Reporting on non-financial issues Flashcards
King and Roberts (2013) argue that there are a number of problems with traditional corporate reporting. Name 5
- too heavy for postman = so detailed and extensive that annual reports are inaccessible to the average reader
- Yesterday’s story = annual reports present historic performance of the previous financial year
- Some intangibles and costs are excluded = e.g. good CG and environmental costs
- Different reports are prepared for different users = the ‘silo effect’ = 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
What does narrative reporting describe?
Name 4 major players who are demanding that organisations report on the economic, social and environmental impact of their organisations.
= describes the additional non-financial information which is included in companies’ annual reports
e.g. chair’s statement and directors’ report, directors’ remuneration report, and corporate governance report
- shareholders/investors, to assist in their investment decision making;
- consumers, who are looking to buy products from sustainable resources;
- employees, who want to work for companies that have good reputations based on their corporate responsibility practices;
- banks, who are looking to lend money to organisations with good corporate responsibility practices
What is the corporate governance statement?
Listing Rules 9.8.6R = requires listed companies to make a statement in their annual report and accounts on how they have:
- Applied’ the Principles within the 2018 Code
- ‘Complied’ with the Provisions within the 2018 Code
* Where a company is unable to comply with the provision, an explanation should be provided
What is the purpose of the strategic report?
What 5 things should the report include?
In doing this, what else should the strategic report be? (3)
CA2006 (Directors’ Report and Strategic Report) Regulations = to help shareholders assess how directors have performed their duty, under section 172 of the CA2006, to promote the success of the company
- company’s strategy, objectives and business model
- main trends and factors affecting the company
- principal risks and uncertainties
- analysis of the development and performance of the business
- gender diversity
1.be fair, balanced and understandable
2.be concise
3.include company-specific information
What are the consequences of a director approving the strategic report knowing that it does not comply with CA2006 requirements?
What is a safe harbour?
What does this mean?
What does the safe harbour address?
Who is the director’s liability limited to?
They commit a criminal offence
- S.463 CA2006 = introduces a safe harbour for directors’ liability for the directors’ report, strategic report, and remuneration report
- = Directors only liable to compensate the company for any loss it suffers as a result of any untrue or misleading statement in, or omission from, one of these reports if:
1. the untrue or misleading statement is made deliberately or recklessly
2. the omission amounts to dishonest concealment of a material fact
addresses the concern of directors over liability for negligence when making forward-looking statements in the reports
Limited to the company rather than 3rd parties
What is ESG reporting?
What are 2 sets of regulations which have introduced this and an example of a rule they have brought in? (2 for the second one)
ESG reporting = the requirements for mandatory annual CSR reporting
- CA2006 (Strategic and Directors’ Reports) Regulations 2013 = report in directors’ report on the annual quantity of greenhouse gas emissions in tonnes of carbon dioxide produced
- Companies (Miscellaneous Reporting) Regulations 2018
a. Large companies = include s.172 statement in strategic report
b 250+ employees = include statement in directors’ report on how engaged with employees
What is Triple Bottom Line reporting?
Which 3 elements does it take into account?
Why (advantages)? (2)
What are 3 challenges with TBL reporting?
= an accounting framework which includes information about a company’s social, and environmental, and financial performance when evaluating the overall performance of an organisation
- Take into account 3 elements = profit, people, and planet
- organisation can calculate the full cost of doing business
- boards and management are more likely to pay attention to them = create more socially and environmentally responsible organisations
- Challenges:
1. Cannot add up the three separate disclosures of financial, social and environmental information = Difficult to quantify S&E in monetary terms
- No widely accepted set of standards for TBL reporting or measuring S& E impacts = difficult to compare companies
- Lack of trust in the image presented by companies = many companies present good news whilst withholding the bad news
○ e.g. Argued tobacco companies carry out CSR initiatives as a marketing exercise
What is an integrated report?
What does an integrated report present?
Why is integrated reporting seen as essential to stakeholders?
What should the integrated report record? (2)
= concise communication about how an organisation’s strategy, governance, performance and prospects lead to the creation of value in the short, medium and long-term
= presents a company’s social and environmental performance in a way which is integrated with its financial performance
= to enable all stakeholders to make informed assessments of the economic value of a company
- The integrated report should record:
1. how the company has impacted (both positively and negatively) the economic life of the community in which it operated during the year
2. how in the coming year it can improve the positive and eradicate or reduce the negative
(Principle 5 of King IV)
What is the importance of integrated thinking for an organisation in relation to non-financial reporting?
What should integrated thinking take into account? (5)
= enables an organisation to better understand the relationships between its various operating and functional units
- the capitals the organisation uses and affects
- the external context in which the organisation operates
- the opportunities and risks faced
- activities, results and performance – past, present and future
- financial and non-financial information
What are 5 major benefits to an organisation that has adopted integrated reporting according to Eccles and Krzus (2010)?
- Greater clarity about relationships and commitments between financial and non-financial performance
- Better decisions = helps companies identify the most important financial and non-financial metrics
- Deeper engagement with stakeholders = enhances transparency and accountability in relation to sustainability issues and CSR
- Helps eliminate the artificial distinction between shareholders and stakeholders
- Lower reputational risk = helps monitor trends = improve awareness of how social norms are changing
What is the difference between sustainability reports and integrated reports?
- Sustainability reports (TBL reporting) = describe the organisation’s non-financial performance, both positive and negative, in areas such as the environment, society and governance. Reports are targeted at stakeholders
- Integrated reports = combine financial and non-financial information and are usually targeted at investors
What does the Global Reporting Initiative (GRI) provide?
Provides a voluntary sustainability framework designed to enhance global comparability of information = greater transparency and accountability of organisations.
What has the International Integrated Reporting Council (IIRC) developed?
What does integrated reporting aim to do? (3)
IIRC has developed an international integrated reporting framework
- Integrated reporting aims to:
1. Improve quality of information
2. Enhance accountability and stewardship
3. Support integrated thinking and decision making (Promote cohesive approach to corporate reporting)
Why are many companies obtaining external assurance for their CSR initiatives and sustainability reports?
Name an example of external assurance.
These assurances provide a measure of credibility as they are performed by 3rd parties.
- The International Organisation for Standardisation (ISO) has established standards against which organisations can receive certification
