Nature and Economic Impact of Non-Financial Information Reporting

Advance Financial Accounting
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Contents
Introduction................................................................................................................ 3
Nature of Non-Financial Information and Nature of its Economic Consequences.......3
Non-Financial Information Disclosure Ways................................................................4
Economic Impact of Reporting Non-Financial Information..........................................6
Conclusion.................................................................................................................. 7
References................................................................................................................. 9
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Introduction
It has been widely recognized that business entities need to develop and report
sustainable information in regards to their social, economic and environmental performance. The
lack of appropriate non-financial disclosures can result in having a negative impact on the
accountability and responsible behavior of the business corporations. As such, the business
corporations are seeking to use non-financial reporting in a way to improve the risk management
by receiving continued support from society, economy and environment to promote their long-
term growth. This report has been undertaken to examine the nature of disclosing non-financial
information, its economic consequences and the different ways adopted by businesses to provide
information about their non-financial activities.
Nature of Non-Financial Information and Nature of its
Economic Consequences
The non-financial information refers to provide disclosure regarding the performance of a
company in terms of its social, economic and environmental impacts. The businesses are
integrating the disclosure of non-financial data with the financial data for providing an analysis
of their operational and strategic risks to the investors. Such information is largely required by
the investors for ensuring that business does not have risks related to their operations and
strategies that can negatively impact on their growth and development. The nature of non-
financial information provided by business entities include developing reports in relation to their
CSR (Corporate Social Responsibility), ESG (Environmental, social and governance)
performance, integration of environmental and social reporting in annual reports and initiatives
such as disclosures regarding green banking (Adams, Cohen & Baraka, 2017).
The CSR reports development is a voluntary reporting initiative undertaken by business
entities to provide the information about their social and environmental impacts. It enables a
company to become socially accountable to its stakeholders. The International Organization for
Standardization (ISO) has provided a series of voluntary reporting standards that business can
adopt for developing their CSR reports. It has been required under the CSR disclosures provided
by business that they need to provide information about the impact and different measures that a
business is adopting for ensuring the well-being of its different stakeholders including
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employees, suppliers, customers, general public and the environment at large. In addition to this,
the business also develop ESG framework that provides information about the environmental,
social and governance aspects that helps in assessing the sustainability and ethical impact of
business operations (Huang & Watson, 2015).
This type of reporting along with providing social and environmental ifnormation is also
helpful in examining the internal control systems and procedures through evaluation of its
governance framework. The ESG framework is adopted by businesses to quantify environmental
and social impacts in financial terms and disclosing them along with financial reporting. The
inclusion of sustainability performance within the annual report is also practiced by the company
for stating their social and environmental performance. An innovative approach that has been
undertaken by businesses in this context is providing disclosures regarding the environmental
friendly approaches that have been implemented for reducing the carbon footprint associated
with their business activities. The businesses are developing and providing information about
their carbon footprint and the measures adopted for reducing it with the use of developing green
banking disclosures (Bazley, Hancock & Robinson, 2014).
The non-financial information also influences the economic performance of a firm as it
influences its cost of capital. The nature of its economic impacts is related with non-financial
information includes assessing its impact on earning potential future cash flows, stock price and
cost of capital. The disclosure of CSR information has a large impact on the stakeholders as it
helps in assessing the risk level associated with investing within a firm and influencing the
investment decisions (Kim & Li, 2014).
Non-Financial Information Disclosure Ways
The business entities tend to disclose data about their non-financial information in terms
of the activities and measures that they are undertaking to maximize their social, economic and
environmental performance. The voluntary reporting of such non-financial information by
businesses is undertaken in various formats due to lack of an internationally accepted framework
in this respect such as IFRS for financial reporting. As such, different business entities around
the world adopt the use of various types of reporting frameworks for reporting of their
sustainability information (Girella, 2018). For example, the businesses operating within South
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