The word 'unprecedented' is being used to describe the impact of the Covid-19 pandemic in many respects – human suffering, public health implications, temporary or permanent business closures and financial costs to name just a few.
The pandemic will also have an unprecedented impact on corporate reporting. In recent weeks more company reports have been filed with regulators in Europe containing audit report modifications that ever seen before. A total of 101 audit reports in the UK included a reference to Covid-19, either in a going concern paragraph, an emphasis of matter paragraph, a modified opinion or inclusion as a Key Audit Matter.
These disclosures will undoubtedly assist readers in understanding the impact of the pandemic on the historical financial statements. However, there is a significant, dare I say, unprecedented, need for information with a better future-orientation and more holistic view of the impact of external influences on an organisation. Companies need to provide transparent communication on how Covid-19 is impacting their business, in terms of a wide range of matters: risk management, liquidity and going concern, internal controls to name a few.
Integrated Reporting could be used as a crucial communication tool at this time. Free from the restraints of financial reporting requirements, using Integrated Reporting as a mechanism to discuss the implications of Covid-19 allows a more flexible and user-focussed approach. It can capture the impacts of Covid-19 on the whole business model in a succinct way, and include issues beyond the financial. The impact on social capital, for example. the wellbeing of staff and need to modify how people work, is difficult to capture in traditional reporting, but relatively easy as part of integrated approach.
A key question underpinning integrated reporting is 'How does your business model create value over time?' Of course, for some businesses, their value proposition has been completely changed by the pandemic. Airlines, for example, are pretty much grounded at the moment, and longer term questions need to raised about peoples' propensity for travel. How safe will it be? What precautions are airlines taking to protect passengers? Is the travel essential? Integrated reporting is a good way to frame these discussions and the relevant disclosures surrounding value creation and the capitals other than just the financial.
The adoption of integrated reporting is increasing across the word. It is estimated that over 2,000 organisations publish integrated reports. According to ACCA, which issued its 'Insights into Integrated Reporting 4.0' this week, there is growing interest in and urgency about improving reporting by companies among investors and other stakeholders, and therefore by regulators and lawmakers.
Organisations already producing integrated reports are well placed to communicate regarding Covid-19 effectively, and if they have implemented integrated thinking throughout their business, they may well be more resilient to the business impacts of the pandemic.
Lisa Weaver is an author for accountingcpd. To see her courses, click here.