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An annual report is the conventional, statutory formal statement vehicle between quoted companies and its stakeholders. It comprises of financial information, narratives, photographs, tables and graphs. Annual reports are generally divided into two sections, with financial statements usually assigned either to a rear section, or to a separate section. The front section contains mainly voluntary disclosures, the focal point of researchers who believe that companies contribute in "consumer engineering" (Lee, 1994) or public relations exercises within this section (McKinstry, 1996). The annual report of a company has been the chief means of conveying useful information for rational investment, credit and other decisions over the years. The annual report is a document that is required to be published each year and is projected to present useful information to users for enhanced decision-making. Yet, due to the evolution in business models, the conventional financial section alone has been found to be insufficient (Maines et al., 2002) to meet the requirements of its stakeholders. Consequently, different individuals and groups are now arguing for the use of the non-financial section to provide the desired supplementary disclosures. Consequently, the annual report has become the focal point of amplified attention over the years. There are ostensibly now a broad range of factors which are influencing the contents and presentation of these reports (Hopwood, 1996). It is now a dense admixture of voluntary and non-voluntary disclosure (Stanton and Stanton, 2002) and there is a rising consideration of the versatile and complex role it plays in communicating information to the corporation's target audience(s). The annual report has thus changed into a marketing and public relations document that shows both the organisation's awareness of its audience (McKinstry, 1996) and its self reflection (Roberts, 2003). The contents of the report, the narrative, images, graphs and numbers, are marshalled to convey a particular message to the firm's stakeholders, and primarily its financial stakeholders, although its influence and impact extends far beyond this group (McKinstry, 1996). Among the many new areas of interest that require disclosure in the annual report are matters relating to non financial information such as environmental and social reporting. Currently, such disclosures are still left to the discretion of the company in many countries and under varying regulations issued by the authorities and accounting bodies. According to Linsley and Shrives (2005), studies into a range of aspects of voluntary disclosure have taken place in the last 20-30 years. Yet, it is only recently that the subject non financial information has been seriously examined.
Reporting Non financial information:
A lot of studies have been focused on exploring the intangible value omitted from financial statements (Sriram, 2008; Lev and Radhakrishnan, 2003; Lev, 2001; Brown et al., 1999; Lev and Zarowin, 1999). Empirical studies show that up to 80 per cent of a company's market value may not be presented in its annual report (Lev, 2001; Blair and Kochan, 2000). In theory, accounting information is becoming less important if it fails to embrace some intangible values in the statement of financial position. Because firms are increasingly relying on intangibles for their future success, this accounting treatment has meant a gradually decreasing significance of accounting information (Wallman, 1995; Lev and Zarowin, 1999).
Information asymmetry problems are one of the main reasons that both academics and practitioners are advocating for more disclosures on non financial information. The problems are present in every relationship characterised by parties with information differences and conflicting interests (Akerlof, 1970). On the stock market, the presence of information asymmetry risks causing a distortion of the efficient distribution of resources. Since information asymmetry exists between the people inside a company, i.e. the management team and people outside a company, i.e. the existing and potential investors, non financial reporting can be seen as originated from a principal-agent problem (Jensen and Meckling, 1976). Thus, to lessen information asymmetry problems a company can choose to disclose non financial information more than it is required by regulations (Wyatt, 2002; Tasker, 1998). This will produce more revealing disclosures enabling investors to better assess the company's future value-creation potential. This does not only reduces information asymmetry and, thereby, improve the efficient allocation of resources on the stock market, but it also results in a lower average cost of both equity (Kristandl and Bontis, 2007; Botosan and Plumlee, 2002; Richardson and Welker, 2001) and debt capital (Sengupta, 1998), decreased bid-ask spreads (Petersen and Plenborg, 2003; Welker, 1995), and increased stock liquidity (Healy et al., 1999; Diamond and Verrecchia, 1991). A significant number of studies have also examined the valuation role of non-financial information. These studies provide evidence on the predictive ability of non-financial metrics for future financial performance (e.g. Ittner and Larcker 1998; Behn and Riley 1999; Trueman et al. 2001; Nagar and Rajan 2001) and on the value relevance of non-financial information relative to that of financial information (e.g. Amir and Lev 1996; Hirschey, Richardson and Scholz 2001; Trueman et al. 2001; Rajgopal, Venkatachalam and Kotha 2003b; Xu, Magnan and Andre 2007). Since the disclosure of nonfinancial information is discretionary, firms could strategically release this information which potentially impairs its usefulness to investors and analysts. Amir and Lev (1996), however, expanded their research related to nonfinancial information by examining the value-relevance of nonfinancial variables in the high-technology wireless communications industry. The authors note that in period of quick change, financial information of firms may be of limited value to investors. For example, telecommunications, biotechnology, software producers, and other growth companies generate value throughout production and investment activities; yet, key financial variables such as earnings and book value are negative or excessively depressed and appear unrelated to market values. The authors concluded that the results indicate the importance, in both practice and research, of expanding the domain of fundamental variables examined to include non financial information. Other authors believed that accounting standards and, thus, financial statements, are not suitable for reporting intangible assets (Bismuth, 2006). Instead the disclosure of non-financial information, linked with the assets disclosed in the statement of financial position, is being advocated as the best path ahead in order to surmount the supposed lack of information in the financial statements and, thereby, reducing information asymmetry (Sriram, 2008; Burgman and Roos, 2007; FASB, 2001a; Amir et al., 2003; Mavrinac and Siesfeld, 1997, p. 7). Even IAS No. 1 (IASC, 1997) paragraph 8c backs companies to disclose intangibles, which are vital to the creation of value but not presented on the face of the statement of financial position. Because of these assets' intangible nature and therefore the difficulties of quantifying them, information associated to them often are non financial in nature (see Alwert et al., 2009; Holland and Johanson, 2003). Studies have shown that areas within which non-financial information are believed to more revealing and complete include human (Royal and O'Donnell, 2008), relational (April et al., 2003), organizational (Lev and Radhakrishnan, 2003), corporate social responsibility (CSR) (Arvidsson, 2010) and environmental (Gray et al., 2001).
Investors' views on the reporting of non financial information
When it comes to the investors'' side, they tend to ask for more non-financial information on top of the financial information disclosed in order to try to maximise some of the values stemming from intangible assets (Alwert et al., 2009; EFFAS Commission on Intellectual Capital, 2008; Holland and Johanson, 2003; Phillips, 2001; Eccles and Mavrinac, 1995). This might speed up the focal point shift towards more non-financial information disclosures in annual reports. A decade ago, fund managers believed that on average 35 per cent of their investment decisions were influenced by non-financial information and one-third were of the views that increased disclosure of non-financial information should be mandatory (Mavrinac and Siesfeld, 1997). As mentioned above, the process of issuing mandatory requirements related to intangible assets goes, however, slowly.
In order for non-financial information to be more valuable to investors, management teams have started to develop non-financial key performance indicators (KPIs) on a voluntary basis. According to Bismuth and Tojo (2008) these KPIs are questioned by investors who query their importance and regard them to not be informative about, for example, their effect on future financial returns and their relation to corporate strategy. The trustworthiness of non-financial KPIs is also an area of unease, which is argued to motivate scrupulous controls surrounding the collection of data underlying the KPIs. Concerns about comparability are also put forward by investors as an area of improvement. A lack of a critical mass of companies reporting on intangible assets, irregular reporting and a focus on individually developed KPIs limits the comparability (Bismuth and Tojo, 2008).
Management views on reporting of non financial information
Prior studies have shown that management have yet to fully acknowledged the value of non financial information (Lev and Radhakrishnan, 2003; Johanson et al., 2001). However, there are some exceptions. European companies particularly are found to be precursors when disclosure of non financial information is concerned (Lin and Edvinsson, 2008; Vandemaele et al., 2005; Arvidsson, 2003). This finding is based on studies focused on investigating voluntary disclosure made through the annual reports. Although disclosures in the annual reports have been examined, there is a lack of studies about the feel of management when it comes to the reporting of non financial information. On the other hand, investors (existing and potential) are advocating for more non financial information disclosures (Alwert et al., 2009; EFFAS Commission on Intellectual Capital, 2008; Holland and Johanson, 2003; Phillips, 2001). This might speed up the focus shift towards more non-financial information disclosures. Thus, the objective of this study is to analyse the management teams' views regarding different aspects related to the disclosure of non-financial information in the annual report. Different plans have been issued to encourage and assist management in this new and subtle duty of reporting and structuring their information on intangibles. There are many benefits associated with the reporting of non financial information. Besides advantages such as lower cost of capital, enhanced communication with investors and improved competitiveness by identifying the drivers which create value are examples of advantages that management experienced when reporting on non financial information (Bismuth and Tojo, 2008). Although, the various assumed advantages associated with disclosure of non-financial information and the guidelines supporting in the procedures, management are argued to disclose relatively little of this information (Lock Lee and Guthrie, 2010). The large quoted companies appear unenthusiastic to start reporting on this information on a customary basis (Bismuth and Tojo, 2008). This is somewhat perturbing since the large quoted companies usually are the 'leaders' and providers of "good practices" when it comes to corporate disclosures. The Nordic companies in general and Swedish companies in specific are regarded as leaders when it comes to balance the lack of information on intangible assets in annual reports by voluntarily disclose non-financial information (Vandemaele et al. 2005; Bukh et al., 2006; Arvidsson, 2003).
Types of non financial information
Businesses frequently have a negative impact on the environment (Gray 1993:43; DesJardins and McCall 1990:350). Most of the business have an environmental impact as they all use energy, produce waste, own or lease buildings, etc. A supermarket, for instance, may choose more or less environmentally friendly methods of transport for its distribution network and decide to stock only items that are considered to be environmentally friendly. Environmental reporting is gradually more used as a means of legitimising the activities of companies (Shocker and Sethi 1974:67; Brown and Deegan 1998). Environmental reporting is however not mandatory and it may even be characterised as inequitable and biased, since companies are believed to report on environmental issues only where there good news (Savage 1994:3; Hackston and Milne 1996; De Villiers and Lubbe 2001). Because it is not enforced, it is up to management to decide whether the company will report on the environmental information or not. Solomon and Lewis (2002) point out companies perceive environmental reporting as motivated by intrinsic social responsibility and corporate ethics. Management, who has to make judgments on what information to disclose or not, therefore enters the realm of morals and ethics.
Corporate social disclosures (CSD)
The issue of corporate social responsibility (CSR) has developed amazingly in recent years; however, there is narrow evidence about its reporting practices in companies' annual reports in developing countries, compared to developed countries.
Many authors believed that companies have a social responsibility (DesJardins and McCall 1990:98) and it is alleged that it is their duty to acknowledge the wellbeing of members of the community within which they operate apart from their primary objective of profit maximisation.
The concept of social responsibility also seems to have significant support in the corporate community. Harry Oppenheimer (Gantsho 1985) and Henry Ford II (Mathews 1993) also advocate this view.
The "stakeholder theory" jumps to the same conclusion, namely that companies have a social responsibility vis-a-vis its various stakeholders (Evan and Freeman 1993; Mintz 1992). Milton Friedman (1962) was the main supporter of the traditional view that the only social responsibility of business is to increase its profits. It was purely from a shareholder's view point. However the different stakeholders could be payables, customers, government and the society (SAICA 1990). Therefore the role of management would be to strike an impartial balance between stakeholders when making their decisions (Mintz 1992:19). Profits can, therefore, not be the only concern if they are to be made at the expense of other stakeholders.