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Reporting of Non-Financial Information in Annual Reports

Dsicuss about the Create and Sustaining Superior Performance.

Accounting and reporting has undergone huge changes post the introduction of the International financial reporting standards and also the stakeholders requirements have increased as the financial reports or the annual reports are no more considered as the post facto analysis which is just the port mortem of what has happened in the past accounting year but also seen as a base for taking future business and investment decisions. In such a scenario, these reports become redundant if it does not gives the futuristic view and the non financial information which the user wants to know before taking decisions (Alexander, 2016). Due to this, there has been an increased importance on reporting of non financial information in the annual reports and the reports demanded by the stock exchanges over different nations as this enable the stakeholders and the users to access the true value of the entity. The same has been analysed using different information and articles in the below section (Bizfluent, 2017).

Accounting and business reporting has been improving over the years and the focus on reporting the non financial information arises of the fact that the percentage of the entity’s market value that is attributable to the tangible assets has gone down from 80% in 1970s to 20% in 2009. This shows the importance and how impactful the non financial information can be for the entity’s future operation (Belton, 2017). Several studies have been done on the same but no consensus has been reached as to uniformity in disclosure for non financial information and therefore the current reporting is being done as per International financial reporting standards or as per the Generally accepted accounting principles of US.

Companies have been experimenting with the same but with no success as to what exactly needs to be reported. But the nature of non financial information can generally be described in the nature of the sustainability report to show what the company has been doing from the environmental, social and ethical perspective. It shows how the company has been able to balance the human and business needs with its work and objectives and what has been planned for the future. It focuses on the company’s initiative on the social well being and preserving the natural resources and the ecosystem (Bromwich & Scapens, 2016). Furthermore, it also includes disclosure of the corporate social responsibility report which shows the management’s approach towards the general well being of the society and how the company is contributing towards the same. It can be in the form of reducing pollution, welfare of the employees through education and medical facilities for their families or on a national or global scale. Sustainability reporting nowadays is being done on the basis of Global Reporting Initiative methodology and CSR reporting has become inevitable in the reporting framework offlate. There is a need of integrated reporting framework whereby financial reporting and sustainability reporting is given equal importance (Choy, 2018).

Nature of Non-Financial Information and Methods of Reporting

The various reporting framework that have emerged overtime for non financial information in the annual reports some of which are:

  1. Global reporting initiative
  2. Global Compact
  3. AA 1000
  4. Integrated Framework
  5. ISAE 3000

The disclosure of the non financial information in the financial statements gives a lot of benefit to the company as well as its stakeholders.

  1. From the company perspective, it helps in attracting, retaining and maintaining the quality workforce. It helps in saving the resources and increases efficiency of the company of decreasing the normal operating costs(Werner, 2017). It also contributes in managing the business risks and improves the efficiency of the process.
  2. From the publicity perspective, it increases the goodwill and reputation of the company in the industry and generates positive publicity in the media and the accounting world. Few of the emamples include Google worldwide and Wesfarmer in Australia which is known for this.
  3. From the perspective of the customer, it helps in strengthening the customer relationship and retention and provides reasonable assurance to the users that the company has been providing quality products and correct information. It also enhances the relationship with the suppliers and other stakeholders in the market(Visinescu, Jones, & Sidorova, 2017).
  4. In terms of reputation, the non financial information improves the reputation thereby increasing positively to the brand value, differentiates the products of the customers from that which is being sold by the company and also helps in winning new business opportunities(Trieu, 2017).
  5. Finally from legal perspective, it helps the company in avoiding and legal case or litigation against the company and fines and penalties as the company is compliant in terms of laws and regulations.

It is often argued that the non financial information cannot be disclosed or shown in the monetary terms and hence it need not be reported but on the hindsight it is this non financial information which drives the actual valuation of the company and its share prices in the stock exchange. It mainly includes environmental effects, social responsibilities and the political situations. In case the company does not meets the requirements, the implications can be hugely detrimental to the interests of the company. It can include fines and penalties for not complying with the legal and corporate governance requirements, the valuation and the share price of the company may fall drastically, the brand image of the company may be tarnished and above all the company may lose customers belief and the shareholder’s interests (Sonu, Ahn, & Choi, 2017). This is why Stakeholders’ Theory is being given importance over the individual interests. In certain case, if the company is not following the given directives, it is perceived to be unethical in its conduct and it faces several consequences as a result of the same. Some of the companies which have suffered the most due to unethical accounting, lack of corporate governance and incompetent management include HIH Insurance company, One Tel Phone company, Enron, Worldcom, Lehman Brothers and many more. In case the sustainability accounting and corporate governance would have been in place, the consequences would have been surely different as the stakeholders would have known the futuristic view of the company. Due to this major collapses only, the concept of corporate governance gained voice.

There were many initiatives at the global front to report the non financial information like United Nations Principles for Responsible Investment’s (UNPRI) Sustainable Stock Exchange Initiative is one of them which was aimed at knowing how exchanges, investors, companies and the regulators can work together to improve the disclosures relating to ESG in the annual report and contribute to the long term approach (Sithole, Chandler, Abeysekera, & Paas, 2017). Some of the countries which are leading the way in terms of implementing sustainability requirements and corporate governance are from the emerging economies like Brazil, India, China, Malaysia, Egypt, Indonesia and South Africa. In 2011, many delegates and a group of investors made a request to the CEOs of around 30 stock exchanges as to the sustainability reporting can be embedded in the listing rules so that it becomes mandatory requirement and the voting would be done in the Annual General Meeting of the company basis this (Raiborn, Butler, & Martin, 2016). Since then, the focus on integrated reporting has increased manifolds. There are many ways in which the non financial information can be disclosed in the annual report of the company. Many standards and the local GAAP focuses on the disclosure requirement of the same. Some of the conmon ways in which it can be casted is through integrated reporting of the social, environmental and ethical information, which will develop the social responsibility. Also, the reporting can be done using various tools like balanced scorecard, sustainability balanced scorecard, sustainability report and corporate governance report. Many companies are also in practice of reporting the code of ethics and the conduct in the financial statements. Some of the other ways that have developed over time are responsibility accounting, increasing the transparency through the directors report, financial inclusion reporting and green banking disclosures (Heminway, 2017).

Corporate Social Responsibility

Corporate social reposnsibility is the concept whereby the company’s initiative and its responsibility towards the social well being and environmental protection is highlighted in terms of how the company is going beyond what is required by the regulators and protection groups. It shows the company’s accountability for what it does for the braoder range of the stakeholders. In the current situation, if the company is growth heavily in terms of bottomline and the topline but is not ethical in its conduct or supercedes or avoid its responsibility towards the environment then the company is not acceptable to the public as it is harming the common interest (Knechel & Salterio, 2016). On the other hand, if the company is not earning substantial profits or are in losses but its business conduct is compliant and viable in terms of sustainability, corporate governance, environment protection and greater interests of the society then the government of the country and the stakeholders are also supporting the same. The main purpose of all this is to ensure that the companies remain ethical in their conduct, develop relationship with customers and employees, maintain the quality of the products being sold and socially responsible for the investment that is being done in them. Furthermore, there are a variety of non monetary benefits that accrue to the entity like better financial performance, reputation improvement and increased customer loyalty, retention of quality and talented staff, brand recognition, cost savings, organizational growth and access to capital, etc (Jefferson, 2017).

This can only be achieved and economic consequences can be avoided only through quality disclosures in the annual reports. Even if the disclosure is being done but it does not align with the financial information and lacks the requisite quality then the purpose is not fulfilled so it needs to integrated. There should be an information symmetry which increases the information demands of the users and which increases the credibility of the information and the enhances the qualitative characteristics of the financial information. This also contributes in increasing the transparency of the operations goingon within the company (Meroño-Cerdán, Lopez-Nicolas, & Molina-Castillo, 2017). The Balanced scorecard is often told to be the first focus of the non financial information as it focuses on the customer aspect, the employees, the society, learning, growth, internal business processes and many more dimensions besides the financial information measures. We have seen offlate that a number of companies have started reporting data on Green house gas emissions as it is one of the burning issues in terms of environment upkeeping. Also, there have been efforts from the corporates to promote the philanthropic giving as this focuses on bringing society in par with the economic development and growth of the company (Dumay & Baard, 2017).

Benefits of Quality Annual Report Disclosures


From the above decision and analysis, it can be concluded that both the financial and non financial information is necessary and integral to the process of business decision making. Both should form the part of the financial statements and the regulatory bodies worldwide need to come out with the common framework on the same so that consistency can be ensured. Financial information is something which can be easily quantified and saves businesses in the short term whereas non financial information is something which focuses on the broad aspect and covers and highlights all the risks and opportunities for the business in the long run and thus helping business to identify what might be the possible financial consequences in the long run.


Alexander, F. (2016). The Changing Face of Accountability. The Journal of Higher Education, 71(4), 411-431.

Belton, P. (2017). Competitive Strategy: Creating and Sustaining Superior Performance. London: Macat International ltd. Retrieved from

Bizfluent. (2017). Advantages & Disadvantages of Internal Control. Retrieved december 07, 2017, from

Bromwich, M., & Scapens, R. (2016). Management Accounting Research: 25 years on. Management Accounting Research, 31, 1-9. Retrieved from

Choy, Y. K. (2018). Cost-benefit Analysis, Values, Wellbeing and Ethics: An Indigenous Worldview Analysis. Ecological Economics, 145. Retrieved from

Dumay, J., & Baard, V. (2017). An introduction to interventionist research in accounting. The Routledge Companion to Qualitative Accounting Research Methods, 265. Retrieved from,+J.,+%26+Baard,+V.+(2017).+An+introduction+to+interventionist+research+in+accounting.+The+Routledge+Companion+to+Qualitative+Accounting+Research+Methods,+265.&ots=ta1isTHB

Heminway, J. (2017). Shareholder Wealth Maximization as a Function of Statutes, Decisional Law, and Organic Documents. SSRN, 1-35.

Jefferson, M. (2017). Energy, Complexity and Wealth Maximization, R. Ayres. Springer, Switzerland . Technological Forecasting and Social Change, 353-354.

Knechel, W., & Salterio, S. (2016). Auditing:Assurance and Risk (fourth ed.). New York: Routledge.

Meroño-Cerdán, A., Lopez-Nicolas, C., & Molina-Castillo, F. (2017). Risk aversion, innovation and performance in family firms. Economics of Innovation and new technology, 1-15.

Raiborn, C., Butler, J., & Martin, K. (2016). The internal audit function: A prerequisite for Good Governance. Journal of Corporate Accounting and Finance, 28(2), 10-21.

Sithole, S., Chandler, P., Abeysekera, I., & Paas, F. (2017). Benefits of guided self-management of attention on learning accounting. Journal of Educational Psychology, 109(2), 220. Retrieved from

Sonu, C., Ahn, H., & Choi, A. (2017). Audit fee pressure and audit risk: evidence from the financial crisis of 2008. Asia-Pacific Journal of Accounting & Economics , 24(1-2), 127-144.

Trieu, V. (2017). Getting value from Business Intelligence systems: A review and research agenda. Decision Support Systems, 93, 111-124.

Visinescu, L., Jones, M., & Sidorova, A. (2017). Improving Decision Quality: The Role of Business Intelligence. Journal of Computer Information Systems, 57(1), 58-66.

Werner, M. (2017). Financial process mining - Accounting data structure dependent control flow inference. International Journal of Accounting Information Systems, 25, 57-80.

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