A new reporting metric that seeks to capture the non-financial operations of companies is underway and sector regulators are gearing up to adopt it.
Known as Integrated Reporting (IR), the reporting metric goes beyond just analysing the financial position of a company, but also quantifying other non-financial operations which companies use in creating values, Innocent Okwuosa, chairman, Nigerian Integrated Reporting Committee, the local body of the council, said.
“The current reporting of financial performances alone is no longer sufficient to provide investors with enough information to make proper investment decisions,” Okwuosa said.
“The greater part of what is important now is elsewhere financial reporting is not equipped to capture,” he said
Okwuosa who sat for over three hours speaking with journalists at a media parly in Lagos, Nigeria’s commercial capital, said as opposed to the early 60s when tangible assets, which financial reporting captures, represented about 80 percent of a company’s corporate value, the trend has reversed with tangible assets now constituting only 20 percent.
That, he said, was a pointer to why reporting companies’ performance should go beyond just the traditional financial reporting to include the quantification of the non-financial assets that are used to create value.
These non-financial assets being used by companies to create value, and which IR aims to capture, include financial capital, manufacturing capital, natural capital, social and relationship capital, human capital, and intellectual capital, Okwuosa said.
“Financial reporting cannot exist on its own but needs inputs from other metrics,” he said. ” For instance, an oil company that is operating at the heart of Niger Delta region or a company that engages in gas flaring, the integrated reporting looks at all these holistically and provides answers to how businesses create value through resource allocation, future outlook, business models and strategies.”
By adopting the Integrated Reporting as a way of showing to investors a clear representation of the non-financial position of a company, Nigeria will join the league of its economic rival, South Africa, which has already kick-started the implementation of IR, and whose economy is already reaping the fruits in terms of Foreign Direct Inflows (FDI), according to Okwuosa.
Other member countries of the African Integrated Reporting Council include Kenya, Zimbabwe and Morocco. The initiative is backed by the World Bank and the Pan African Federation of Accountants (PAFA).
In Nigeria, the NIRC, which Okwuosa chairs, is in charge of driving integrated reporting, and the committee is being funded and championed by the Institute of Chartered Accountants of Nigeria (ICAN).
Its strategic action that would enable it to drive integrated reporting and thinking in Nigerian revolves around awareness and advocacy, engagements and capacity building, according to Okwuosa.
As a way of engaging with stakeholders and creating awareness of integrated reporting, the committee has as its members representatives from the Financial Reporting Council (FRCN), Securities and Exchange Commission (SEC), the Nigerian Stock Exchange (NSE), Central Bank of Nigeria (CBN), Nigeria Deposit Insurance Corporation (NDIC), National Pension Commission (PenCom), Association of National Accountants, National Insurance Commission (NAICOM), Corporate Affairs Commission (CAC), and also the Institute of Board of Directors, which Okwuosa said is in the forefront of promoting governance.
The NIRC boss also said the committee is already in talks with the management and CEO of NSE so as to kick start the implementation of integrated reporting particularly with premium board companies, and also as part of listing requirements for companies coming to raise capital from the market.
“We hope to engage with all our members so they can take it to their various industries in which they regulate, such that integrated reporting would be part of what companies will include in their annual report or for the NSE, it will be added as part of their listing requirement as currently done by the Johannesburg Stock exchange,” Okwuosa said.
“The truth is that we are not a regulator. We are only a private sector advocacy group hence, we need to engage with regulators of various industries to carry the message to their members,” he added.
Okwuosa who is also a council member of the Institute of Chartered Accountants of Nigeria and an Associate professor of accounting & head of department, accounting and finance at Caleb University, said as part of the committees mandate which is to promote capacity building, plans are in the works to train and retrain auditing firms on the tools needed in carrying out the integrated reporting since they are at the forefront of dealing with companies
“Auditors are not equipped to carry out Integrated reporting hence, the need to be retrained for to be able to carry out such an audit,” he said.