Non-financial Information Research Articles

Audit of non-financial reporting: what standard should be used?

A business entity of whatever kind seeks to operate in long-term perspective by achieving the strategies set out by it, including the strategies pertaining to social justice, environmental protection, friendly use of natural resources and their renewal. It is also a matter of the society’s concern. It is for this reason that non-financial reporting for sustain­able development, provided by business entities, is demanded by users. The verification of non-financial information is assigned to independent auditors. Although auditors use the International Standard 3000 “Assurance Engagements Other Than Audits or Reviews of Historical Financial Information” for the verification purposes, the International Standard 3410 “Assurance Engagements on Greenhouse Gas Statements” can also be applied for specialized spheres. When non-financial information is submitted together with financial re­porting, the International Standard 720 (revised) “The auditor’s responsibilities relating to other information” will be applicable. On the request of international donor organizations, an auditor is allowed to use the International Standard 4400 “Agreed-upon procedures engagements”. Given that the International Standard 3000 is the most demanded among the auditors, the International Auditing and Assurance Standards Board provided a guid­ance on its application. The phases of non-financial reporting audit and their content were clarifi ed on the basis of the International Standard 3000. The choice of an international standard depends on the conditions of an engagement and relies on the professional judg­ment of an auditor. Irrespective of a chosen standard, an auditor bears the responsibility for the assessment of published non-financial reports for sustainable development. Real­izing the responsibility before users of non-financial reporting, an auditor must assure the quality of his services in keeping with the requirements of the International Standard on Quality Management (ISQM 1). The working document of an auditor “Quality assessment of assurance engagements other than audits or reviews of historical financial information (non-financial reporting)” was elaborated, which would help assure the internal control of auditing at engagement level. This document is standardized and can be used in the auditing practice.

Концепция ESG-аудита организаций государственного и корпоративного секторов

The article raises the issues of leveling by the audit community the influence of the ESG transformation of the information ecosystem of the activities of economic entities on the development of the methodology for auditing public reporting. The essence of the problem lies in the significant lag of the regulatory system and the applied practice of confirming the reliability of information published in the reporting of corporate and public sector organizations from the pace of updating regulatory regulation and expanding the practice of generating and disclosing non-financial reporting information in the context of rapid ESG transformation. The article provides an overview of the regulatory framework and practice of verifying the reliability of non-financial information by audit organizations. The characteristics of methods of verification of non-financial reporting information, alternative to traditional audit, are given. The conceptual provisions and methodological approaches to the ESG audit of public and corporate sector organizations are formulated.

Impact of ESG on the investment attractiveness of business

Purpose. The main goal in initiating this study was to explore the impact and exposure of these factors, through a review of significant research works by leading world scientists in this field.Methodology. To conduct the study, there was used a scientometric methodology with a selection of the most cited studies in the ESG field in Science Direct, Scopus, and Web of Science databases, which provided the information basis for the research. General scientific methods (synthesis, induction, grouping) formed the basis of the research methodology carried out in the format of a literature review.Originality / value of the research. The value of the research results is determined by the formulation of key research areas on ESG issues in the context of the application in the investment analysis methodology. In particular, questions were raised about the importance of ESG principles in evaluating companies for their investment attractiveness.Findings. As a result of the study, there were established groups of scientific research areas concerning the ESG impact on the development of corporate governance and assessment of companies' investment attractiveness. These recommendations are addressed both to analysts when developing reports for investors to make investment decisions, and to the companies themselves, which will be able to adjust their actions in achieving sustainable development goals, understanding the significance of the non-financial information they provide in investment analysis.

The juridification of social accounting and the transposition process of the non-financial reporting directive 2014/95/EU

PurposeThis paper aims to critically analyse the transposition implications of Union Directive 2014/95. This Directive identified the need to raise the transparency of the social and environmental information provided by the undertakings to a similarly high level across all Member States.Design/methodology/approachThe paper considers how the European Member States of the European Union (EU) have transposed Directive 2014/95 into their regulations. The focus is on the juridification of social accounting in the pursuit of creating an overlapping consensus through Habermas’s concept of internal colonisation. The paper uses qualitative content analysis to scrutinise the national laws that transpose Directive 2014/95, discussing both what has been accomplished and what can be achieved by the release of future legislative provisions.FindingsDespite the aim of Directive 2014/95 to create a common language for disclosing non-financial information, this study shows an implementation gap among and between Member States and an inconsistent picture of the employment of this Directive. Its implementation in the 28 European countries was considered a process of colonisation in implementing Union directives among European undertakings. However, the implementation process, which exemplifies Habermas’s juridification, has failed due to the lack of balance between moral discourse and actions.Originality/valueThis paper contributes to the ongoing debates concerning the implementation of mandatory disclosure of environmental and social information in the EU Member States, promoting new directions for the EU’s democratic laws on social accounting. In addition, it offers an example of how internal colonisation only catalyses effects when moral laws are legitimised through the provision of procedures.

The Disclosure of Zakat by Islamic Banks (IBs) and Development Financial Institutions (DFIs) in Malaysia

As an Islamic finance institution, the transparent disclosure of zakat payment to stakeholders is one of the ways in which the organization demonstrates Islamic ethical value and accountability through business transaction. The effective, translucent, and timely reporting to the stakeholders (i.e., the public, regulators, investors, and others) is critical to the economic decision-making process as well as equitable distribution of resources to the society. Despite the various variations in zakat disclosure, less attention is given to the disclosure practices on zakat information by Islamic banks (IBs) and Development Financial Institutions (DFIs). Therefore, this study aims to examine firstly, the zakat disclosure requirements by regulations and then the zakat disclosure for all IBs and DFIs in Malaysia. This study adopted content analysis on the financial statement, annual report, annual integrated report, and annual sustainability report for the 2019 financial year. The whole population of 16 IBs and six DFIs were selected. This study found inconsistency in zakat disclosure of the different banks and other zakat-related practical issues in the descriptive analysis. The inconsistency varies from the method, rates, policy, and terminology used. Additionally, further embellishment on the non-financial information of zakat is also vital to demonstrate accountability to the general public.

INTERNET FINANCIAL REPORTING: A SYSTEMATIC LITERATURE REVIEW

This study aims to develop a study of specific features by examining current developments in online reporting. This is important to improve researchers' understanding of the development of the topic "Internet Financial Reporting". A comprehensive review of the existing literature disclosure index shows that different researchers use different dimensions to represent the IFR index. These differences contribute to the variation of findings among researchers and have not been able toclearly summarize the phenomenon and its determinants. Therefore, the dimensions of the IFR disclosure index are important to study. This study specifically analyzes papers published in scopus. The most widely used disclosure index criterion in IFR is to distinguish the content and presentation of IFR (eight researchers). Then, there were two researchers who used the total IFR criteria. Previous research has also distinguished the criteria for disclosure index into financial and non-financial information and distinguished the disclosure index criteria into IFR and IFR content in general. Then, previous studies have also used 3 IFR disclosure indices at once consisting of dummy, degree IFR, and scope IFR. In addition, some researchers only use 1 IFR disclosure index. Further research is expected to use intervening and moderating variables in IFR research.

The effect of environmental accounting information disclosure on financial performance of Vietnamese listed industrial firms: The moderating role of Leverage and Big4

Environmental Accounting Information Disclosure (EAID) is the most recent novelty in corporate non-financial information reporting practice. This study aims to evaluate the effects of EAID on the financial performance of Vietnamese enterprises. The population of this study comprises listed companies in the industrial sector on the Ho Chi Minh Stock Exchange for the period of five years (2017–2021). The research employed a purposive sampling technique and some analysis techniques, such as content analysis and regression analysis, including Ordinary Least Squares, Fixed Effects Model, Random Effects Model, and Feasible General Least Squares. The final regression results show a positive effect of EAID on profitability. Specifically, as a moderating variable, leverage weakens the relationship when financial performance is measured by ROA and ROE, whereas the quality of financial statements is assured by the Big 4, which strengthens the nexus between EAID and ROE. The study cannot confirm the negative moderating variable of the duality of the CEO position in the relationship. The research gives implications for improving financial performance with increased EAID and some future research directions.

Analiza i audyt sprawozdawczości zrównoważonego rozwoju dla sieci handlowych i kierunków ich doskonalenia

In the modern world, the issue of achieving a sustainable economic development model is becoming more and more urgent. One of its components is compliance with the Goal of sustainable development by companies and verification by state authorities and independent auditors of companies in matters of environmental sustainability. Thus, consideration of modern methods of submission and audit of sustainable development reports (SDR), analysis of opportunities for their improvement becomes relevant. In this work, attention is paid to companies engaged in retail trade, taking into account the peculiarities that they face when submitting the SDR. The purpose of the research was to conduct an analysis of the most common methods of reporting on sustainable development and to develop an effective model (and recommendations for it) for auditing and analyzing sustainable development reporting. Modeling became the main method when writing the paper, taking into account the developed model of analysis and verification of the SDR. The article proposed a new model of verification of non-financial information in sustainability reporting and its graphical display in the audit report. On its basis, it becomes possible to build a new methodology for the audit of the SDR. In addition, the most common international methods of SDR were analyzed, namely the Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB) and the International Integrated Reporting Council (IIRC). The authors concluded that the GRI is the most universal of the three, while the SASB is focused only on investors. IIRC, being similar to both described above, is an intermediate option. Nevertheless, submission according to the SASB system is the most effective for trade networks, taking into account the peculiarities of the functioning of this type of companies and the level of their influence on the external environment. The results of the conducted research and the data presented in the article make it possible to evaluate the modern methods of submitting financial statements in a new way and provide a basis for building new standards for the audit of these reports.

Non-Financial Disclosure Policies and Their Influence on the Investor Behavior in NYSE-Listed Financial Firms

A country’s accounting and disclosure system is part of its financial system and more generally its institutional infrastructure. Economic theory suggests that, in well-functioning economies, the elements of the institutional infrastructure evolve to fit and reinforce each other. Thus, the accounting system is likely to be geared towards the informational and contracting needs of the key parties in the economy. Due to the existence of private information channels, financial statements are less important in terms of monitoring economic performance and assume other roles, such as determining dividends. However, for this reason, arm’s length or outside investors relying primarily on public disclosures are not as well informed in the German system as they are in Anglo-American economies. Since 2005, listed German groups have been required to prepare their consolidated accounts under International Financial Reporting Standards, IFRSs. The study was a literature based which sought to empirically assess the effect of voluntary non-financial disclosure on performance of financial firms listed on NYSE, United States. The study established that Non-financial reporting by German companies has long been a voluntary matter. As of fiscal year 2017, the CSR Directive Implementation Act makes it mandatory for some 500 large German companies. Non-financial reporting by German companies has long been a voluntary matter. Since the early 2000s, German companies have published non-financial information mostly as CSR or sustainability reports. Publishing comprehensive non-financial information will be mandatory as of fiscal year 2017 for some large German companies as a result of the CSR Directive Implementation Act. The CSR Directive Implementation Act obliges large companies of public interest, in particular, capital market-oriented companies, credit institutions, and insurance companies to publish non-financial information. The study concluded that since stock volatility is linked to information asymmetries and to a higher risk of a company, this analysis implies certain practical implications for both managers and regulators regarding the importance of specific disclosure strategy in capital markets. The study also concluded that the level of disclosed information, the interpretation and the effectiveness of forward-looking information depends on the reputation of a company. Companies disclosing nonfinancial information through sustainability reporting practices provide markets with data on their social, environmental, and governance performance. The study recommended that there is need to have a proper execution of regulatory framework which in turn increases the proper governance disclosures leading to an effective management system. Keywords: Voluntary, non-financial disclosure, performance, financial firms, listed NYSE, United States.

A Model of ESG-Transparency Index in Corporate Reporting

The increasing importance of Environmental, Social, and Governance (ESG) assessments in advancing the international sustainable development agenda necessitates the disclosure of ESG reporting information by public companies. Such disclosure plays a crucial role in facilitating effective global business communication with stakeholders and enhancing the credibility of ESG transparency measurements. The primary objective of this study is to develop and validate a robust model for a business transparency index. By leveraging mathematical tools, this model quantitatively measures the level of Environmental, Social, and Governance (ESG) transparency, taking into account the requirements of stakeholders and evaluating a public company's ability to disclose comprehensive information.The research hypothesis posits that assessing ESG transparency in public company reporting based solely on the "quantity" of estimated values, while neglecting the critical factors of "quality" and "reliability," undermines the accuracy and reliability of the results. By utilizing existing mathematical tools, a business value management model is constructed, incorporating a balanced system of "quantity," "quality," and "reliability" factors present in the ESG information disclosed in public company reports.The research methodology adopts a comprehensive approach, combining logical and structural analysis, mathematical modeling, and content analysis methods. A thorough examination of the regulatory framework, international and Russian practices, and scientific research in ESG disclosure reveals the emergence of authoritative professional standards and frameworks between 2000 and 2023. These standards and frameworks play a pivotal role in shaping the disclosure of financial and non-financial information related to sustainable development in corporate reporting. However, a significant gap exists in established practices for determining ESG transparency levels. Current "transparency indices" fall short in incorporating these factors, leading to methodological incomparability and gaps in assessing the "quality" and "reliability" of estimated values.To address this gap, the authors propose a novel mathematical model for the ESG transparency index in corporate reporting. This model effectively integrates the factors of "quantity," "quality," and "reliability" within the disclosed information of public companies. Through a comparative analysis of disclosure and verification practices across various types of activities within Russian public joint-stock companies (PJSCs), the established model enables the creation of an industry rating gradation. This rating gradation assists in determining the level of information disclosure about public companies' activities, fulfilling societal (state) requirements and optimizing business objectives.

Особенности правового регулирования «зеленого» инвестирования в России

Introduction. The consequences of global climate change and environmental degradation have predetermined the need to create a more sustainable economy. Transforming the economy to make it more sustainable requires intensive investment, especially to ensure the transition to “green” and low-carbon technologies. Different types of “green” investments contribute to the “green” economy in various ways. Each of these functions is critical to making significant progress in the fight to reduce greenhouse gas emissions and combat climate change, and each area offers investment opportunities. Given that the public sector alone cannot cover this financial need, the solutions have been found to attract the private sector. Purpose. Various types of “green” projects are analyzed; the most effective financial instruments are recommended, as well as the mechanisms of state support. Methods. The methodological framework for the study is the methods of scientific cognition, among which the main ones are the methods of systematicity, analysis and comparative law. Results. The author has analyzed the legal regulation of the sphere of “green” finance in the world and in Russia. Conclusions. The interest in eco-friendly and sustainable financing is growing very rapidly among investors around the world. To attract more investors, there is a need to increase the level of standardization and disclosure of non-financial information published by companies and used for risk assessment. Given that climate change and environmental degradation are global challenges, the international cooperation and active involvement of investors around the world is an important task.

Method of calculating the integral indicator of transparency of Ukrainian banks

The research is devoted to the problem of financial and non-financial information disclosure by banking groups of Ukraine. Detinization of the economy is one of the highest priorities of state policy, banks, as the largest group of financial intermediaries, act as one of the tools to reduce the level of shadow transactions. However, the problem of the presence of mechanisms for identifying violations, anti-corruption measures, which in turn should have a positive effect on the level of bank transparency, is still not sufficiently covered. In this paper authors analyze the Management Report. It is a report, which contains financial and non-financial information, reveals the state and prospects of development, and characterizes the key risks accompanying the activity. Since at this stage the normative acts do not define a unified form, the problem of information disclosure is quite urgent. Taking into account the above-mentioned research problems, the authors analyzed the key structural divisions of the Report of the largest state-owned banks with private and foreign capital during 2021-2022. Using the expert method, the points of the Report that more fully disclose information, those that directly relate to the problem of shadowing, were determined economy and fight against corruption, and those that do not exist at all. As the next stage, the authors chose the Fishburne method for ranking indicators in order of their importance, which became the basis for deriving an integral indicator of transparency for each bank. The results show that there is a general tendency to increase the level of openness of financial and non-financial information of banks. In terms of forms of ownership, banks with foreign capital and state-owned banks are more transparent, which in turn helps to reduce the level of shadow transactions.

THEORETICAL AND METHODICAL PRINCIPLES OF THE FORMATION OF INTEGRATED REPORTING

The publication discusses the debatable issues of scientists and practitioners regarding the formation of integrated reporting by enterprises in Ukraine, which gave the authors the opportunity to identify a number of methodological problems: lack of methodological support in the part of forming non-financial indicators; the formal nature of the accounting policy and the lack of clear regulatory and methodological support for its construction; weakness of methodical structuring of accounting policy depending on types of accounting; the imperfection of methodical structuring of the accounting policy depending on the types of accounting; inconsistency of the actual accounting methods with the chosen accounting policy. To solve these problems, the article proposes a three-level model of methodological support for the formation of integrated reporting. At the first level, an integrated methodological framework for generating financial and non-financial information has been developed; at the second level the development of a complex integrated accounting policy is proposed; at the third one, the method of forming integrated reporting was improved. The authors have developed an integrated accounting system for which it is proposed to use global accounting accounts: control, digraphic and unigraphic. The purpose of integrated accounting is defined, determined by management requests and the structure of integrated reporting, and may change according to the management's needs. The content of such an integrated accounting system of any enterprise will reflect the movement of its property, intellectual and labour potential, environmental and socio-economic factors influencing its activity and development strategy in financial and non-financial indicators. Methodical tools for creating a single information database of financial and non-financial indicators are proposed. The studied factors of influence on the accounting policy of the enterprise made it possible to understand that such a situation causes a negative impact on the information component of the enterprise and prompts the development of an accounting policy for methodical and organizational support of the preparation of integrated reporting. The article presents the structure of a complex integrated accounting policy in the methodically supported formation of financial and non-financial indicators, which corresponds to modern management principles.

CSR REPORTING BY MOROCCANBANKS :AN EXPLORATORYSTUDYBASED ON THE GLOBAL REPORTING INITIATIVE

This research analyzes the extra-financial reporting of Moroccan banks, in order to explore whether they integrate CSR issues as defined by the GRI guidelines, as well as the issues specific to the financial sector listed by its sector supplement. Mobilizing content analysis techniques, we have built an analysis scenario under Tropes grouping the indicators of the above-mentioned standards. Overall, the results reveal that the quality of extra-financial disclosure is dependent on the reporting framework. They also recognize the predominance of social disclosures, and the weakness of those of an environmental nature. Finally, they suggest that improving the maturity of reporting requires greater involvement of stakeholders, and work on the reliability of non-financial information by having recourse to its external verification.

A large-scale analysis of the heterogeneity of markets' reactions to the disclosure of nonfinancial information

ABSTRACT To allocate capital to its most sustainable use, market participants need information on companies' sustainability plans and initiatives. This information is disclosed in sustainability reports, but the disclosure process is largely unregulated and voluntary. When do sustainability reports convey relevant information? To answer this question we estimate the heterogeneous effects of nonfinancial disclosure on analysts' estimates of earnings and firms' equity values. We have found that the information content of nonfinancial disclosure is larger when firms are subject to greater information asymmetry, and when nonfinancial information is integrated within a financial context. Moreover, positive responses have a long-lasting impact while negative shocks are corrected within a short window. Overall, our work suggests that market participants' interest in standalone nonfinancial information is limited, and integrated reporting increases the value of sustainability reports.

О развитии компетентностной модели квалификационной аттестации аудиторов в условиях импортозамещения

The article presents the results of the audit competency monitoring conducted in the first half of 2023. The generalized results of monitoring all groups of respondents showed that the ongoing transformation of the profession requires an increase in the level of competencies in the field of IT, business analysis, audit procedures to ensure users' confidence in the reliability of financial and non-financial information based on international auditing standards and national legislation in this area of professional activity.

Chilean Universities and Universal Gratuity: Suggestions for a Model to Evaluate the Effects on Financial Vulnerability

Financial vulnerability can be understood as the risk of an organisation being unable to carry out routine its normal operations due to financial restrictions. Models to estimate financial vulnerability have mainly been developed for profit-making organisations, while few exist for non-profit organisations (NPOs). One example is higher education institutions, which have experienced important changes in Latin America through gratuity policies for student tuition. This study proposes a model to estimate the effects of gratuity on financial vulnerability, as previous studies have focused on the effects of enrolment. A binary logistic regression model is proposed, considering the following variables: debt, income concentration, operating margin, administration costs, and square metres of rooms per student. We applied this model to 54 universities between 2013 and 2019. The results showed that the model is relevant for the debt, size, and operating margin variables. Additionally, we observed that on average, all universities were negatively affected. This result is particularly true for state-owned universities because of certain management restrictions. A limitation of this study is the unavailability of other sources of non-financial information, such as each university’s business model and stock of strategic resources, which could improve our model, as this information is more related to control than to management.

Theoretical Aspects of Sustainability Accounting

The sustainability accounting concept meets its significance nowadays due to the growing necessity for producing, providing and disclosing non-financial information for a company’s activity in ecological, social and managerial aspect. The research proves the growing significance of sustainability accounting nowadays as it presents the necessity for business organizations to implement the sustainability accounting concept. The research provides room for future scientific researches in relation to applying the sustainability accounting concept in business organizations’ sustainability strategy.

Towards a dynamic approach to materiality: A lesson from COVID-19

ABSTRACT Over the past few years, there has been an increasing demand for non-financial information as stakeholders become more aware of the need to reconsider the global economy. This has led academics and policymakers to discuss the importance of companies disclosing their non-financial information to effectively engage with citizens and stakeholders. Recently, there has been a debate about moving away from traditional accountability practices based on annual disclosure of non-financial information towards a more dynamic approach that involves continuous engagement with stakeholders. Social media has been highlighted as an effective tool to achieve this, and the COVID-19 pandemic has further emphasised the need for effective communication with stakeholders, which has led to the adoption of social media to share information. This paper aims to empirically evaluate the accountability practices of large Italian organisations during the pandemic by analysing data extracted from Twitter, providing new insights into the impacts of pandemics on stakeholder engagement practices.

Towards the Voluntary Adoption of Integrated Reporting: Drivers, Barriers, and Practices

Integrated reporting is essentially a voluntary practice worldwide. For this reason, although it is growing, its diffusion is slow. Based on the Portuguese context, where a reduced number of listed companies publish integrated reports, this study aims to explore the drivers and barriers for the voluntary adoption of integrated reporting and the reporting practices up to the production of an integrated report. To this end, an analytical framework based on the Diffusion of Innovation Theory was developed and applied to data collected from a survey and corporate reports from both “adopters” and “non-adopters”. The evidence collected suggests that the adoption of integrated reporting may be driven by the perception of a relative advantage over traditional reporting in terms of providing more relevant information to capital providers, particularly banks. The publication of an integrated report appears to be the result of a process of incremental improvements in the practice of disclosure and assurance of non-financial information, so that the previous experience with sustainability reporting is also an important driver for voluntary integrated reporting. Finally, companies may be differently prepared for transition to integrated reporting and, therefore, have different perceptions of its cost and complexity, which may act as a barrier.