Write a report to discuss the economic consequences of nonfinancial information reporting.
Identify and discuss the nature of nonfinancial information.
Identify and discuss of the nature of economic consequences.
Discuss how nonfinancial information should be reported.
Integration of the discussion of these two concepts and discussion of economic consequences of the nonfinancial information reporting.
Non-financial information is actually considered as the sustainability reporting is basically a process of gathering and disclosing data on non-financial aspects of a particular company and its performance including environmental, social employees, and many ethical matters and defining the measurements. Moreover, the indicators and sustainability goals are also explained on the company’s strategy.
In the recent past few years it has been seen that social responsibilities and policy results have been grown up in the public sector. The performance information in budgets and reports has gained more interest of politicians, governor, government and controller. Much of the information and on social effects and performance is of nonfinancial nature. The users of the public sectors have more interest in nonfinancial information which mainly reflects the effects and results of government policy. That is why the reliability and relevance of nonfinancial information are highly crucial. Auditors can play a crucial part in order to provide the information perfectly to the audience. Unlike the financial information the nonfinancial information are new in the market thus it does not have the availability like financial information. The data of nonfinancial information are very diverse. These data are mainly considered as the qualitative data thus these are very hard to measure and assess. Also it can be said that the audit for nonfinancial information is a new subject of audit for the auditors. That is where the main problems arise. That is why Royal Nivra a Dutch organization for accounting profession, initiated a project that resulted in Nivra guide (Lombardi, & Cooper, 2015). This guide helps the nonfinancial information to get reported and assured in the public sector. The main aim of this guide is to help develop a universal basis for assuring and reporting the nonfinancial information. Netherlands Court of Audit, Dutch public sector has been benefitted with the information of nonfinancial information in an effective way. It is understood that nonfinancial information requires proper guidance in order to be effective from the business point of view. There are fewer safeguards for reliability and the quality requirements for the nonfinancial information are not in the standard region (Borrelli, 2014). The exact suitable criteria and frame of reference are not available for the nonfinancial information. It can be said as an example that a theatrical performance may be performed perfectly but the audiences are the ones who will decide whether the show is a grand success or not. This can be represented as an example of nonfinancial information. Special diligence is required for the nonfinancial information in terms of definition, frame of reporting and references (Kim, 2012). Many audiences have asked the auditors about the assurance in nonfinancial information on a standalone basis or in connection with the financial statements. But the auditors can only assure a clear framework in order to assess the information. In the present situation there is no standalone system to accept the nonfinancial information. The information contains quantitative data that carry numbers and these numbers are difficult to measure just for the heterogeneity of the information and the different needs of users. This situation may bring a debatable situation about the origin of the nonfinancial information.
Nature of Economic Consequences
There are various stages of economic consequences where the economy of the country may get affected due to different activities. It doesn’t matter whether the activity is manmade or natural the economy of the country gets affected by this. Economic consequences are mainly related with the facts of capital market and debt market information. Both the information of the markets together can put many impacts on the economic consequences. Capital markets can be accesed as a long term policies where debt markets can be parts of the long term policies. The investments of individuals are included in the debt market and the performance of the business will guarantee the returns on investments. It can be said that the concept of capital markets can make the business effective and it will reflect the performance and the outcomes of the business. Economic consequences may come depending on the financial condition of the country. Top MNCs and many medium or small size businesses play vital roles in order to decide the economic condition (Holgersen, 2014). There are several fields of the market where the economic consequences may occur. There are various reasons of this consequence. They are as follows,
Nature of economic consequence for natural disaster
Natural disasters are the part of the nature and cannot be avoided by any means. It is significant that the natural disasters bring many worries for the businesses that affect the economic condition of the country (Bouafia, & Zahari R, 2017). There are many fields where these disasters put effects but the economic condition of the country gets more affected than any other situations. The imports and the export function of the businesses get affected badly and it results in financial losses. It is the main reason why economic consequences occur. The nature of economic consequences becomes very complicated and the possibility of economic destabilization increases.
Nature of economic consequences for Demographic area
It can be assumed that the demography of a particular country can increase the economic consequences in an effective way. It can be said that the people of the country and their standard of living can change the economic condition of the country and if economic consequences occur then it becomes complicated for the country to stand back against the consequences. There are varieties of situations where the consequence affects the daily life of people of the country and the whole system can be broken down if the consequences are not fixed properly.
Reporting of Nonfinancial Information
Nature of consequences in business field
The businesses are totally dependent on the financial fields (Krabec, & Venegas, 2015). The imports and export system and the financial transaction get affected due to the economic consequences. It can be concluded that the economic consequences have affected many businesses in the past (Gibson, & McKenzie, 2012). Brexit can be taken as a frontline example where UK decided to leave the trade union of Europe and due to this decision many business were affected and still now maximum number of businesses are unable turn back in the proper business field. Economic consequences are the main reason behind this which resulted a huge financial breakdown in that part of the continent. The people of the society and the authority of the business must always be aware and ready for any kind of financial consequences at any stage.
Economic consequences can be a decisive fact and can affect a country’s financial stability in all possible ways. It is to describe that the businesses are the main places where the economic consequences puts its maximum affection. It is desired that the economic consequences does not occur so that the financial run of a country or a business continues in an effective way in the country.
Information is reported in conventionality with a particular frame of references that can represent the criteria or standards for the valuation, classification and presentation of the information. Insofar as this structure relates to the appearance of information in an account, it is referred to as secretarial principles. Financial reporting has gone through a much extended stage of growth, and usually received accounting values are obtainable for it. Examples contain national standards issued by the Dutch Accounting Standards Board and international standards, such as International Financial Reporting Standards or International Public Sector Accounting Standards. With nonfinancial information, the excellence supplies for the information and the way in which it is presented are not uniform. Only limited expert system of conduct for auditors in this information field has been developed. The discuss on reporting and providing declaration on the information is in its initial stages. In conditions of standardization, corporate social responsibility reporting is at the forefront. The Global Reporting Initiative issues international sustainability reporting guidelines whose submission is charitable. Although Royal Nivra published Dutch standard COS 3410N (Assurance Engagements Relating to Sustainability Reports) in 2007, small information has been acquired with it in practice as yet. In order to understand the reporting of nonfinancial information the management cycle is very effective. The management cycle includes all the required processes and stages in order to achieve a perfect reporting of nonfinancial information the stages are as follows,
- The formulation and adjustment of mission, strategy and policy objectives. It means in the first stage of the management cycle the mission of the policy is set(Jiang, Habib, & Gong, 2015). Depending on the mission the activities are mainly done. There are many strategies that can be taken in order to achieve the targets at a particular time. Strategies are mainly built depending on the objectives and the missions. There is s a basic difference between mission and objectives where different objectives all together can build a particular mission (Grenham, 2012).
- Designing the structure and the information system is the second stage of the management cycle. It is clear that in this stage the structure and the information of the nonfinancial information id designed. It can be elaborated in this way that after making the mission and the objectives clear management cycle focuses on building the structure and information system. It has been mentioned previously that nonfinancial information is a new concept in the market and that is why the structure and the information must be built with great attentiveness.
- After building the structure and information, the execution of different processes are done the outcomes are registered in the system. The registered outcomes become the conventional nonfinancial information in the field. It can be elaborated in this way that the registration must be done after going through the structure and all required information.
- After the creation of registered information, they are passed to the stakeholders of the company. It is the responsibility of the management department of the company to make the information popular inside the organization.It has been seen that management cycle has several through which nonfinancial information can be generated and this process is very effective as far as the nonfinancial information are concerned. The assurance of the auditors can also be very handy in this case. Users actually want reliable information and the auditors are the ones who are able to provide the actual information. In this case it is hard to provide the exact information as nonfinancial information is a new concept to everyone including the auditors. The client and user must decide the role of an auditor with respect to the financial information. The auditor may have the following roles in order to report the nonfinancial information,
- The auditor can play the role of an advisor on the improvement and design of the nonfinancial information in the organizational environment by simply providing advice.
- The auditor can play a role of a reporter by finding the process to prepare the nonfinancial information without any assurance. In this case the users draw their own conclusions based on the factual findings of the auditor.
- Assurance provider is another role of an auditor where the auditor gives the assurance to the users about the nonfinancial information and makes the users believes about the information. The reliability of the processes and the information are provided to the users by simply providing the assurance report.
Integration for Understanding the Economic Consequences of Nonfinancial Information Reporting
Non financial reporting is still very new in the market and that is why one cannot say the exact integration of nonfinancial information and economic consequence. It is always desired that economic consequence does not hit the business but no one can predict the future. The case is same in this situation that the nonfinancial information can be very effective for the business either in a positive way or in a negative way. Economic consequences depend on the financial condition or the business activities but nonfinancial information cannot exactly measure the economic consequences thus the reporting of these two processes cannot be made together. Economic consequences actually means the impact of capital market and debt market debt on the information. The most widely followed market is the capital market. In this case both the stock market and bond market are closely followed and their daily movements are analyzed as proxies for the economic condition of the world market. Debt markets are mainly known as the markets where the debt instruments are traded. Debt instruments are the assets that require a fixed payment to the holder. This fixed payment is mainly the interest. The examples of debt instruments include bond and mortgages. Economic With the progression of time if nonfinancial information becomes effective in the field then one can be able to make a report emphasizing both concepts. That is where effective results will be made.
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