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Accounting alert 2011/05 - Non-financial reporting (including sustainability and integrated reporting)

Considerations for financial reporting at 30 June 2011

Author: Frank Betkowski and Debbie Hankey, Accounting Technical Group

The move towards other measures of business performance

There are increasing expectations for entities to provide more meaningful reporting on their business performance, including for non-financial aspects of performance.

Whilst only one new requirement exists relating to gender diversity reporting (see below), it is noted that more and more Australian investors have committed to responsible investment principles, which include a commitment to consider the longer-term value creation potential of companies, including their broader impact on society and the environment, as part of their long-term strategy to achieve shareholder value from investments. At the same time, developments for ‘Integrated Reporting’ have emerged, with an intention over the coming years to create an International framework for entities to report on their business and sustainability performance in an integrated annual report.

An example: gender diversity

One example of this trend is the new requirement to report on gender diversity as per the ASX Corporate Governance recommendations. The new requirement originates from amendments made to the ASX Corporate Governance Principles and Recommendations in June 2010, which will apply to an entity’s first financial year commencing on or after 1 January 2011. The recommendations are that Australian publicly listed entities should:

  • Establish a policy concerning gender diversity and disclose the policy or a summary of that policy (not necessarily in the annual report, ASX Governance Recommendation 3.2)
  • Disclose in each annual report the measurable objectives for achieving gender diversity set by the board in accordance with the diversity policy and progress towards achieving them (ASX Governance Recommendation 3.3)
  • Disclose in each annual report the proportion of women in the organisation, women in senior executive positions and women on the board (ASX Governance Recommendation 3.4).

Australian publicly listed entities are obliged to follow these recommendations, or explain the reason why they haven’t followed them, according to Listing Rule 4.10.3. The Federal government has stated an intention to make a similar requirement for all companies with 100 or more employees from 2013.

Other mandatory requirements

Other mandatory non-financial reporting requirements exist, in particular:

  • Corporations Act 2001 section 299A(1)(f) regarding disclosure in the directors’ report on environmental compliance performance
  • Energy Efficiency Opportunities Act 2006 requiring large energy consumers to provide an annual disclosure on energy efficiency performance (though not necessarily in the entity’s annual report)
  • National Greenhouse and Energy Reporting Act 2007 requiring large greenhouse gas emitters and energy users to report to the regulator its annual greenhouse and energy performance. No requirement exists to provide it in the entity’s annual report, however, the regulator annually discloses head-line performance for each entity based on the entity’s reporting to the regulator
  • The National Pollutant Inventory (NPI) requiring sites under state-based environmental licence to report certain environmental performance indicators into the NPI-database, with the information being disclosed to the public (however, no requirement for it to be part of the entity’s annual report).

These are examples of some of the current reporting requirements that exist, and are not a complete list of all the requirements that may exist. It is up to each entity to understand and meet its mandatory reporting requirements.

Global developments

These increasing expectations and requirements in Australia are in line with increasing requirements and developments internationally. In August 2010, The Prince's Accounting for Sustainability Project (A4S) and the Global Reporting Initiative (GRI) announced the formation of the International Integrated Reporting Committee (IIRC), which aims to create a globally accepted framework for accounting for sustainability, bringing together financial, environmental, social and governance information in an “integrated” format. GRI has recently released its G3.1 Sustainability Reporting Guidelines and the Professional Accountants in Business (PAIB) Committee of the International Federation of Accountants (IFAC) has released the second edition of the IFAC Sustainability Framework. It is expected the Group of Twenty (G20) will consider sustainability/integrated reporting later in calendar 2011.

A number of countries are already moving towards adopting new sustainability or integrated reporting requirements. Notably, entities listed on the Johannesburg stock exchange in South Africa are, for reporting periods beginning on or after 1 March 2010, required to prepare integrated annual reporting covering both financial reporting with sustainability performance. Targeted guidance and requirements are also evident in the United States, Canada, Singapore and elsewhere.

Deloitte are expecting these trends to continue to drive further improvements in corporate reporting in Australia over the coming years, particularly in light of increasing expectations and increasing mandatory requirements for such non-financial reporting.

More background on global developments in sustainability and integrated reporting can be found at

Impact on financial reporting

To address the increasing expectations, Deloitte encourages entities to make further use of ASX Guidance Note 10 ‘Review of Operations and Activities: Listing Rule 4.10.17’ and the G100s ‘Guide to Review of Operations and Financial Condition’, providing guidance on the form and content of the directors review of the entity. The guidance includes recommendations for providing more comprehensive reviews covering short-term financial analysis and discussion as well as discussion on how the entity is enhancing future results. This includes considering both financial and non-financial (including sustainability) performance.

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