Reporting Non-Financial Information ExternallyPosted: March 23, 2015
The external reporting of non-financial measures is all the rage right now. The statistic that over the last 40 years the value of a company has gone from 80% based on items on the balance sheet to 80% based on items not on the balance sheet, is sited time and again as a major reason investors and other stakeholders need information beyond the audited financial statement. As a result we have regulatory initiatives on non-financial reporting from conflict minerals reporting to the SEC “recommending” discussion of cyber security threats and attacks in a company’s 10-K report. We also have groups like the International Integrated Reporting Council (IIRC) developing reporting frameworks to integrate financial and non-financial reporting into a single coherent document that links the impact of the non-financial results to the financial results of a business. And, finally we see groups like the Sustainability Accounting Standards Board (SASB) issuing “standards” for determining and reporting various non-financial measures.
Almost by definition many of these non-financial measures are being developed and reported internally in companies by organizations other than finance. This includes organizations like purchasing, human resources and IT. The question that immediately comes to my mind is do these organizations take the same care to set up an appropriately controlled process to ensure the reported metric is accurate, timely, consistently calculated, etc. This control mindset is second nature to many professional accountants, but may not be for members of organizations outside of finance.
Really, this control mindset is important whether the non-financial information is reported externally or “just” internally. If the information is used by management to make important decisions, the validity and accuracy of that information is critical to the ongoing performance of the organization. This is why professional accountants in business should care about non-financial measures and be involved in the reporting of this non-financial information. It’s not our job be a gate keeper that prevents important information from being reported in the organization; rather it is our job to make sure decisions are being made based on accurate and relevant information. As professional accountants we understand the importance of a rigor in reporting while taking a balanced cost-benefit approach to developing an appropriately controlled process.
The choice is really very simple. Either we get involved in the reporting of these non-financial measures or we stand by and watch the relevance of our work continue to erode just like the percentage of company value derived from the balance sheet.