Please enable JavaScript.
Coggle requires JavaScript to display documents.
Non-financial reporting - Coggle Diagram
Non-financial reporting
Companies have been reporting their financial information for well over 100 years and it is now heavily regulated
Over the last 20 years, organisations have started to report on their non-financial information because there has been a recognition that financial reporting tells only half the story and the annual reports that are being produced are not fit for purpose
King and Roberts (2012) argued that there are a number of problems with traditional corporate reporting
Annual reports, due to ever-increasing regulation and reporting requirements have become so detailed and extensive that many are totally inaccessible to the average reader
Annual reports present the historic performance and activities of the company over the previous financial year
Annual reports have tended to focus on the financial performance of the company excluding information on non financial matters
Due to the focus on financial information, intangibles such as good corporate governance, brand recognition, good reputation and sound risk management are not included in the performance metrics of annual reports. This is because it is difficult to assign them accurate monetary values. The market value of many companies is heavily based on these intangibles so an increasing portion of a company's worth is actually off its balance sheet
The environmental costs of using up natural resources that can be never be regenerated and of the impact of carbon emissions on climate change are excluded from financial accounting
Different reports are prepared for different users, for example the sustainability report and the corporate governance report. Each of these reports tries to meet the demands of a particular stakeholder group. These reports are often not connected as they are developed by different departments within the organisations that are not talking to each other. The result is that they end up showing each stakeholder group a different aspect of the organisation
By focusing on financial reporting only, organisations have been pushed into short-termism as they strive to meet the requirements on a quarterly or six-monthly basis of the markets
Narrative reporting
In response to these problems there has been a move by companies and other stakeholder groups to report more on non financial issues
Describes the additional non-financial information which is included in companies' annual reports, providing a wider and some would argue, more meaningful picture of the company's business, its strategy and future prospects
Historically this included the chair's statement and directors report, the directors remuneration report and the corporate govnernance report. More recently the strategic report and further narrative reporting on risk were added in 2014
New requirement for companies on S.172 on how companies take into consideration in their decision making the interests of employees and other key stakeholders will add to the amount of narrative reporting companies are required to do
The major players demanding that organisations report on the economic, social and environmental impact of their operations are, among others
-
Governments who are dealing with social and environmental issues and looking for economic development
-
Other business, such as suppliers - who may have to meet the sustainability criteria of the organisation or who may be imposing sustainability criteria on businesses they enagege with
Employees - Who want to work for companies that have good reputations based on their corporate responsibility practices
-
-
-
-
Strategic report
To provide information for shareholders and help them assess how directors have performed their duty under s.172
Should
Describe the company's strategy, objectives and business model
-
-
Include an analysis of the development and performance of the business, including key performance indiciators
Include information about the environment, social, community, human rights, anti corruption and anti bribery matters when material
-
Should be
Fair, balanced and understandable
Concise, only including information that is 'material' to shareholders so that key messages are not bscured
-
-
It is a criminal offence for a director to approve the strategic report knowing that it does not comply with the requirements of CA2006
CA2006 introduces a new safe labour in relation to directors' liability for the directors report, the strategic report and the directors' remuneration report
Directors are only liable to compensate the company for any loss it suffers as a result of any untrue or misleading statement is made deliverately or recklessly or the omission amounts to dishonest concealment of a material fact
This safe harbour addresses the concern of directors over liability for negligence when making for example, forward looking statements in the report, in particular the strategic report. The directors liability is limited to the company rather than to third parties