The management accountant and non-financial information The management accounting series launched in last month's Journal introduced

the themes getting ready for growth and the role of strategy. Here the role of non-financial information is examined. Non-financial information is performing an increasingly important role in accounting. It has the potential to add significant value, while simultaneously providing challenges. Challenges associated with non-financial information include identifying what it is, why it might be used, where it is appropriate to use, and how assurance activities might be conducted. What is non-financial information? Non-financial reporting is sometimes referred to as: social accounting corporate social responsibility reporting (despite applying across sectors) environmental reporting sustainability reporting service performance reporting integrated reporting. Generally, non-financial reporting refers to information that falls outside the scope of mainstream financial statements. The term is broad and at times misleading as it suggests that the information reported does not have direct financial impact. For example, changed consumer beliefs and shifts in societal attitudes may be considered non-financial elements that have a potentially significant financial impact. What are the benefits of non-financial information? In considering the benefits of relying upon non-financial information, it is important to remember that non-financial information tools and frameworks were born out of dissatisfaction with financial information in isolation. The result of such dissatisfaction is evident when tools such as the balanced scorecard and other performance management systems are considered. There are key benefits to reporting non-financial information. It can add value and mitigate risk by providing a richer account that considers more forwardlooking aspects in decision making. The questions of what might constitute value and to whom will vary depending on the view taken. One common view is that non-financial information can be coupled with financial

information to deliver insight into organisational management and inform strategy. The provision of forward-looking information provides greater business intelligence and makes for more informed decision making. For example, changes in consumer attitudes may well exist in advance of purchasing decisions and therefore the transactions that accompany them. Furthermore, the ability to collect and use broader and more relevant information underpins the ability to minimise risk by pre-empting changes occurring in the wider business environment and acting accordingly. That is, if beliefs or the wider environment change then redesign of your products or services, and how they are presented, appears a worthy consideration. In an increasingly environmentally and socially conscious marketplace, nonfinancial information forms a key element of risk mitigation. The New Zealand economy is reliant on activities such as agriculture and tourism. An attribute underpinning both of these is a clean and green branding. With limited nonfinancial information available to defend (or address) social and environmental aspects relating to these activities such branding remains vulnerable. A recent example was a criticism of New Zealands long-haul food products contributing to greenhouse gas emissions. Subsequent research suggests that higher-than-average carbon emissions in exporting food are offset by lower-thanaverage emissions in production. Without the use of non-financial information to provide counter-arguments, many organisations may be disadvantaged. Second, non-financial information may communicate value in a way that financial information may not. The primary argument launched by the International Integrated Reporting Committee (IIRC) is that the current financial reporting model has been developed for an industrial world in which the value of a business is largely represented by its tangible and financial assets. The IIRC asserts that reporting must fundamentally change as intangible value now represents a greater percentage than physical value. Physical and financial assets for the S&P 500 comprised 83% of total value in 1975, in contrast to 19% in 2009. This change provides support for the idea that financial reporting be supplemented with non-financial information. How have accountants responded? Accountants have responded to the challenge of providing non-financial information in a number of ways. Management accountants have long worked with performance measurement frameworks such as the balanced scorecard, integrated reporting, and sustainability reporting. More recently, full cost accounting tools such as the sustainability assessment model (SAM) have incorporated various social and environmental elements that are weighted and monetised. Beyond these tools lie a vast number of institutes, organisations, faculties and charities interested in progressing the collation, analysis and dissemination of non-financial information. So what do you need to think about?

The issues associated with non-financial information exist beyond the scope of any given article. However, there are several key questions you can consider when thinking about non-financial information and how it relates to your business. i) What is your organisational strategy and how might non-financial information support this? In considering how non-financial information might add value to internal decision making or reporting, think about what benefits may arise (ie improved stakeholder engagement, performance management) and the associated costs of collation, interpretation, and risk to reputation. Once you have a clear understanding of your organisations strategy you will be in a stronger position to select what non-financial information has causal relationships with successful outcomes (and the avoidance of unsuccessful outcomes). ii) How will you ensure your non-financial information is credible? Assurance considerations must be embedded at an early stage to avoid the provision of inaccurate or misleading information. Financial accountants are only too aware of the increased scrutiny the Financial Markets Authority is paying to non-IFRS material included in annual reports. In a similar light, management accountants must also be aware of the reliance placed on the provision of nonfinancial information (albeit voluntary) and ensure it is accurate and credible. Independent review or certification by a third party is often an effective way of signalling to external audiences. iii) How will you capture and present non-financial information? There are a variety of tools and frameworks that exist to communicate nonfinancial information, such as indicators, indicators with formal assessment criteria (ie weightings and benchmarks that indicate progression), and modelling using tools like multi-criteria decision analysis. Bebbington (2007) elaborates on the above distinctions and the following examples may be considered to further extend this categorisation; an example of an indicator www.eea.europa.eu/promoproducts/indicators; an example of an indicator with formal assessment - hdr.undp.org/en/statistics; an example of a model www.myfootprint.org. In determining what non-financial measures might be most suitable development logistics should be factored in. The time it takes to develop or modify an accounting information system to capture (and report) non-financial data can be considerably longer than anticipated. At the same time as the system or process to capture this information is designed, attention must be paid to how this information will be analysed and used. iv) What are the emerging trends and how do these affect you? Increased national and international attention to non-financial information is the most salient trend. One of the most influential developments has been the release of the International Integrated Reporting Committee (IIRC) discussion paper. The IIRC was founded by the Global Reporting Initiative, the Prince of

Wales Accounting for Sustainability Project, and IFAC, and now includes a cross section of leaders from corporate, investment, accounting, securities, regulatory, civil society and standard-setting sectors. Mandatory integrated reporting is now in place for listed entities in South Africa. The NZICA Technical Team will monitor developments with regard to Integrated Reporting and non-financial accounting more broadly and report back accordingly. There will be CPD courses and conferences in 2012 that provide more guidance on the latest accounting tools and issues. For more information about this article or accounting queries please email the NZICA Technical Team Technical@NZICA.com. Further details on the NZICA Sustainability Special Interest Group can be obtained from nzica.com.