On 1 September 2009 the King Code of Governance Principles for South Africa (“King III”) was released. This document, a follow on to King I and King II, arose directly as a result of the intended introduction of a new Companies’ Act no 71 of 2008 in South Africa. The King reports, prepared and issued by the King Committee, are internationally regarded as being at the forefront of corporate governance.

One of the significant recommendations of King III is that not only should organisations adopt and implement sustainability reporting but they should go a step further. As stated by Mervyn E King, (King Committee Chairman) in his introduction to King III “Sustainability is, however about more than just reporting on sustainability.  It is vital that companies focus on integrated performance.” It is thus that King III introduces the concept of integrated sustainability performance and integrated reports into South African Corporate Governance principles.

In addition, the Johannesburg Stock Exchange Limited (“JSE”) has incorporated King III into its listings requirements.  This is putting South African listed organisations in the position where, with effect from financial years commencing on or after 1 March 2010, they are required to issue an integrated report.  If they do not do so they will be required to explain why not. The question now arises as to what Integrated Reporting is and what guidelines exist which organisations can follow.

Many organisations currently report financial information in the form of statements of financial position, comprehensive income, changes in equity and cash flow statements.  These are presented in terms of existing commonly used frameworks such as International Financial Reporting Standards (“IFRS”). In addition, a number of frameworks have developed around sustainability reporting.  Examples of these are the Sustainability Reporting Guidelines issues by the Global Reporting Initiative (“GRI”) and the criteria set out by the JSE in the JSE Social Responsibility Index.

King III defines integrated reporting as “a holistic and integrated representation of the company’s performance in terms of both its finance and its sustainability.” Currently however, no definitive framework exists for Integrated Reporting although a number of initiatives are attempting to develop such a framework.

One of these is the Integrated Reporting Committee (“IRC”) of South Africa.  The IRC is made up of representatives from a number of Professional Bodies in South Africa and is chaired by Professor Mervyn King, the chairman of the King Committee.

The initial objective of the IRC, given the requirement for JSE listed companies to produce integrated reports, was to develop guidelines on good practice in Integrated Reporting. The result is that once again South Africa is at the forefront of International Reporting initiatives with the publication of the Framework for Integrated Reporting and the Integrated Report as a Discussion Paper on 25 January 2011. The objective of this Discussion Paper is to provide practical direction as to the nature and format of the Integrated Report.  It is not prescriptive but does suggest certain basic components.

These are as follows:

  1. A description of the scope and boundary of the integrated report.

  2. An overview of the organisation and its activities.

  3. A description of material risks and opportunities.

  4. A description of the organisation’s strategic objectives.

  5. An account of the organisation’s performance in terms of its strategic objectives.

  6. A statement of the organisation’s anticipated activities and future performance objectives.

  7. An overview of how employees and senior executives are remunerated.

  8. A brief analytical summary to provide an understanding of the organisation’s governing structure and executive team.

Each of these components is dealt with in detail in the Discussion Paper.  What is important for organisations to understand, and a principle clearly dealt with throughout the Discussion Paper, is that integrated reporting is not simply a combining of existing financial and sustainability reports.  It is a report which may utilise some of the information contained in these reports but needs to go beyond this.

It needs to provide users with an overview of an organisation and its performance not only from a financial perspective but incorporating all the environmental and social factors surrounding an organisation and its ability to function in the current environment. Its objective is to provide users with a far broader range of information than just financial and it is for this reason that Integrated Reporting will become a vital component of the image presented by organisations in the future.

John Jones

Corporate Taxation and Audit Partner , Johannesburg