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WFE Focus April 2011
The integrated reporting discussion paper – September 2011

What is integrated reporting?

Integrated Reporting brings together material information about an organization’s strategy, governance, performance and prospects in a way that reflects the commercial, social and environmental context within which it operates. It provides a clear and concise representation of how an organization demonstrates stewardship and how it creates and sustains value.

An Integrated Report should be an organization’s primary reporting vehicle.

Why do we need integrated reporting?

Since the current business reporting model was designed, there have been major changes in the way business is conducted, how business creates value and the context in which business operates. These changes are interdependent and reflect trends such as:

  • globalization,
  • growing policy activity around the world in response to financial, governance and other crises,
  • heightened expectations of corporate transparency and accountability,
  • actual and prospective resource scarcity,
  • population growth, and
  • environmental concerns.

Against this background, the type of information that is needed to assess the past and current performance of organizations and their future resilience is much wider than is provided for by the existing business reporting model. While there has been an increase in the information provided, key disclosure gaps remain.

Reports are already long and are getting longer. But, because reporting has evolved in separate, disconnected strands, critical interdependencies between strategy, governance, operations and financial and non-financial performance are not made clear. To provide for the growing demand for a broad information set from markets, regulators and civil society, a framework is needed that can support the future development of reporting, reflecting this growing complexity. Such a framework needs to bring together the diverse but currently disconnected strands of reporting into a coherent, integrated whole, and demonstrate an organization’s ability to create value now and in the future.

International differences in reporting

Reporting requirements have evolved separately, and differently, in various jurisdictions. This has significantly increased the compliance burden for the growing number of organizations that report in more than one jurisdiction and makes it difficult to compare the performance of organizations across jurisdictions.

The benefits of Integrated Reporting

Research has shown that reporting influences behaviour. Integrated Reporting results in a broader explanation of performance than traditional reporting. It makes visible an organization’s use of and dependence on different resources and relationships or “capitals” (financial, manufactured, human, intellectual, natural and social), and the organization’s access to and impact on them. Reporting this information is critical to:

  • a meaningful assessment of the long-term viability of the organization’s business model and strategy;
  • meeting the information needs of investors and other stakeholders; and
  • ultimately, the effective allocation of scarce resources.

An international framework

  • The IIRC is developing an International Integrated Reporting Framework that will facilitate the development of reporting over the coming decades. The core objective of the Framework is to guide organizations on communicating the broad set of information needed by investors and other stakeholders to assess the organization’s long-term prospects in a clear, concise, connected and comparable format. This will enable those organizations, their investors and others to make better short-and long-term decisions.
  • The initial focus is on reporting by larger companies and on the needs of their investors. The Framework will help to elicit consistent reporting by organizations, provide broad parameters for policy-makers and regulators and provide a focus for harmonizing reporting standards.

The building blocks

  • Five Guiding Principles underpin the preparation of an Integrated Report.
  • Strategic focus
  • Connectivity of information
  • Future orientation
  • Responsiveness and stakeholder inclusiveness
  • Conciseness, reliability and materiality
  • These Principles should be applied in determining the content of an Integrated Report, based on the key Content Elements summarized below. The presentation of the Elements should make the interconnections between them apparent.
  • Organizational overview and business model
  • Operating context, including risks and opportunities
  • Strategic objectives and strategies to achieve those objectives
  • Governance and remuneration
  • Performance
  • Future Outlook

Future direction

  • The development of Integrated Reporting is designed to enhance and consolidate existing reporting practices and, through collaboration, consultation and experimentation, to move towards a reporting framework that provides the information needed to assess organizational value in the 21st century. The next steps that the IIRC will take in this direction are listed below.
  • Undertake a Pilot Programme to encourage experimentation and innovation among companies and investors.
  • Develop an International Integrated Reporting Framework Exposure Draft, reflecting responses received to this Discussion Paper and the experience gained from the first year of the Pilot Programme.
  • Work with others to support the development of emerging measurement and reporting practices relevant to Integrated Reporting.
  • Raise awareness among investors and other stakeholders and encourage organizations to adopt and contribute to the evolution of Integrated Reporting.
  • Explore opportunities for harmonizing reporting requirements within and across jurisdictions.
  • Develop institutional arrangements for the ongoing governance of Integrated Reporting.

The full report can be found at

About the IIRC?

The International Integrated Reporting Committee (IIRC) is an international cross-section of leaders from the corporate, investment, accounting, securities, regulatory, academic, civil society and standard-setting sectors.

Thanks to Stuart School of Business graduate students Madhursh Rai and Rajeev Ranjan for research assistance in preparing this chapter.
In fact, brokerage firms may actually hold some of the limit order book that is not revealed to the exchange. For example, the hidden portion of an iceberg order may well be resident on the brokerage firm's server, not the exchange's.
Ivy Schmerken, "CME Expands Views of Order Book Data," Advanced Trading, March 26, 2009,
To put this in perspective, it takes about 6,000 ms to read this footnote.
Lisa Kassenaar, "Lime's Gorton Trades Fast, Seeks Car-Free Utopia,", March 23, 2008.
Larry Tabb presented the results in a video at;jsessionid=MT122TWVOM0G1QE1GHRSKH4ATMY32JVN 7 Jonathan Spicer and Herbert Lash, "Who's Afraid of High Frequency Trading?" Reuters, December 2,2009
Jonathan Spicer and Herbert Lash, "Who's Afraid of High Frequency Trading?"Reuters, December 2,2009
Liz Moyer and Emily Lambert, "The New Masters of Wall Street." Forbes Magazine, September 2001,
Cara Scatizzi, "On-Line Discount Brokers 2009," American Association of Individual Investors, Computerized Investing, January/February 2009. Survey of 18 American brokers found prices of $5, $7, $8, and $10, for typically up to 500 shares. The average price of a stock in the Dow Jones Industrial Average was $47 at the time of the survey. Costs continue to fall. On March 10, 2010, Interactive Brokers charged $0.005 per share, or $1.50 for a 300 share trade.
Options traders paid a lower flat fee per contract.
Members got a 90% discount and paid only 7 cents, but it was a member-owned exchange and it seemed fine for the customers to subsidize the members, especially since most members were providing brokering or market making services for the customers.
Source: Appendix D, Network A in Perspective: 1975 - 2000, of NYSE Comments to the SEC Concept Release on "Regulation of Market Information Fees and Revenues" (Release No. 34-42208; File No. S7-28-99) with current price from NYSE.
Larry Schneider, Zaner Group LLC.
Interactive Brokers offers both the traditional orders and algos, programs that allow customers to more actively manage their orders, especially useful when the trading has been automated on the customer's end.
When a firm allows a customer to send it orders directly to an exchange, this is known as sponsored access. If the customer is allowed to bypass the firm's risk management system, this is called unfiltered sponsored access. This unfiltered access is known in the equities world as naked access and in the futures world as direct market access. Carol L. Clark, "Controlling Risk in a Lightening-Speed Trading Environment," Chicago Fed Letter, Number 272, March 2010.
Carol L. Clark, "Controlling Risk in a Lightening-Speed Trading Environment," Chicago Fed Letter, Number 272, March 2010.
Two financial veterans believe the risks are great and have written that quality control in the financial industry is just not good enough and falls far short of standards in manufacturing. See Andrew Kumiega and Benjamin E. Van Vliet, "In Crisis, Give Credit to Quality," Quality Progress, December 2008, p 8-9.
Scott Patterson, "SEC Proposes Banning Naked Access," Wall Street Journal, Jan14, 2010.
They would try to confirm the details of these trades if there was sufficient time, either immediately, or later during quieter periods, but this was sometimes difficult to do when markets were very active. 20 David McNeill, "Fat Finger Trade Costs Tokyo Shares Boss His Job," The Independent, December 21, 2005
David McNeill, "Fat Finger Trade Costs Tokyo Shares Boss His Job," The Independent, December 21, 2005
"Not My Fault," Futures, December 1998, p 12.
Note that exchanges have developed rules, with varying degrees of subjectivity, for breaking or busting trades when these trades were caused by glitches of various kinds. To simplify and standardize things, the SEC worked with all the US securities exchanges to come up with an industry rule that allows breaking a trade only if the price has moved by more than a specified percentage (10%, 5%, or 3%, based on the price level of the stock). This rule on "erroneous trades" became effective October 9, 2009.
Greg Ip, "Casualties in Online Trading Revolution Are Putting E*Trade on the Defensive," Wall Street Journal, June 13, 2000, pg. C.1.
The Pacific Stock Exchange itself was created by a 1957 merger of the San Francisco Stock and Bond Exchange and the Los Angeles Stock and Oil Exchange, but this was part of the earlier trend of merging regional exchanges, and not the current M&A frenzy driven by the tremendous economies of scale made available by electronic order matching. "Pacific Stock Exchange Equities Floor Passes into History," Silicon Valley/San Jose Business Journal, March 21, 2002.
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