Essay On Economic Consequences Of Non-Financial Information Reporting

Non-financial information

Write a report to discuss the economic consequences of nonfinancial information reporting.

Communication with stakeholders is believed as fundamental reason behind compiling of non-financial information in reports of organization. The requirement of standardizing manner of non-financial information reporting leads to enhance the transparency and clarity regarding the action taken by organization for employees, society and environment. The present report provides a detail discussion relating to non-financial information and economic consequences regarding same. Further, the manner in which non-financial information should be reported by the organization has been discussed. The report ends up with an assessment of the relationship between economic consequences of financial information and manner of reporting same by the organization.

Non- financial information can be referred as information relating to social, environmental and human rights information of an organization (Barth, Cahan, Chen and Venter 2016).  In other words, it can be said that it comprises all variants expect those which are covered in financial perspective in order to assess the financial wealth of an organization. The areas which are covered in non-financial information are as follows:

• Discrimination
• Health and Safety
• Education
• Power of access information
• Health of community
• Freedom of expression etc.

Reporting of non-financial information in believed as a prominent way to enhance existing level of risk management along with financial performance and competitiveness (Armstrong, Guay, Mehran and Weber, 2015). Presently investors and regulators are emphasizing on various methods in order to gauge non-financial information as the same is as important as financial information. It can be bifurcated into two categories internal and external. Detail relating to strategic management vision, objectives of management and governance policies are covered under the internal category of non-financial information (Cañibano, 2017). On the other hand, external information is attained through the marketplace and emphasizes on competitor’s move and lending condition to business legislation. Moreover, external reporting is believed as part of information policies which reinforces the reliability of efforts made for stakeholders along with relationship management. An organization is able to build competitive advantage through appropriate external reporting.

Non-financial information is important for decision making relating to an organization in the same manner as financial decision making. The financial information reveals the fact relating to accounting data regarding profitability, solvency and liquidity position of an organization. As the above could be accessed through ascertainment of appropriate relating ratio analysis. However, in the present scenario, it is necessary for an organization to provide appropriate non-financial data also in order to remain ahead of its competitors as well as for attaining higher profits for the long term. Dumay (2016), asserted that the detail of non-financial information is provided through sustainability report and in part of the annual report which is referred as corporate social responsibility statement. An organization presents detail relating to the efforts which have been made by the company for creating and developing the condition of delicate balance between human and business needs.

Assessment Of Nature Of Economic Consequences

Figure 1: Economic consequences of Non-financial reporting

(Source: Frias?Aceituno, Rodríguez?Ariza and Garcia?Sánchez, 2014)

The management of an organization is believed as the base of the success which has been attained by it. The fact cannot be denied that higher growth and higher profits attract management as well as investors. But the same can be continued on a constant basis only the workforce or the management is satisfied with the provisions and policies of organization (Frias?Aceituno & et al. 2014). If an organization emphasizes on financial as well as non-financial information in an equal manner than it is able to attain as well attract efficient employees. The detail relating to same is being provided in Sustainability Reporting which comprises the ethics followed by the organization relating to the management of workforce

Sustainability reporting is believed as a process of accumulating non-financial aspects of an organization (Gao, Dong, Ni and Fu 2016). The reason behind same is that it comprises the measurement, indicators and sustainability goals of an organization. It is one of significant economic consequence relating to management regarding non-financial information. As the organization is able to influence the best management to be part of their organization .

The company which provides non-financial information in appropriate manner does surely move one step ahead of its competitors in its efforts relating to enhancing the goodwill of the company. As public got to know about the efforts which have been made by the organization for retaining natural resources or the attempt to provide a good life to the employees along with their families (Ioannou & Serafeim, 2017). The specified detail affects the goodwill of an organization in a significant manner.

An organization is able to develop positive public image through accomplishing responsibility of being a responsible part of society. Big corporations are believed to be having responsibility for developing the society along with the development of their organization. Thus, detail relating to same is provided in the form of non-financial information to general public. Through this people get to know about the efforts made by them for development of society and which ultimately develops a positive public image of the organization.

Non-financial information is having significant significance on the bond between customers and the organization (Krištofík, Lament & Musa, 2016). the Non-financial information provides the details regarding the efforts made by the company for the upliftment of society. The customers get to know about the efforts made by the organization for retaining natural resources as well as other practices relating to employees and management. The same strengthen the bond as well as retain the customers.

Attracting and retaining a satisfied workforce

The appropriate reporting of non-financial reporting comprises the following elements:

Comprehensive model: It is necessarily required for an organization to comply with statutory performance reporting but the same does not mean that statutes have prohibited enhanced reporting (2016), assessed that application of comprehensive model leads to a range of specific capabilities such as assessing the operations as well as information required by stakeholders. Even the person deployed for collecting such information should be provided along with a discussion of performance indicators relevant to the elements.

Appropriate measure system: Performance reporting is base on appropriate measurement system which is able to collect relevant as well as reliable data. Maroun (2015) asserted that existence of appropriate non-financial information along with financial information leads institutions to prepare outcomes which can be applied by public entities to prepare appropriate outcome. The data and statistics which have been applied in order to reach a conclusion should also be discussed in the report.

Accessibility of significant information along with cost-benefit test: The information should be provided along with cost-benefit analysis so that investors, as well as other users of the report, are able to understand the same in an appropriate manner. In case the expenditure which has been expended by the organization for the development of a society which might comprise expenses on the education of children of the employee , expenditure regarding any other benefit to the general public, expenditure relating to the project for retaining natural resources etc. should be provided with cost as well as benefit. Through detail assessment user of the report will be able to compare the benefits along with the cost of the efforts which has been made by the organization (Martínez?Ferrero, Garcia?Sanchez & Cuadrado?Ballesteros, 2015). Non-financial information reporting and its economic consequences

Economic consequences of non-financial information depend on the manner it has been reported by the organization. The more appropriate manner of presenting non-financial information leads to significant positive economic consequences. A proper presentation comprises details relating to cost and benefit analysis (Martínez?Ferrero,  Ruiz?Cano & García?Sánchez,  2016). Through this; the user of the report is able to compare the same and analyze whether appropriate application of funds have been made by the organization or not. They will be able to compare the detail with other companies too. Advantage can be attained by the organization through providing detail information relating to social development and environmental retaining by the organization that it has a good image in mind of consumers. The same assures the strengthening of the bond between the two, i.e. organization and customers.

Moving ahead from competitors

In case an organization is having appropriate policies of development of society, employees along with development and success of organization but the same does not present in an appropriate manner (Tschopp & Huefner, 2015). Thus, in specified situation company will not be able to attain advantage even though it has expended for the development of society or make efficient efforts to provide all facilities to its employees. The same will lead to inappropriate economic consequences for the organization as well as for existing business environment also. An organization will not gain any advantage even though after appropriately being responsible towards the environment as well as the society. Further, it will also get demotivated towards making future attempts too. Another issue which will be faced by the organization in case appropriate presentation of non-financial information is not presented in appropriate manner than the same will not motivate other organization for presenting such details along with making such attempts. Narrative data along with statistics regarding non-financial expenditure by reporting entity is as important as information relating to performance in supplying goods and services. The reason behind same is that it has a significant impact on stakeholders, society or the community to which the entity belongs. In words of Martínez?Ferrero, Ruiz?Cano & García?Sánchez (2016), the economic consequences and quality of reporting of non-financial information by the organization are inter-related to each other. The more detail information is being provided; the higher positive economic consequences could be attained by the reporting entity. With same economic consequences, an organization is able to attain an appropriate required rate of growth too.

Conclusion

Corporate Social Reporting and Sustainability reporting can be referred as two main areas or report in which an organization provides non-financial information. The above study concludes that through CSR reporting stakeholders are empowered to ascertain the contribution of an organization for increasing public welfare. Further, investors and shareholders are also able to assess non-financial risk and liabilities of an organization. The fact can be revealed from above discussion that non-financial information plays a significant role while investors take an investment decision. Moreover, in case of appropriate effort has been made for doing welfare of society, and environment and same have been reported in an appropriate manner than positive economic consequences can be attained by the organization

References

Armstrong, C., Guay, W. R., Mehran, H., & Weber, J. (2015). The role of information and financial reporting in corporate governance: A review of the evidence and the implications for banking firms and the financial services industry.

Barth, M. E., Cahan, S. F., Chen, L., & Venter, E. R. (2016). The economic consequences associated with integrated report quality: early evidence from a mandatory setting. The University of Pretoria, unpublished working paper.

Cañibano, L. (2017). Accounting and intangibles.

Dumay, J. (2016). A critical reflection on the future of intellectual capital: from reporting to disclosure. Journal of Intellectual capital, 17(1), 168-184.

Frias?Aceituno, J. V., Rodríguez?Ariza, L., & Garcia?Sánchez, I. M. (2014). Explanatory factors of integrated sustainability and financial reporting. Business strategy and the environment, 23(1), 56-72.

Gao, F., Dong, Y., Ni, C., & Fu, R. (2016). Determinants and economic consequences of non-financial disclosure quality. European Accounting Review, 25(2), 287-317.

Ioannou, I., & Serafeim, G. (2017). The consequences of mandatory corporate sustainability reporting.

Kaspina, R. G., & Molotov, L. A. (2016). Corporate integrated reporting: an efficient tool of economic security management. Academy of Strategic Management Journal, 15, 225.

Krištofík, P., Lament, M., & Musa, H. (2016). The reporting of non-financial information and the rationale for its standardisation.

Maroun, W. (2015). Culture, profitability, non-financial reporting and a meta-analysis: Comments and observations. Meditari Accountancy Research, 23(3), 322-330.

Martínez?Ferrero, J., Garcia?Sanchez, I. M., & Cuadrado?Ballesteros, B. (2015). Effect of financial reporting quality on sustainability information disclosure. Corporate Social Responsibility and Environmental Management, 22(1), 45-64.

Martínez?Ferrero, J., Ruiz?Cano, D., & García?Sánchez, I. M. (2016). The causal link between sustainable disclosure and information asymmetry: The moderating role of the stakeholder protection context. Corporate Social Responsibility and Environmental Management, 23(5), 319-332.

Tschopp, D., & Huefner, R. J. (2015). Comparing the Evolution of CSR Reporting to that of Financial Reporting. Journal of Business Ethics, 127(3), 565-577.