly accurate in all respects. It can be verified whether different knowledgeable and independent observers reach consensus that the
information is faithfully represented, although they need not completely agree on all details (IAASB, 2011).
The financial auditor should be able to offer limited assurance (e.g., ASAE 3000) through engaging an audit that assures no obvious errors were detected, rather than testing for the systems and processes that led to the reported information (AAuSB, 2007), or reasonable assurance on some or all aspects of an integrated report that it represents a true and fair view by testing of the systems and processes that led to the reported information. Additionally, various aspects of integrated performance and reporting can be certified for assurance (e.g., ISO 14000 and ISO 26000) by various quality accrediting bodies such as the International Standards Organisation (ISO, 2007) and National Carbon Offset Standard (NCOS, 2010).
AccountAbility (AA) 1000 standard is designed to provide high or moderate assurance on an
organisation’s sustainability principles. It can also provide assurance on specific sustainability-related performance activities with financial reporting and assurance (AccountAbility, 2008).
The integrated reporting framework is an opportunity for reporting formats that focus on single aspects of reporting to work together to achieve a more holistic reporting format that reports about the simultaneous web of interactions and implications of financial, social, environmental, and governance-related
organisational activities for stakeholders. For instance, the GRI version 3.1 and UN Global Compact attempt to report on non-financial, environmental, and social transactions and events of organisations while leaving the financial information to be reported using frameworks such as International Accounting Standards. Sarbanes-Oxley Act of 2002 imposes governance requirements on senior management,
requiring CEOs and CFOs of public organisations to personally certify that financial statements fairly present all material aspects of the organisation’s operations and financial conditions. Section 404 of the Act requires each organisation’s annual report to include an internal control report that contains an assessment of internal control structure and procedures for financial reporting (InConsult, 2012). The effectiveness of internal controls can be voluntarily extended into organisational non-financial, environmental, and social transactions and events under an integrated reporting platform. Enterprise reporting and performance (ERP) are potential platforms that can be modified and expanded towards developing technologically enabled integrated reporting platforms.
The template proposed here can be used as a springboard for future research. First, the transformative power of integration of various aspects of organisational capital on the deliverance of organisational performance is a proposition that can be addressed in the future, given that organisational content and contexts can shape the strategic decisions made. Second, the relative importance of various aspects of organisational performance and capital, vision, and values, can be different between profit-making private sector and service-oriented public sector organisations. A comparative study can provide valuable insights as to the details (why and how) of each factor playing a role in the organisation in integrating various aspects of capital, performance, and reporting. Third, integrating various aspects of organisational capital and their reporting, poses a challenge to the existing capital and reporting boundaries, which leads to challenging organisational accountability and transparency. Future research can use this template to examine those capital and reporting boundaries of organisations.
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Figure 1
Flow chart of integrated reporting
Organisational Values
Transparency and relevance Accountability and performance Social capital
Increased investment in socially responsible shares by $20 million Resource:
Liabilities Mission:
Short-term loans Outcome:
Long-term loan might be reclassified as short-term Resource:
Non-current assets Mission:
Motor vehicles Outcome:
Replaced 300 vehicles with hybrid vehicles at $1.2 million additional cost Our vision:
Figure 3
Our intellectual capital in action
Resource:
Processes Mission:
Periodic scrutiny of internal control Outcome:
Additional assurance on management and system processes
Advertising brands for healthy lifestyle Outcome:
Increase social happiness and reduce health cost,
Figure 4
Our environmental capital in action Resource:
Material Mission:
Recycling bags Outcome:
Reduced non-recycling bag consumption by 20 percent;
30 percent increase in bio-degradable bag sales
Solar panels for store and warehouse, heating cost reduced by 30 percent
Purchased renewable energy from Australian wind farms, reducing around 27,100 tonnes of emissions
Our Vision Zero the Hero
Guided by
Honesty and Fairness
Reduced washing pathways and gardening water consumption by 1,000 litres a month
Figure 5
Our social capital in action Resource:
Equitable opportunity Mission:
Hiring contract staff receiving fair wages Outcome:
Associating with socially responsible labour recruiters
Honesty and Fairness
Cross-cultural awareness
Outcome:
Awareness of aboriginal and Torres Strait islander communities and their issues, to bring forth a respectful inclusive society
Reduced absences saving $100,000 during the past six months
Figure 6
Our governance in action in 2012 more than three boards of listed firms