Integrated Reporting: the challenge of assurance

A recent news article on the website of the Institute of Chartered Accountants of Scotland (ICAS) observes that: “Integrated reporting (IR) continues to move forward.  There are now 83 pilot companies across the world which are testing out the integrated thinking processes necessary to deliver integrated reports and experimenting with how best to communicate the resulting information.” It also states that: “A prototype IR Framework was released at the end of November, which shows the direction of travel, and a 3 month consultation on a proposed framework will be published in April 2013.  It is hoped that a final version of the Framework will be published in early 2014.”

 

According to this article, the integrated report is likely to replace today's annual report as the main communication to the company’s stakeholders.  It is likely to contain a varied mix of different types of information - past, present and forward looking, financial and non financial. Some of the information may be extracted from the financial statements, CSR report, Governance report, etc. But, how will users know whether the report contains all the most important information or whether it is so slanted towards the positive that it is not really giving a realistic view?

 

In this regard, auditors could express a “balanced and reasonable” opinion on an integrated report. This would provide slightly less assurance than the opinion on the financial statements, reflecting the more judgmental basis of the information in the integrated report, the mix of different types of information, and the fact that less of the information will be objectively verifiable, thereby relying much more on the auditor’s judgment.  Also, with a greater degree of forward looking information, the inherent inability of anyone to predict the future means that a lower level of assurance is inherent.

“... it is important, though, that a positive opinion is clearly expressed, so that users can understand the nature of assurance being given, and that this will underlie the credibility of integrated reports...negative assurance and reporting by exception are too confusing to users. The auditing profession is perfectly capable of making the necessary judgments to express a positive opinion in this way, although greater judgment will be involved, and the auditor liability regime in some countries may make the auditors slightly reluctant.”

Learn more by reading the online article “Integrated Reporting: the challenge of assurance” by David Wood, ICAS Executive Director of Technical Policy and Services. In addition, see the related articles “A Template for Integrated Reporting” and “A professional judgment framework for financial reporting.”

A Template for Integrated Reporting

In an era in which news spreads as it happens over the Internet and social media networks, investors, society and governments are increasingly demanding that organizations be accountable to stakeholders, not merely shareholders, and be transparent about their activities. A forthcoming research paper outlines the concept of integrated reporting and proposes a template for integrated reporting. The model is based on the concepts in the King Report on Governance for South Africa (King III), and the International Integrated Reporting Council in the United Kingdom.

According to the author, an integrated report should explain the story of reaching the organization’s vision, underpinned by its values, enacted by management, monitored by governance and using facets of resources relating to financial capital, intellectual capital, social capital and environmental capital. The paper proposes an integrated reporting framework and provides an example of a template to use. Apparently, this is the first academic paper that provides a coherent framework on integrated reporting, along with a template.

The author supports a concise report that informs significant performance implications on the organizational vision during the reporting period. The paper does not define significance as it is an outcome of inquiry into reporting, rather than a rule, and instead leaves it up to preparers to use their professional judgment. Learn more by reading the online 48-page research article “A template for integrated reporting” by I. Abeysekera to be published in the Journal of Intellectual Capital, 14 (2), in May 2013.

Practice-Based Education – Perspectives and Strategies

There are many challenges facing researchers, educators, practitioners and students in today’s practice worlds. Published in 2012, the 37-page Australian book Practice-Based Education- Perspectives and Strategies is part of a series that examines research, theory and practice in the context of university education, professional practice, work and society. The series examines places where two or more of these areas come together.

Themes explored in the series include university education of professions, society expectations of professional practice, professional practice workplaces and strategies for investigating each of these areas. The authors bring a wealth of practice wisdom and experience to examine these issues, share their practice knowledge, report research into strategies that address these challenges, share approaches to working and learning and raise yet more questions. The conversations in the series contribute to expanding the discourse around the way people encounter and experience practice, education, work and society.

This book explores the principles, context, practices and strategies of practice-based education from multiple perspectives. It examines the place and nature of practice-based university education, that is, education that prepares graduates for practice. This seems initially to be a straightforward goal. However, practice-based education is, in reality, a complex of ideas, pedagogies, opportunities and possible experiences. In this complexity of realisation and simplicity of concept lies its strength and potential for rich and productive higher education.

The book is written by leading academics in higher education and is aimed at a broad audience including university educators, as well as researchers and those in the professions. The book examines goals, trends, perspectives and strategies of practice-based education in international, professional education programs. There are three sections: 1. Contesting and Contextualising Practice-Based Education; 2. Practice-Based Education Pedagogy and Strategies; and 3. The Future of Practice-Based Education.

PCAOB - Professional Skepticism by Auditors

A December 4, 2012 article in the Journal of Accountancy notes that a “PCAOB alert says audits must be conducted with skeptical eye.” According to that article, the US Public Company Accounting Oversight Board (PCAOB) is reminding auditors to maintain their professional skepticism when they conduct audits.

The Staff Audit Practice Alert states that: “Observations from the PCAOB’s oversight activities continue to raise concerns about whether auditors consistently and diligently apply professional skepticism.” Therefore, Staff Audit Practice Alert No. 10: Maintaining and Applying Professional Skepticism in Audits is intended to assist audit firms in their application of professional skepticism in upcoming calendar year-end audits.

The 16-page Alert further states that the failure to appropriately apply professional skepticism may prevent auditors from obtaining appropriate evidence to support their opinions. Skepticism failures also may prevent auditors from identifying material misstatements in financial statements. Although professional skepticism is important in all aspects of the audit, it is particularly important in areas that include significant management judgment, for example, measurement uncertainty.

Learn more by reading other guidance materials on professional skepticism.