Financial Reporting of Nonfinancial Information: The Role of the Auditor

• Date: 01 November 2016
• DOI: http://doi.org/10.1002/jcaf.22218
• Published date: 01 November 2016

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© 2016 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com).

DOI 10.1002/jcaf.22218

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Financial Reporting of Nonfinancial

Information: The Role of the Auditor

Luke Murphy and Robert Hogan

INTRODUCTION

The seemingly

ever increasing impor-

tance of corporate

social responsibility

(CSR), the grow-

ing call for integra-

tion between CSR

reports and historical

financial reporting,

and the competition

among various meth-

odologies attempting

to establish standardized inte-

grated reporting are all forces

pushing auditors to increas-

ingly opine on nonfinancial

information. Nonfinancial data

is increasingly being found

throughout firms’ annual

reports in an effort by manage-

ment to present value beyond

the measures historically used

to express firm performance to

interested stakeholders. Nonfi-

nancial information is valued by

external stakeholders and helps

to provide context and legiti-

macy in light of management’s

strategic choices and in under-

standing firm performance.

Our aim is to explain the

value of nonfinancial measures,

to present the current U.S.

domestic standards related to

auditing nonfinancial mea-

sures, and to examine other

developing standards related

to nonfinancial measures as

well as the progression toward

broad acceptance of these

fledgling standards. We will

pursue theseaims while ask-

ing, “Should auditors attest to

the accuracy and reliability of

nonfinancial information?”

DEFINITION OF NONFINANCIAL

INFORMATION

According to the Financial

Times, nonfinancial informa-

tion includes “measures of

performance that

are not expressed

in monetary units.”

These measures can

be found throughout

a firm’s annual and

quarterly reports

as well as in other

information that is

published beyond the

annual report, most

notability reporting

related to CSR and

sustainability. Non-

financial measures can take

a variety of forms. Examples

include statistical measures of

a company’s facilities, number

of employees, web traffic, con-

sumer satisfaction, and mar-

ket share, just to name a few.

These other reports that are

published alongside a firm’s

annual report come packaged

in a variety of different ways

and may carry titles such as a

corporate sustainability report,

a corporate responsibility

report, or reports on a compa-

ny’s community involvement.

Regardless of the name, the

volume of additional reporting

is dramatically on the rise, and

all of these examples include

This study examines the increasing role of nonfi-

nancial information within the scope of financial

reporting and the role of the auditor. As social

responsibility and sustainability become more of

a mainstay in corporate culture, the reporting of

nonfinancial information rises. We discuss the

requirements and pressures placed on the audi-

tors as the amount of nonfinancial information that

is included in the financial reports increases.

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