Regulatory bodies mull auditing all parts of integrated reports

Companies could, in future be compelled to subject their entire integrated reports to auditing, if the guidelines that accounting regulatory bodies are trying to develop became law.

South African companies now produce integrated reports in which non-financial information, such as sustainability and environmental reports are included. However, for most, only the financial report is subjected to auditing by external parties.

“When you pick up the integrated report you reasonably assume that everything is true and has been audited,” said Imran Vanker, director of standards at the Independent Regulatory Board for Auditors (Irba) on Tuesday.

He was speaking during the South African leg of engagements hosted by the International Auditing and Assurance Standards Board (IAASB), aimed at shaping the guidelines for reporting non-financial information.

Vanker said most of the material information about companies sat in other parts of the integrated report and investors were already using these parts for decision-making, not realising that some of the information was not audited, hence the IAASB  developing guidance for companies to report material non-financial information. However, the guideline will, for now, be non-authoritative and companies can choose to follow them voluntarily.

However, Vanker said that if investors pushed for auditing of all material information on integrated reports, it could become a requirement. “Our leading position in the world will hopefully lead to some regulation being embedded around this issue.”

He said if external assurance becomes a prescribed framework, it could enable the regulatory body to subject reported facts to inspection, where necessary.

Investors attending the discussion were concerned that many companies were leaving material information out of their integrated reports if it painted them in bad light and wanted the guidelines to indicate the kind of information that should be included as material and subjected to auditing. One example was the tendency by companies to report indicators about water usage in their sustainability reports, despite their operations having little to do with water, but leave out core issues that their risk committees deal with.

Marek Grabowski, chair of the extended external reporting task-force at the IAASB, said SA was already leading other markets when it comes to reporting non-financial information and the regulatory body did not want companies to worry that it was going to stifle innovation if the change is required.

“It’s for this reason that we are not writing new standards, we are only writing guidelines. But we are trying to find a path through the middle of those two extremes,” he said, adding that the IAASB wanted to get input from practitioners, who will have to apply these guideline, and that the revised guidance will be significantly rewritten to incorporate feedback received.

However, Sandra Gouveia, head of integrated reporting at Standard Bank, questioned whether South African companies are ready for this step, given that many companies are still trying to find their feet with regards to integrated reporting.

ButheleziL@businesslive.co.za