Integrated reporting is increasingly being adopted around the world to communicate the story of “The Business” to investors and other stakeholders (reporting on The Business is defined in Accelerating Integrated Reporting Assurance in the Public Interest, page 3). To build the credibility of integrated reports, integrated reporting assurance is also on the rise. This article highlights recent developments in integrated reporting and the assurance of integrated reports, including the experience of a selection of organizations and their assurance providers.

IFAC’s The State of Play: Sustainability Disclosure and Assurance – 2019-2021 Trends & Analysis shows that over the three-year period to 2021, fewer companies relied on stand-alone sustainability reports. The use of integrated and annual reports as the location for sustainability disclosures significantly increased over that period. The adoption of integrated reports surged in specific jurisdictions including France which saw a 44% increase from 2020 to 2021.

Similarly, momentum for integrated reporting assurance has also increased since 2021, driven by corporate and investor demand with some jurisdictions mandating integrated reporting assurance in some form – including Brazil and some European Union countries, such as Spain, Italy and France.

How will Developments in Reporting and Assurance Standards Relate to Integrated Reporting Assurance?

The International Sustainability Standards Board’s (ISSB) General Requirements for Disclosure of Sustainability-related Financial Information (IFRS S1) and Climate-related Disclosures (IFRS S2) will be effective and available for jurisdictional adoption for annual reporting periods beginning 1 January 2024. These IFRS Sustainability Disclosure Standards represent a global baseline for reporting on sustainability risks and opportunities that require sustainability-related financial disclosures to be issued at the same time as the financial statements, and for the same reporting period.

Aspects of the International Integrated Reporting Framework and the Financial Stability Board’s Task Force on Climate-Related Financial Disclosures (TCFD) Recommendations, including reporting on governance, strategy, risk management and metrics and targets in relation to sustainability risks and opportunities, have been embedded within IFRS S1 and S2.

Integrated reports usefully provide the business context for disclosures under these standards describing the connectivity between sustainability and financial value creation, and how a company’s ability to deliver financial value to investors is inextricably linked to the stakeholders with whom it works and serves, the society in which it operates and the natural resources upon which it draws. Accordingly, assurance of disclosures resulting from applying S1 and S2 could form part of an integrated reporting assurance engagement.

All instances of integrated reporting assurance to date have been delivered under ISAE 3000 (Revised) or jurisdictional equivalents and involve the assurance practitioner making a judgement that the organization’s Basis of Preparation and Presentation provides suitable criteria for assurance.

Going forward, integrated reporting assurance will be within the scope of the International Standard on Sustainability Assurance (ISSA) 5000, General Requirements for Sustainability Assurance Engagements, the International Auditing and Assurance Standards Board’s (IAASB) proposed Sustainability Reporting Assurance Standard which is a landmark global sustainability assurance standard to be issued in its final form in 2024.

ISSA 5000 should drive momentum towards integrated reporting assurance as well as assurance engagements in relation to sustainability reporting frameworks and standards, including the IFRS Sustainability Disclosure Standards.

Despite ISSA 5000 being a profession-agnostic standard (supporting its use by both professional accountant and non-accountant assurance practitioners), we believe that integrated reporting assurance should be led by financial statement (statutory) auditors, whose professional skills and training including assurance skills and techniques, and ethics and quality management will mean greater confidence in the assurance being delivered in integrated reporting assurance engagements. Ideally, companies should not need to duplicate their investment in assurance by having two separate practitioners acquire the requisite understanding of a business to deliver their audit / assurance conclusions on an integrated report.

Building Momentum - Drivers of Integrated Reporting Assurance

In some jurisdictions, integrated reporting assurance is driven by regulation. In Brazil, such assurance is required on an “opt in” basis, and in Spain, Italy and France, partial integrated reporting assurance is required through mandatory independent assurance over a partial description of The Business and associated metrics and KPIs in non-financial statement disclosures.

In other jurisdictions, integrated reporting assurance is driven by market demand. As can be seen from the statements below from companies that have obtained integrated reporting assurance, companies recognize the value it can provide to investors and other stakeholders, in terms of enhanced transparency and credibility. 

Country Developments in Integrated Reporting Assurance

Brazil

The Brazilian Securities Commission (CVM) mandated that companies who choose to prepare integrated reports must prepare those reports under the International Integrated Reporting Framework and have them assured by an independent external auditor.

The CVM adopted Resolution 14 in 2021 for first adoption in 2022:

• Article 1 makes it mandatory for publicly held companies who decide to prepare an integrated report, to do so in accordance with the Brazilian Committee for Accounting Pronouncements (CPC)’s Integrated Reporting Framework directive.
• Article 2 makes it mandatory to obtain limited assurance on such integrated reports from an independent auditor registered with the CVM in accordance with the rules of the CPC.

Some of the 700+ companies subject to this resolution, including Itaú Unibanco Holding S.A., the largest bank in Brazil, adopted this resolution in 2022 in relation to their 2021 reporting.  In the first year in which the resolution was effective, 2023 in relation to 2022 reporting, 51 companies obtained integrated reporting assurance.

Itaú’s 2022 Integrated Annual Report was assured by PwC.  Itaú’s integrated report follows the International Integrated Reporting Framework and GRI Standards to report on its performance and value creation.

Alessandro Broedel Lopes, Group CFO, said the following about the company’s decision to obtain assurance of its integrated report:

PwC’s assurance report is expressed in terms of the company’s Basis of Preparation and Presentation and included the following statement (page 81):

“Based on these procedures performed, described herein (in this report), and on the evidence obtained, no matter has come to our attention that causes us to believe that the non-financial information included in the Integrated Annual Report of Itaú Unibanco Holding S.A. has not been prepared, in all material respects, in accordance with the criteria of the basis of preparation and guidelines of the Global Reporting Initiative (GRI-Standards) and with the Guidance CPC 09 – Integrated Report.”

The EU

Article 19(a) of Directive 2022/2464/EU of the European Parliament (the Corporate Sustainability Reporting Directive) contains the following requirement for management report information necessary to understand how an organization’s (“the undertaking’s”) sustainability matters affect its development, performance and position:

• Paragraph 2(a) requires “a brief description of the undertaking’s business model and strategy including (i) the resilience of the undertaking’s business model and strategy in relation to risks related to sustainability matters; (ii) the opportunities for the undertaking related to sustainability matters; … (iv) how the undertaking’s business model and strategy take account of the interests of the undertaking’s stakeholders and of the impacts of the undertaking on sustainability matters.”
• Paragraph 2(g) requires a description of the principal risks to the undertaking related to sustainability matters, including a description of how the undertaking manages those risks.
• Paragraph 2(h) requires disclosure of relevant (performance) indicators.

These disclosure areas are also covered in the International Integrated Reporting Framework.

The general assurance mandate in relation to these paragraphs was originally set out in the Accounting Directive (2013/34/EU), which was amended to become 2014/95/EU (the Non-Financial Reporting Directive). The general assurance mandate remained intact in the amendments to Directive 2013/34/EU in Directive 2022/2464/EU, mainly in paragraphs 60-61, requiring Member States to transpose the general requirement that the disclosures on the business model, strategy and risk management be subject to some form of checking by the financial statements’ auditor.

Accountancy Europe’s Factsheet Towards Reliable Non-Financial Information Across Europe highlighted how EU Member States have transposed the Non-Financial Reporting Directive (NFRD) in their own jurisdictions. It explains that there are three possible approaches open to Member States in relation to how the mandatory requirements for the statutory auditor or the independent assurance services providers have been transposed:

• Existence approach, where the financial statement (statutory) auditor checks the existence of the required non-financial disclosures in the Management Report.
• Consistency approach, where the financial statement auditor checks the consistency of the required non-financial disclosures with the audited financial statements.
• Mandatory independent assurance, where the financial statement auditor assures the required non-financial disclosures on either a limited or reasonable assurance basis.

For example, Spain and Italy have requirements for mandatory independent assurance that would constitute partial integrated reporting assurance based on information in the management report being subject to independent assurance.

Spain

The Spanish mercantile legislation by way of Law 11/2018 establishes the direct link to the NFRD and now the CSRD. It transposes the Article 19(a) disclosure requirements into Spanish law. Pronouncement 11/2018 applies to the approximate 6,000 companies falling within its scope.

Banco Bilbao Vizcaya Argentaria (BBVA) is a large listed Spanish bank with assurance on its integrated annual report. The EY independent assurance report on the BBVA Annual Report 2022 includes a conclusion on non-financial disclosures required by the Spanish transposition of Article 19(a):

EY’s conclusion could equally have been expressed in terms of the International Integrated Reporting Framework, IFRS Sustainability Disclosure Standard S2 in relation to climate-related financial risks and opportunities and S1 in relation to other sustainability-related financial risks and opportunities.

Italy

Italian corporate law and regulation by way of Legislative Decree 254/2016 establish the direct link to Article 19(a). Legislative Decree 254/2016 applies to listed companies.

Generali Group, one of the world’s leading insurance and asset management companies, has independent assurance on its Annual Integrated Report and Consolidated Financial Statements 2022. The assurance report from KPMG, who is also the auditor of the Generali financial statements, stated:

Legislative Decree 254/2016 requires disclosure of the management and organization of the company’s strategy and business model, its policies in the ‘non-financial sector’ and the main risks connected to the company’s activities and to its products, services and commercial relations.

KPMG’s conclusion could equally have been expressed in terms of the Integrated Reporting Framework, IFRS Sustainability Disclosure Standard S2 in relation to climate-related financial risks and opportunities and S1 in relation to other sustainability-related risks and opportunities.

Demand for Voluntary Integrated Reporting Assurance

Market forces have driven demand for integrated reporting assurance on a voluntary basis in the Netherlands, India and Australia.

The Netherlands

The Netherlands chose to transpose the EU assurance mandate into the “consistency approach”. Notwithstanding this, ABN AMRO and Rabobank have both chosen to obtain integrated reporting assurance of their entire Integrated Reports on a voluntary basis.

ABN AMRO was one of the first organisations in the world to obtain integrated reporting assurance for its 2017 integrated annual report, and currently with its Integrated Annual Report 2022. Rabobank has followed ABN Amro, which could be an indication that peers in an industry may follow if one company obtains integrated reporting assurance.

The Global Head of Reporting, Regulation and Stakeholder Management, Tjeerd Krumpelman said:

 

Jan Niewold, EY signing engagement partner for its ABN AMRO integrated reporting assurance engagement, stated in his assurance report in 2022 (page 359):

 

Jan Niewold separately observed:

 

India

Prominent companies known to be obtaining integrated reporting assurance on a voluntary basis are Tata Chemicals and Cipla.

Tata Chemicals is a member of the Tata Group and has interests in chemicals, crop protection and specialty chemistry products. Its Integrated Annual Report 2022-23 and Independent Assurance Statement  disclosethe following about the reporting criteria for the integrated report:

 

The integrated report assurance report for Tata Chemicals by EY contained the following statement:

 

Ramakrishnan Mukundan, Chief Executive Officer of Tata Chemicals made the following observation about the decision by Tata Chemicals to obtain integrated reporting assurance:

 

Australia

Integrated reporting assurance is contemplated within Australia’s corporate governance code, the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations. Recommendation 4.3 requires that a listed entity:

Recommendation 4.3 asks directors to report on an “if not, why not” basis on their processes for ensuring the integrity of their periodic corporate reports other than audited financial reports - such as Operating and Financial Reviews and separate integrated reports. Recommendation 4.3 is the equivalent of paragraph 1.24 of the Integrated Reporting Framework which recommends that Boards of Directors describe their process for ensuring the integrity of their integrated reports. Integrated reporting assurance provides a sound basis for Board of Directors to fulfil their requirements under Recommendation 4.3.

Construction and Building Unions Superannuation Fund (Cbus) is a large pension fund in Australia managing funds of approximately US$50 billion (as a non-listed pension fund, Cbus is not subject to the ASX Corporate Governance Principles and Recommendations but its joint venture partner, Dexus, is a listed property company which is subject to Recommendation 4.3). The CEO of Cbus at the time the decision was made to obtain integrated reporting assurance in 2019 was David Atkin, who is now CEO of the London-based Principles of Responsible Investment (PRI).  The Cbus Annual Integrated Report 2022 is assured by KPMG Australia.

David Atkin observed:

 

KPMG assurance partner, Julia Bilyanska, said in KPMG’s assurance report (page 76):

 

Julia observed that:

Conclusion

Momentum is building for Integrated Reporting assurance driven by:

• Increasing expectations and regulatory requirements for the assurance of sustainability-related disclosures which are increasingly located in integrated reports;
• Market demand from investors and companies to enhance confidence in integrated reporting and integrated thinking, and ultimately the resilience of companies;
• Jurisdictional assurance mandates such as in Brazil, Spain, Italy and France, where integrated reporting assurance is captured by assurance requirements for non-financial information and management reporting that includes descriptions of The Business; and
• The development of ISSA 5000 by the IAASB under which integrated reporting assurance is included in its scope.

As the practice of integrated reporting and integrated reporting assurance continues to grow globally, standard setting and best practices in relation to sustainability-related and integrated reporting assurance will progress, which will further enhance the quality of reporting as well the quality of assurance.

The population of organizations obtaining full or partial integrated reporting assurance is already significant and represents a contribution to assurance quality and investor confidence in capital markets. We encourage all organisations to take steps now to progress to and benefit from a more integrated form of assurance which will enhance the confidence of investors and other stakeholders in using the information in integrated reports.