Question 2

“Extending the boundaries of annual report with non-financial information”.

Required: Write an essay analyzing the above statement. Your essay should also consider the
following issues: Importance of non-financial information in financial report and future possible
trends in reporting of non-financial information.

Word Limit: 500 words

NON-FINANCIAL DISCLOSURE

Non-financial disclosure is the practice of measuring, disclosing and being accountable to

internal and external stakeholders for organizational performance towards the goal of sustainable
development. Examples of non-financial information include environmental impact, your
relationship with your vendors, diversity in the workplace and social responsibility.
Maintaining a business isn't just about the Benjamins. At the point when you settle on plans or
choices for your business, you need financial information, yet non-financial information is of
equal importance too [ CITATION She19 \l 1033 ]. These non-financial information is used in the
decision making process, as well as source of information in allocating resources towards any
business. Therefore, extending the boundaries of annual report with non-financial information is
equally relevant as there are times when non-financial information is required for an investment
decision, helps managers in making decisions about market share, quality management and
environment protection. This essay intends to highlight the importance of non-financial
information in financial report and future possible trends in reporting of non-financial
information.

Stakeholders have increasingly shown their level of interest over the years in corporate
environmental, social and ethical performance of a business. This is one of the many importance
of disclosing non-financial information in the financial report. Investors and traders are
increasingly considering the environmental, social and governance (ESG) or Corporate Social
Responsibility (CSR) performance of companies when making investment decisions. Because if
you publish high-quality non-financial information, you’ll be more visible to investors, whether
they consider ESG/CSR information voluntarily, or do it because they have to.
Secondly, non-financial disclosure helps improve internal organisation and employee awareness.
Different departments within the business organisation will contribute towards the non-financial
information that is needed in financial reporting, e.g. human resources, administration,
procurement and operations. By doing this, it helps to create awareness among the employees. It
shows that, complementary to the financial performance, the improvement of non-financial
performance is relevant to management and the organisational well-being as well.

In addition to the above, non-financial information focuses more on long term than financial
information. Financial measures mostly focus on annual and short term performance of
accounting indicators. They do not deal with quality, reputation, brand name, customer
satisfaction, competitors movement and human issues. But in order for the business to achieve
strategic goals and long term sustainability in this competitive business world, then non-financial
information is crucial in decision making.

Finally, the future possible trend in reporting non-financial information can come about because
information from companies are disclosed to a wide range of stakeholders and, majority of these
stakeholders, prefers non-financial information over financial information. Transparency is a
global trend in society. Customers and the general public are more concerned about the behavior
and operations of organizations. Therefore, matters such as human rights, sustainability, ethical
conduct, anti-corruption and respect of laws and regulations are considered very important. The
positive contribution of entities to welfare is also highly significant to investors and users of
financial reports. Disclosure of non-financial information should become compulsory for
companies of certain sizes and jurisdictions, as this could be the answer to the significant societal
demand for greater transparency. In satisfying this demand, companies and other organizations,
including those in the public sector, can increase the trust and reputation of the entity; both of
which are very valuable intangible drivers of value.

In conclusion, non-financial information has drawn its importance these days due to rapidly
increasing competition, dynamic market changes and changing customer needs and wants.
Depending only on the financial information for decision making won’t give the competitive
edge to companies, other aspects such as Corporate Social Responsibility (CSR), environment,
customer satisfaction, employees satisfaction, quality management and government policies also
be included in decision making. In the end, it all comes down to integrating thinking– using non-
financial information as input for your corporate strategy. This is what the future of business is
all about.

(Approx.: 637 words)

REFERENCES
Bedenik, Osmanagic, N., Barisic, P. (2019, July 3). Non-Financial Reporting: Theoretical and
Empirical Evidence. Retrieved from Sustainable and Management Practices:
https://www.intechopen.com/books/sustainable-management-practices/nonfinancial-reporting-
theoretical-and-empirical-evidence

Gomez, A. (2019, May 17). Trends in Disclosing Non-Financial Information. Retrieved from
International Federation of Accountants: https://www.ifac.org/knowledge-
gateway/discussion/trends-disclosing-non-financial-information

Sherman, F. (2019, July 7). Nonfinancial Vs. Financial Information. Retrieved from biz fluent:
https://bizfluent.com/info-7758431-nonfinancial-vs-financial-information.html