International view: Integrated Reporting – A Trouble-shooter for Indian Reporting

By Dr Nandita Mishra
Associate Professor, Amity University Uttar Pradesh, India

Over the past few years corporate reporting in India has evolved a lot. The main agenda was to change the conventional and complex reporting formats to crisper and more relevant reporting. A few significant amendments were introduced to reduce repetition of information in the annual reports but the disclosure of all necessary information remains. In India, companies include both mandatory disclosures and some voluntary disclosures in their annual report. Mandatory disclosures are required mostly as per the provisions of the Companies Act 1956 along with its various amendments and by the Security Exchange Board of India (SEBI). Whereas the voluntary disclosure differs from company to company and may include forward-looking statements, human and intellectual capitals details, stock market information, foreign exchange information and risk-related disclosures.

The combination of the mandatory and voluntary disclosures adds so many pages to the annual reports that it is difficult to extract important information from them. Also, they sometimes lack uniformity.

Instances of fraud and economic crimes are increasing in India. The Indian banking system reported a fraud of 10 billion USD in the financial year 2018-19. Recent data suggests that fraud will continue to rise in the current financial year (2019-20). Bad loans due to the economic slowdown can be one of the reasons, but the bigger worry are corporate frauds. 73% of the total fraud involve large corporate frauds. Today, the banking industry needs a prompter and more precise reporting system so that stakeholders can make more informed decisions. A more transparent and concise reporting system could be one of the solutions to this crisis.

Integrated reporting could prove to be the best solution to the problem, as it provides a more holistic and inclusive picture than current reporting regimes. It improves the quality of information disclosed in the annual report without adding pages. Because it is more cohesive, it provides more useful information which stakeholders require to assess the ability of the organisation to create value in the short-, medium- and long-term. This will help stakeholders to take more informed decisions. It also enhances accountability and stewardship of the board.

In India, after the International <IR> Framework was published in 2013, the SEBI chairman Mr. U.K.Sinha invited the Confederation of Indian Industry (CII) to prepare a roadmap on integrated reporting for India. The SEBI formed the Kotak Committee to help improve Corporate Governance in listed companies. However, not many companies adopted integrated reporting after 2013. Then on 6th February 2017, the SEBI published a circular stating that the Top 500 listed companies of India should voluntarily adopt integrated reporting from the next financial year. Kirloskar Brothers Ltd was the first to adopt in 2013-2014 followed by Tata Steel in 2014-15. Now, around 40 companies have adopted integrated reporting in India. In an independent study conducted by me on 33 companies (excluding the financial and banking sectors) which have adopted integrated reporting, it was found that company leaders are very positive about the adoption. They also feel that it will lead to increased opportunities to raise finance. The only hindrance which they identify in the adoption of integrated reporting is the lack of understanding of the underpinning concepts of integrated reporting – which will need extensive promotion and the formation of a dedicated body to organise awareness programs in the region. I am working with the International Integrated Reporting Council to try to set up such a body.