These users use non-financial information to monitor and improve the organization's strategy, operations, culture, values, and stakeholder relationships.
Therefore, non-financial reporting must be relevant, reliable, understandable, and actionable.
However, non-financial reporting may also be of interest to external users who want to evaluate the organization's impact on society and the environment.
For example, customers may prefer to buy from organizations that are socially responsible and environmentally friendly.
Investors may seek to invest in organizations that have good governance practices and long-term growth potential.
Regulators may require organizations to comply with certain standards or disclose certain information related to their non-financial performance.
To meet the needs of external users who are interested in non-financial information, some organizations may choose to follow voluntary frameworks or guidelines for non-financial reporting.
Some examples of these frameworks or guidelines are:
- The Global Reporting Initiative (GRI) Standards1, which provide a comprehensive set of sustainability reporting standards that cover topics ranging from biodiversity to tax.
- The International Integrated Reporting Council (IIRC) Framework, which promotes integrated reporting that combines financial and non-financial information in a concise and coherent way.
- The Sustainability Accounting Standards Board (SASB) Standards, which focus on industry-specific ESG issues that are material for investors.
- The Task Force on Climate-related Financial Disclosures (TCFD) Recommendations, which aim to improve the disclosure of climate-related risks and opportunities by organizations.
True or False Statements About Reporting
Now that we have a basic understanding of what financial and non-financial reporting are, let us look at some of the common statements that are made about them and see which ones are true and which ones are false.
Statement 1: Financial reporting is more important than non-financial reporting.
False. Financial reporting and non-financial reporting are both important for different reasons and serve different purposes.