The Trends In Non Financial Reporting Accounting Essay

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Accounting services are known to be the preparation and analysis of financial information, which is accounted to internal and external users through financial statements as an independent statement or an indication of confidence on the performance of an organization. Assurance's main purpose is to provide a level of confidence that the information being presented is accurate and reliable (Main & Hespenheide, 2011). Assurance could be addressing the accuracy of specific performance indicators, compliance evaluation on the process of the reporting or assuring the accuracy and completeness of managements' assertions in the report. Assurance services involve evaluating the reliability and reliability of financial information as the quality of decisions relies upon it.

Relevance is described as the ability of the accounting information which creates difference in the decision making (Sharayri & Momani, 2011). On the other hand, reliability assures that accounting information is reasonably free from error or bias and faithfully signifies what it claims to represent (Johnson, 2005). Devi, Hooper and Davey (2004) added that reliability symbolizes the concepts of faithful representation, variability, neutrality and completeness, which form a fundamental element in the proposed conceptual framework.

However, assurance possibly would or would not be associated with financial information. Regularly, auditors compile and weigh up both financial and non-financial information in all phases of an engagement. For example, SAS No. 56 (AICPA 1988b) necessitates the use of analytical procedures in both the planning and final review stages of an audit in addition to substantive testing (Jeffrey, Ganesh & Arnold, 2000).

Organizations often report non-financial information such as information on business strategy, corporate governance, internal controls or corporate responsibility reporting on environmental, economic and social performance with indirect link with a financial registration system (Admiraal, Nivra & Turksema, 2009). According to ICAEW (2008), assurance on non-financial information also includes reports to regulators on matters such as risk exposures, pricing policies or compliance with regulatory requirements and reporting on public interest concerns.

Contrary to the word 'non-financial', the nature of non-financial information can be qualitative or quantitative. The information is capable of being expressed in numbers or figures, as in quantities or periods which could be similar to financial information, but of a less uniform nature. Often it is quantifiable and an indirect link can be made with a financial registration system. Conversely, qualitative information is descriptive in nature which generally does not associate with generally accepted frame of reference or standardised units (Royal NIVRA, Amsterdam, 2010).

BACKGROUND OF THE STUDY

In 2009, the Assurance Sustainability Briefing Paper 3 reported by ACCA, AccountAbility and KPMG states that it is progressively accepted that today's accounting and audit is deteriorating in providing information on many of the drivers that create business value, while many business drivers are ultimately non-financial, such as the customer service and climate change. Seeing that non-financial issues revolve into increasingly significant for strategic decision making and organizational assessment, it is expected that the need for assurance on full corporate disclosures relating to sustainability, as well as assurance relating to performance on particular issues to be increasing.

Although the global trend is increasing, the use of external assurance for sustainability or Corporate Social Responsibility (CSR) reports varies significantly across regions. This is largely due to the different stages of maturity in sustainability reporting and assurance. The practice was developed in Europe and this region has the most mature sustainability reporting, and as a consequence, a strong presence in the assurance market. There are indications that there will be strong growth in Asia in coming years as it has become the second largest region for assurance, and further growth is predicted. In contrast, in North America where reporting is well established, reporters are far less likely to include external assurance (ACCA, AccountAbility & KPMG, 2009).

Auditors' primary focus has always been on the audit of historical financial information, in which auditor's report often provides assurance on financial information (Royal NIVRA, Amsterdam, 2010). However, organizations performance is not entirely dependent on past performance. Future perspective based on current performances are equally important as governors, politicians, controllers and government audit offices have become more interested in performance data in budgets and reports.

Figure : Trends in non-financial reporting

Source: Palenberg, Reinicke W., and Witte, J. M. (2006). Trends in non-financial reporting. United Nations Environment Programme, Division of Technology, Industry and Economics (DTIE).

The study above shows that there have been increasing developments on non-financial reporting practices and based on a linear model, it is estimated that approximately 4,100 companies will be producing non-financial reports in 2020.

There has been much discussion and debate concerning the role of assurance services in the future of the auditing profession. Mainly, the assurance of entity performance measures is seen to be the potential areas of growth in assurance services since most of the entities performance measures would be of a non-financial nature.

Percy (1999) proposed there is now a push towards better management and analysis of operational reviews and reports, once the financial statements have satisfied all of the information needs of stockholders and stakeholders. He added by saying there will be demand in these reports for the use of non-financial performance measures to assess the quality of a company and its ability to develop into the future (Coram, Monroe & Woodliff, 2005).

Both ACCA and ICAEW have realized about the importance of non-financial information and the growing demands for it since non-financial issues can be material. Consequently, the need to assure that they are presented properly is also growing particularly in the areas of corporate responsibility and public interest concerns, legal and regulatory changes.

In the year 2010, Royal NIVRA in Amsterdam stressed that users in the public sector in particular are more concerned in non-financial information, since the information reflects the results and the effects of policy. The reliability and relevance of this information are hence extremely important. Auditors should have sufficient knowledge of organizations and also their accounting and control systems to allow them to play a significant part in this area.

Despite the fact that Assurance has acknowledged the importance of non-financial information towards the users of information, auditors have not placed as much consideration as they should have on non-financial information, as stated by Bell et al. (as cited in Jeffrey, Ganesh & Arnold, 2000).

OBJECTIVES AND REASONS OF STUDY

Subjective evidence notes the importance of non-financial information as discussed in the prior cases, which held that the auditor would have detected misstatements if adequate consideration had been given to the client's business and industry trends. (e.g., Lincoln Savings & Loan [Felix et al. 1996] and Crazy Eddie, Inc. [Knapp, 1996]).

Likewise, Asare and Davidson (1995) agreed that there is a rush for further research on the effects of non-financial information, such as the client's industry and macroeconomic conditions on audit judgments. In recent times, audit firms have as well acknowledged the need to non-financial information in the audit process. In view of that, firms have worked together with the industry specialties with the belief that this will promote greater knowledge of client business conditions, thus enhancing the effectiveness and efficiency of their audit work (Jeffrey, Ganesh, & Arnold, 2000). This shows how relevant our study on this assignment topic is to the real-life situations.

Our main objectives of the study are to improve our understanding of the factors that determine companies' disclosure on non-financial statements and to determine the extent to which assurance affects the accuracy and dispersion of non-financial information reporting. Besides, the study aims to provide a wider understanding on the role of assurance and also the mechanism on how it could affect the reporting of an organization. This is in relation from the perspective of accounting practices; as accounting students, we can improve our understanding towards both previous and current accounting practices relevant to non-financial information reporting among the firms and companies in general.

With regards to the policy perspective, our research has taught us about the problems that come with non-financial information reporting, such as the inadequacy of standards and policies to improve the relevance and reliability of non-financial information reported by companies. There are other challenges relevant to our assignment topic, and we would discuss further about this in our main discussion.

On broad-spectrum, this study also allows students to appreciate the knowledge on this field as it is part of our subject requirement. Since our subject course stresses on the significance for us students to broaden our knowledge on the accounting field and its evolution throughout the years, it is beneficial for us to perform a research on the assurance's roles in improving the quality of non-financial reporting with regards to the pedagogy perspective. This research would enable us students to gain a better understanding on how the perception of scholars, academicians and professional bodies on this issue has changed throughout the years.

MAIN DISCUSSION

Throughout the process of performing our research, we have read and analysed 18 journals, which have provided us much information related to our topic of discussion:

No.

Title

Author

Year of Publication

Objective

1.

Assurance on Non-Financial Information - Existing Practices and Issues

No author

- Institute of Chartered Accountants in England and Wales (ICAEW)

2008

Identifies the types of non-financial information on which external assurance might be sought;

Considers the external assurance reports currently provided;

Identifies and discusses the practical challenges practitioners might face when providing external assurance reports.

2.

Reporting on Nonfinancial Information. International (Journal of Government Auditing)

Michèl Admiraal, Royal Nivra, and Rudi Turksema

2009

Aims to help in developing a universal basis for reporting and providing assurance on non-financial information;

Discusses the result of the work of representatives from different sections and disciplines.

3.

The Practitioner's Perspective on Non-Financial Reporting

Francesco Perrini

2006

Explores the concept of CSR in the context of non-financial reporting as done by European multinational corporations (MNCs) that lead in the area of non-financial reporting and CSR.

4.

Trends in Non-Financial Reporting

Markus Palenberg, Wolfgang Reinicke and Jan Martin Witte

2006

Provides an assessment of overall trends in the non-financial reporting realm, including:

(a) an appraisal of past growth in the number of reporters across countries and industry sectors;

(b) An examination of underlying growth drivers and levers;

(c) A projection of expected future expansion of the number of reporters.

5.

Transparency and Assurance: Minding the Credibility Gap

Nicole Dando and Tracey Swift

2003

Examines how credibility gap can be narrowed through the use of third party independent assurance.

6.

In the dark II:

What many boards and executives still

don't know about the health of their businesses

Deloitte.

2007

Conducts a survey on the perception of executives on the importance of non-financial performance metrics.

7.

Assurance on General Purpose Non-Financial Reports: An International Comparison

Roger Simnett, Ann Vanstraelen

and Wai Fong Chua

2006

Identifies, for entities producing General Purpose Non-Financial Reports (GPN-FRs), those characteristics which are associated with the decision to have these reports independently assured;

Identifies, for entities having their GPN-FRs assured, those characteristics which are associated with the decision to have members of the auditing profession as their assurance provider.

8.

Sustainability Reporting Assurance: Market Trends and Information Content

Geoff Frost and Nonna

Marthov -Bennie

2010

Explores one of the major issues associated with the quality and user confidence of sustainability reporting-assurance;

An examination of corporate water reporting;

A study of emerging practices in stakeholder reporting and engagement.

9.

Assurance - Sustainability Paper 3

ACCA, AccountAbility and KPMG

2009

Discusses about the approaches to sustainability assurance, its current trends and also the future of assurance.

10.

Corporate Responsibility, Accounting and Accountants

Carol A. Tilt

2009

Conducts a research on how firms report on social and environmental issues;

Provides a review of some of the research undertaken on the extent of that reporting and on accountants' perspectives on CSR and sustainability more generally;

Outlines the involvement of the profession of accounting in adoption and promotion of corporate social and environmental responsibility.

11.

Evidence on the Effect of Financial and Non-Financial Trends on Analytical Review

Jeffrey R. Cohen, Ganesh Krishnamoorthy, and Arnold M. Wright

2000

Examines the relative consideration of financial and nonfinancial trends in two analytical review tasks: establishing the level of audit scope and generating hypotheses.

12.

Completing the Puzzle

Nick Main and Eric Hespenheide

2011

Discusses on the roles of auditors in providing assurance for financial, sustainability and governance reporting.

13.

Disclosure Of Non-Financial Information In The Annual Report : A Management-Team Perspective

Susanne Arvidsson

2011

Analyzes the management teams' views regarding different aspects related to the disclosure of non-financial information in the annual report.

Focuses on the following aspects: incentive, quantity, focus, use of non-financial key performance indicators (KPIs) and trends.

14.

The Joint Effect of Voluntary Non-Financial Disclosure and Assurance on Company Valuation Judgments

Paul Coram, Gary Monroe and David Woodliff

2005

Examines whether the voluntary provision of non-financial performance indicators (as part of the Balanced Scorecard framework) and assurance on this information impacts on stock price estimates in an experimental setting.

15.

The Use of Non-Financial Information

Belinda Hoff and David Wood

2008

Examines both the availability of specific types of nonfinancial data, as well as the extent to which retail and professional investors value nonfinancial information on key social, environmental, and governance factors.

16.

Counting More Than Euros. NIVRA-debating sessions 2009.

Royal NIVRA, Amsterdam

2010

To discuss on the framework and definition of non-financial information;

To offer propositions for the discussion among users, preparers and auditors about the accountability and assurance of non-financial information;

To conclude the discussion with three recommendations for specific target groups.

17.

Relevance and Reliability

L. Todd Johnson

2005

To describe the trade-offs between relevance and reliability, and the objectives of making these trade-offs.

18.

The Impact of Reliability and Relevance of Financial Position Information on Decision Making

Majed Sharayri & Ghazi F. Momani

2011

To conduct a study that deals with reliability and relevance and their relation to the decision making in Jordanian Electric Companies;

To provide some recommendations such as the necessity of guiding the

administration of the company regarding taking into consideration the reliability and relevance of the balance sheet.

As all of us have known, assurance service is an independent professional service with the aim to improve the information so that decision makers can make more informed and better decisions. Non-assurance services differ from assurance services; accounting and bookkeeping services, tax services, and management consulting services fall outside the scope of assurance services.

Established in 1995, accountability has developed in the non-financial reporting assurance area. Assurance standards have been developed, and example is the "AA1000 Assurance Standard" (AA1000AS), which was issued in March 2003. Developed market economies such as Australia, and the US, concentrated on assurance of financial reports, which has been mandated by law. Assurance serves as a useful mechanism to ensure the credibility of disclosed information, in that it reduces the level of noise contained in the disclosed information and facilitates greater user confidence (Simnett, Vanstraelen & Wai, 2006). It results in more appropriate resource allocation decisions by the information users, particularly those in the public sector.

There are two main groups of assurance providers, which are specialised non-accounting consultants and accountants. As a consultant, he or she would provide the organization to improve the organization's performance, develop the skills of employees, implement sophisticated technology, develop management strategies, or improve operational services. On the other hand, accountants perform accounting functions such as audits or financial statement analysis. These assurance services provide independent and professional opinions that would help to reduce the information risk that comes from incorrect and inaccurate information.

An assurer's experience can be very useful when performing assurance engagements on non-financial information. When assurers provide external assurance report, they should consider the purpose of providing the report. This is to ensure that they are able to understand the needs of the users of the non-financial information. Needless to say, assurers or auditors need to be clear about what information they need to report on and why it is needed. They should clearly communicate their considerations in their report to avoid the formation of different expectations from different stakeholders.

External assurance provides a reasonable assurance that the non-financial information provided to the stakeholders is reliable. However, we need to bear in mind that the assurance provided by assurers is just reasonable; the assurance is not an absolute guarantee. Assurers ensure that the non-financial information reported by the management follows the rigorous ethical standards, defined framework and standards that cover the whole assurance engagement (ICAEW, 2008). Absence of established auditing standards reduces accountability to the external audiences and stakeholder groups.

There are certain international auditing standards in relation to the audit of non-financial information. ISAE 3000 provides mandatory guidance for professional accountants in performing non-financial assurance engagements. The focus of ISAE 3000 is not specific to a type of non- financial assurance engagement. It is broad in order to accommodate the inherent complexities of various subject matters, criteria and evidence in non-financial information assurance engagements. Another auditing standard is AA1000AS, which was the first internationally published sustainability assurance standard in 2003. The most recent revision of this standard was in the year 2008.

These two standards revolve around the principles of materiality, responsiveness, and the underlying foundation principle of inclusivity. ISAE 3000 focuses on the assurance procedures, whereas AA1000AS emphasizes the quality of the reporting process. The use of both standards on a sustainability assurance engagement thus has the potential to deliver an enhanced product or enhancing reliability and relevance of non-financial information reporting (ACCA, AccountAbility & KPMG, 2009).

Based on our research performed on the article published by ACCA, AccountAbility & KMPG (2009), it is very important for an assurer to ensure that the sustainability assurance provided to the users is reliable and relevant to the user's needs. Since this assurance given by the auditor is to convince the stakeholders that the information provided by the organisation is credible, reliable and relevant, assurers should provide sufficient evidence that all the right things are included in the report. The report should also have all the major issues that are relevant to the stakeholders. Apart from that, the data provided should be reliable and the claims made by the management are not exaggerated. Modern assurers or auditors should also recognise the traditional assurance structures and practices which are increasingly being challenged by non-financial issues, as these issues are becoming increasingly important for strategic decision making and organizational evaluation in this modern era.

Assurers should be competent enough to understand the relationship between financial assurance and non-financial assurance within their auditing practices. As assurers, they need to track on their ethical standards, defined framework and standards, which cover their independence and the full assurance engagement. This can enhance the reliability of the non-financial reporting. Other than possessing the necessary relevant skills, assurers should have the knowledge of social, environmental and sustainability issues. According to ACCA and ICAEW, assurers should also be experienced enough to carry out assurance engagements by following the professional standards, complying with CDP (Continuing Professional Development) or training requirements, and understanding the internal quality control procedures in organisations of many industries.

Based on our research done on the discussion paper written by Royal NIVRA in the year 2010, when an assurer provides the assurance services, he or she must ensure that the services provided are aligned with the principles of accountability. There are four basic principles which are similar for both the financial and the non-financial information. They are reliability (complete, accurate, neutral and verifiable), relevance (materiality, focus and timeliness), comparability (consistency, both continuously and simultaneously) and understandability (transparency, classified, presented clearly and concisely).

A very useful distinction between assurance and non-assurance that an assurer does not only play the role of provider; he or she also acts as an advisor and a reporter. Being a provider means providing on the preparation process for the audited information. The auditor reports in the form of an assurance report, which may contain one or more conclusions. The level of assurance can be limited or reasonable, and this report could be for internal or external use. The Code of Ethics, the International Framework and ISAE 3000 (Assurance Engagements other than Audits or Reviews of Historical Financial Information) can be applied here.

As an advisor, an auditor or assurer gives advice on the development and implementation of a client company's systems, such as an information system. There are no specific standards for the auditor in relevance to providing advice; only the Code of Ethics of IFAC (International Federation of Accountants) applies here. Taking the role of reporters, an assurer reports on the factual findings on the preparation process for the information, without giving any opinion or assurance. Users of the auditor's report need to assess the procedures and findings reported by the auditor based on their own judgement and then draw their own conclusions from the auditor's work. The Code of Ethics and ISRS 4400 (Engagements to Perform Agreed-upon Procedures Regarding Financial Information) are applied here.

A company that wants to provide relevant and reliable non-financial information to its users needs to have a good non-financial information system. According to NIVRA in Amsterdam (2010), an auditor can be appointed by the preparer of the non-financial information to enhance the degree of confidence of the intended users in the non-financial information. An auditor fulfils the role of the independent professional who examines the quality of the reported information by the preparer on the behalf of the users.

Independent external assurance is the key way of expanding the credibility and effectiveness of their reporting, and ultimately their performance. Involvement of the intended users in the engagement of the auditor is very important to avoid expectation gap. This is to ensure that both the preparer and users acknowledge the role of auditor and minimize the misunderstanding between them. An auditor plays an important role to build up the degree of confidence of users towards the quality of the information, so that the users can use this information to make their informed decisions.

According to Coram, Monroe and Woodliff (2005), an assurer or auditor should provide credibility on the information to investors and creditors to ensure that independently-audited information can minimise any information asymmetry and decreases any uncertainties. This would increase the investors' reliance on the voluntary disclosure of non-financial information when they are provided with the information by the management, since investors, being the principal, may not trust the non-financial information prepared by the managerial directors, who are their agent. This is in accordance to the agency theory that we have learned in the lecture session.

Morever, an assurer should enhance and provide assurance on the accuracy, completeness and reliability placed on its sustainability report to ensure that the stakeholder's concerns about the credibility of sustainability reports are satisfied. The report may include the organization's policies and inter practices. Dando and Swift (2003) stated that the role of independent external assurance plays a greater importance in ensuring that the reporter presents non-financial information that is fair, complete, unbiased and relevant. It is hoped that with external assurance, the credibility of the non-financial information is sustained and the trust of the stakeholders towards the management is built.

According to a public sector survey conducted by the Royal NIVRA Amsterdam (2008), users regard relevance as important as reliability, but they often start with the assumption that the information is already reliable by itself. Thus, communication between the management, users and auditors of non-financial information is truly vital to enhance the quality of the non-financial information. Assurance comes into the picture when the users of the financial information want reliable information. Auditors can only provide quality assurance on the relevance and reliability of information with clear definition, frame of reference and reporting framework with regards to their audit fieldwork. Auditors can only provide assurance if they have a clear framework to assess the information and have sufficient knowledge about the organizations and their information systems.

Assurance serves a great importance to the credibility of disclosed information. It minimises the level of noise contained in the disclosed information and facilitates greater user confidence. Assurance providers develop a reputation throughout their auditing profession, and this has placed the standards and quality controls to guarantee the consistent quality of engagements that are being undertaken by their members (Simnett, Vanstraelen and Wai, 2006).

According to Main and Hespenheide (2011), accountants, especially the assurers, should have the knowledge of social, environmental and sustainability issues in order to support the development of internationally accepted measurement and reporting standards. This is done so that assurers fully understand the implications of providing non-financial assurance. Professionals' assurance would ensure that the non-financial reports have been given the due care needed to provide readers with confidence that all concerns, such as materiality, risk management and future proofing have been addressed. Recognized quality standards can also be met if the assurance on the non-financial information is relevant and reliable. In the case whereby the management is responsible for any inaccuracies in the non-financial information, independent external assurance can provide evidence on the inaccuracy and report about it to the shareholders.

Professional accounting associations, such as the large accounting (Big 4) firms, have stated their commitment to CSR and sustainability. The accounting profession's role in CSR is to prepare audit or assurance statements to CSR or sustainability reports. In Corporate Social Reporting, there are 11 reporting principles with similar attributes as financial accounting. Stanwick and Stanwick (2006) stated that these 11 principles are auditability, completeness, relevance, accuracy, neutrality, comparability, and timeliness, transparency, inclusiveness, clarity and context (as cited in Tilt, 2009). Assurance ensures that these reporting principles are followed accordingly.

On the question whether the assurance provides reliability or relevance in non-financial information, we should look into CSR. There are companies which tend to pick specific CSR issues, such as those related to health, safety, and environment that they consider strategic to be included in their CSR reports. They focus on these to differentiate themselves from other socially responsible competitors in order to increase the sustainability of acquired advantages (Perrini, 2006). However, it is the opposite from another point of view; companies that lead in the area of CSR "invariably encourage their less responsible competitors to emulate their behavior". As companies tend to converge on a limited set of CSR main themes and relations with stakeholders, diversification does not apply directly to behavior or areas of social responsibility, but rather to the level of corporate involvement within each single area of CSR.

All companies should integrate social and environmental responsibilities in their relations with stakeholders and at the same time, they should look for strategic diversification in terms of specific modes of exploitation. Since the interactions with stakeholders are simultaneously imperfectly imitable and non-substitutable, they can be managed strategically. These interactions also represent valuable sources of competitive advantage. Thus, reporting of CSR performance would actually be of relevant and material information that is material to the company's key stakeholders and decision makers.

Accountants provide a mechanism for the holding corporations to be accountable for their actions related to the management of the companies. CSR covers a variety of issue including ethics, governance, social activities such as philanthropy and community involvement, product safety, equal opportunities, human rights and environmental activities. Based on a survey conducted by Simnett, Vanstraelen and Wai (2006), it is found out that out of 1,700 individuals representing employees, academics, NGOs and other interest groups, most of them agreed that external formal verification and honesty in declaring negative aspects are the key elements to produce a successful Corporate Sustainability Report (CSR).

According to the Directorate General for The Internal Market And Services in the European Commission (2011), respondents which include a majority of users, NGOs and other organizations, and accountants and auditors, generally expressed that there is value in getting the non-financial reports assessed by independent, qualified experts in order to improve accuracy, completeness and comparability. This is also done to enhance confidence amongst the stakeholders. Those respondents also indicated that external assurance on non-financial information involves activities and qualifications significantly different than those required for auditing financial statements.

Geoff and Nonna (2010) had conducted interviews with assurance providers and preparers of non-financial information on the likely future direction of assurance of non-financial information. Based on the interviews, it was discovered by the two scholars that the audit and assurance field has been viewed as a critical component of a quality reporting framework. Within the field of environmental management, compliance audits were initially undertaken as part of the organizations' responses within the regulatory framework. There is also a general consensus that assurance adds, or has the potential to add, to the (perceived) credibility and quality of sustainability reports. Most respondents believe that assurance contributes to improvements in the operations and risk management of an organization's sustainability practices.

As for the investors in the stock market, they would request for more non-financial information in addition to financial information in order to capture 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 (as cited in Arvidsson, 2011)]. According to Mavrinac and Siesfeld, portfolio managers regarded that on average 35 per cent of their investment decisions were influenced by non-financial information. One-third of them were of the opinion that increased disclosure of non-financial information should be mandated (as cited in Arvidsson, 2011).

However, the process of issuing mandatory requirements related to intangible assets goes slowly. This is supported by a survey of 388 fund managers and analysts and 80 investor relations officers conducted by Deloitte and others, which shows that half of them believed that consideration of social and environmental performance would become a significantly important aspect of mainstream investment decision within the next three years, and 70% think social and environmental information should be assured by a third-party.

Based on a research performed by Hoff and Wood (2008), reports show that both retail investors and professional investors acknowledged past use of nonfinancial information, and these two groups of investors expect to use such information more in the future. These investors also suggested that auditing and other forms of third-party verification would increase the reliability of non-financial information. This shows that in the eyes of the investors, assurance is necessary to improve the relevance and reliability of non-financial information by organizations.

However, investors may also have skepticism toward the reliability of corporate reporting of non-financial information, which is said to be overwhelmingly positive and not clearly linked to corporate performance. This is in combination with a corporate disclosure regulatory regime, which neither mandates nor sets standards for non-financial reporting. Nevertheless, investors tend to discount non-financial information to the extent that they find it incomparable, unreliable, or not directly material to corporate performance (Hoff & Wood, 2008). ACCA, Accountability & KPMG (2009) also agreed that investors tend to discount the non-financial information.

However, further experiments by Hoff and Wood (2008) revealed that both retail and professional investors did not substantially modify their decision-making when presented with audited or non-audited nonfinancial information. This shows that although interest from corporations in reporting this information clearly exists, it has not yet led to a fully fleshed system of data of use to investors. While investors are incorporating such information in their decision-making, and plan to do more in the future, they have not yet developed a systematic way to incorporate such non-financial information fully into their decision-making process. Companies aided by assurance provider have to present information in a manner that effectively communicates its relevance to corporate value where investors are more likely to pay attention.

According to Dando and Swift (2003), the degree to which stakeholders are able to rely on and trust corporate social and environmental accounts is a marker of the efficacy, sincerity and legitimacy of accountability processes. Greater levels of transparency are not enough to demonstrate responsibility or enrich trust and confidence that an organization is sufficiently committed to a sustainability agenda. Responsiveness, learning, innovation and performance improvement are critical links between transparency and accountability. Reporting must be accompanied by robust and independent assurance of these aspects which requires an approach to assurance that goes beyond what is offered by the accuracy focused models of financial accounting and auditing. All these are expected from the assurance practice.

Arvidsson (2011) claimed that from the perspective of management, the IRMs (investor-relation managers) communicate non-financial information in the annual report based on three incentives. These three incentives for the investors to rely on non-financial information are their desire to enhance their understanding of the company, their belief that the non-financial information would convey a full and fair disclosure, and their interest towards the less tangible values described by the non-financial reports. This third incentive is related to the relevance of the non-financial information to the users, or in this, the investors.

There are a few scholars who also agreed with Dando and Swift. Alwer et al (2009) states that from the perspective of users of corporate information, such as stock-market actors or investors, their incentives for demanding and using non-financial disclosures are for more reliable assessments of corporate value (as cited in Arvidsson, 2011). An understanding of the role of intangibles in value creation and in corporate valuation (Holland, 2001) and an augmentation of financial forecasts (Eccles and Mavrinac, 1995) are the reasons for the investors to depend on the non-financial information. With these incentives proposed by the scholars, it appears that IRMs have acknowledged the needs of the stakeholder group through non-financial reporting.

Furthermore, IRMs stated that non-financial information is amounted to 35.7 per cent of the annual report. 65 percent of the IRM respondents said that the quantity of non-financial information had increased during the last three years (Arvidsson, 2011). Thus, all these findings imply that there is a need for non-financial information from the stakeholders. The assurance provider has to ensure that the quantity of non financial information reported is sufficient for the users.

There is a clearly a greater interest and demand from both the financial community and stakeholders for information on intangible assets. They believe that the best way to capture some of the value of intangible assets is by relying on more non-financial information. According to the survey conducted by Arvidsson (2011), 70 per cent of the IRMs believe that non-financial information focused on intangible assets is sufficiently reported in today's annual report. However, both practitioners and scholars stated that companies' disclosures of non-financial information are still somewhat poor (Lock Lee and Guthrie, 2010; Alwert et al., 2009; EFFAS Commission on Intellectual Capital, 2008). The survey supports the findings in Bismuth and Tojo (2008) that management teams in large listed companies appear reluctant to report on intangible assets by communicating non-financial information regularly.

More than 80 per cent (81.3) of the IRMs relates non-financial information to company's strategy, as it explains how it affects the value-creation process. IRMs further stated that the need to focus more on non-financial information probably would be met, since the management team is getting more aware of the importance to identify and communicate the long-term value drivers present in the value-creation process.

Some IRMs emphasized the necessity of non-financial information to be more properly structured in the annual report. They see a future development towards more mandatory requirements that state which non-financial information should be included and how they should be presented in the annual report. This is a little contradicting to Eccles and Mavrinac (1995), who stated that the management team is the party least interested in mandatory requirements compared to financial analysts and investors.

According ICAEW (2008), because of the nature of non-financial information, assurance practitioners need to be aware of the practical challenges that they may face when performing audit, such as independence considerations, the potential need for specialist, knowledge, identifying suitable criteria, obtaining evidence about qualitative or forward looking information, and understanding the users and their needs. In order to increase reporting and providing assurance on non-financial information, it is crucial to have governance attention at the highest level and management cycle of information.

Assurance in the private sector is rather different to the field in the public sector. For the public sector, non-financial information is defined as all quantitative and qualitative data on the policy pursued and business operations. The data are usually the results of this policy in the form of output or outcome, without a direct link to the financial registration system. However, this definition can be applied to the private sector by replacing the term policy with mission, strategy or corporate objectives (Admiraal, Nivra & Turksema, 2009). According to NIVRA Amsterdam (2008), governors, politicians, controllers and government audit offices have become more interested in performance data in budgets and reports. Therefore, there is a need for more structuring, standardization and guidance as there is not yet a generally accepted system for administering and reporting non-financial information.

Regardless of whether it is private or public sector, relevance is linked to the needs and the level of the user. The governing body and the management with support from the public controller are responsible for the reliability of the information. The question on whether a report meets users' wishes depends on the quality of the information. One of the quality criteria is reliability. This quality can be safeguarded by measures taken in advance and afterwards.

External assurance is not the only party who is responsible for the relevance and reliability of non-financial information reported by the management. Both internal auditor and external auditor play a part if an opinion is required on the reliability of the information. In providing assurance, the internal auditor can verify on whether the management is acting consistently with the objectives of the organization. He or she should also ensure that the management control system is functioning adequately and the information supplied is reliable and relevant. The internal auditor should have an advisory role in the design and security of a reliable information system. As for the external auditor, he or she plays the roles in examining the quality of the information, reporting it to users, and neutralizing any conflict of interests and the existing difference in knowledge.

CONCLUSION

It is both challenging to include non-financial information in the reporting process and to provide assurance on the reliability and relevance of non-financial information reporting. This is due to the fact that it is very hard or impossible to measure non-financial information. When one cannot measure non-financial information, then it is not possible to provide a proper report on non-financial information.

Some assumptions would be needed in order to measure and report non-financial information. Since there are many assumptions that can be used, it would be hard to provide assurance on non-financial information. The assumptions used in reporting non-financial information can vary and are very subjective. Therefore, it is challenging for assurance in improving reliability and relevance of non-financial information reporting. Those who in charge of assurance cannot assume that the assumption used is wrong when it is different from what they normally do when it comes to non-financial information reporting. In order to improve the reliability and relevance of non-financial information reporting, the persons who are responsible for assurance would need more information on how the accountants come out with their assumptions.

Another challenge of non-financial information reporting is that most management people that understand the importance of non-financial information reporting. Usually, the management would put more focus on the financial information that they neglect non-financial information.

According to a survey done by Deloitte (2007), there are many board members and senior executives who are still in the dark about the overall health of their organizations as they ignore about the non-financial information. Even though they have become more aware of the growing need to understand their performance through non-financial measurements, the executives admit that their ability to measure and monitor performance through non-financial measurements are inadequate. It would be very challenging for assurance to play a role in improving the reliability and relevance of non-financial information reporting if management themselves do not care about non-financial information reporting. Even if they disclose non-financial information to satisfy the users' demands, not much information would be provided as they do not think that it is important to do so.

In order to enhance the reliability and relevance of non-financial information reporting, first and foremost, the support from management is needed. The way the management reports the non-financial information can have an impact on the assurance of non-financial information reporting. If the management provides more information, it would be easier for assurance to assure that the non-financial information reporting is reliable and relevant.

ACCA, AccountAbility, and KPMG (2009) recommended that in the long term, there would be a need for a new blueprint that creates a reporting and assurance model which is stakeholder-focused, principles-based, integrated (financial and non-financial), applicable internationally, easy to understand, and economically efficient for business. In order to create this model for the future, accountants have an enormous role to play as they have huge responsibilities to shape the future landscape. Although the accountants have enormous roles, they have to be aware that they would need to work with other professionals, such as the assurers, in order to effectively and efficiently create this model for the future. Nowadays, both the standards and assurance practices are evolving. That is the reason assurance also plays a large role in information reporting (both financial and non-financial), as compared to the accounting side of the field.

Based on our analysis of the briefing paper written by ACCA, AccountAbility, and KPMG (2009), we would like to agree with the authors of the paper that the accountants, when developing their non-financial assurance knowledge, should work together with those experienced people who understand the non-financial impacts, since those experts are in a position to question about the choice of materiality and responsiveness by a corporate organization. It is important to have a clear assurance process and level of accepted professional value, which includes integrity and transparency in non-financial information reporting, since this type of reporting is still something new. The users of financial statement would be more confident towards the credibility of non-financial information reporting when there are clear process and standards for it. Without any clear process and standards for non-financial information reporting, the users of annual reports would not believe that non-financial information is reliable and relevant.

In order to fully understand the implications of providing non-financial assurance, ACCA, AccountAbility, and KPMG (2009) recommended that the accountants should be building their knowledge of social, environmental and sustainability issues and supporting the development of internationally accepted measurement and reporting standards. Detailed understanding on both non-financial information and accounting standards can help accountants to link non-financial information with the accounting standards. Users of non-financial reports are concerned about certain issues such as materiality, risk management and future proofing which should be properly addressed in non-financial report. Since non-financial information reporting is still new, the users of non-financial reports would be more confident if the assured non-financial reports have been given the due care needed and the recognized quality standards have been met.

In our opinion, integrated (financial and non-financial) reporting and assurance should be created in the future as non-financial information is becoming more and more important. One should not just rely on financial information as this information does not provide full information; non-financial information can have a large impact on financial reporting and assurance.

There are certain risks that are associated with non-financial information, and those risks would not be detected if the companies do not include non-financial information in their reporting. Some companies might be in trouble and they would be in the dark if they do not use non-financial information to measure their performance. They would not know what hit them until it is too late. Financial information focuses more on the reporting process of the history or past performance of a company, whereas non-financial information is more about predicting what would happen in the future and what should be done now to achieve the goals and objectives established by the company.

One of our recommendations in order to tackle the challenges in our Malaysian context is for the Malaysian Accounting Standards Board (MASB) to set approved accounting standards on non-financial information reporting. Most companies do not know how to properly prepare non-financial information reporting. By setting the standards on non-financial information reporting, proper guidelines on preparing non-financial information can help accountants to properly report the non-financial information and help auditors to audit the reports accurately and fairly.

A proper guideline would help assurance in determining how the companies measure non-financial information and the methods used would not vary too much as compared to other companies. This would be easier for assurance to provide assurance on non-financial information reporting and therefore improve the reliability and relevance of the assurance provided on non-financial information reporting. There are many aspects of non-financial information that should be provided in the reports as that information can affect the performance of the companies. After setting the standards relating to non-financial information reporting, it is important to ensure that the standards are being complied with.

Therefore, we would also like to recommend that Securities Commission (SC) can support MASB by ensuring that public-listed companies comply with the accounting standards on non-financial information. Securities Commission has the statutory power to enforce compliance with its regulations and therefore they have the power to ensure that non-financial information is reported. When there are more companies that include non-financial information reporting, there would be more information about non-financial information available. With more information, the assurance of non-financial information would be more relevant and reliable. One company can learn from other companies to improve on the assurance provided for non-financial information reporting. The assurance provided for non-financial information reporting would then be more reliable and relevant.

Another recommendation that we would like to propose is Malaysian Institute of Accountants (MIA) should educate auditors on auditing non-financial information reporting. It is not easy to measure non-financial information. There can be many ways to measure non-financial information as the answer is not something specific. If there are proper guidelines provided by the relevant governmental and professional bodies, it would be easier to properly record non-financial information and audit non-financial information.

MIA should provide its members with more training programme on non-financial information, since there are more companies that emphasize the importance on non-financial information nowadays. With proper training programmes, there would be more MIA members who are knowledgeable on non-financial information. Thus, assurance on non-financial information can be more reliable and relevant as the people who are in charge of both preparing the non-financial information reports and providing assurance for them are more competent in performing their duties. There are more executives who have realized the importance of non-financial information reporting. This is why the demand for experts on non-financial information reporting is on the rise. By providing sufficient training programmes for accounting practitioners, MIA would equip their members better to cope with the growing demand for experts on non-financial information reporting.

In the future, assurance should play a larger role in improving the reliability and relevance of non-financial information. The numbers of companies that include non-financial information in their reports are growing. Therefore, assurance is needed to ensure that the companies report non-financial information accurately and fairly. Only professionals who have wide knowledge on non-financial information and understand this information can really give a reliable and relevant assurance on non-financial information reporting.

Since non-financial information can be very broad, assurance is needed to ensure that only non-financial information that can affect the performance of a company should be included in the reports. It would not be useful if the companies provide much non-financial information reporting but that information actually does not help in measuring the company's performance. It would be a waste of time and resources if the non-financial information provided does not have a value in it or there is no way to obtain value from the information provided. Therefore, it is important for assurance to ensure that non-financial information reported is reliable and relevant and is not something worthless.

The way-forward of the future reporting is there should be both financial and non-financial information that would be reported by management in many years to come. Historical information is not enough and most financial information is historical. Organizations should focus more on their future by preparing reliable and relevant non-financial information as this information would provide a picture on the sustainability of the organizations in the future. There are many uncertainties but if the companies know how to use the non-financial information well, it can be used to predict the future of the companies and the risks of uncertainty would be lower. If companies only report on financial information, it would be hard to avoid some of the risks that are associated with non-financial information. Based on the report prepared by Deloitte (2007), there is a growing number of executives who suspect that there may be undiscovered value in non-financial information. Companies may be able to discover a wide range of predictive, forward-looking managerial tools when they include the non-financial information in their reporting process.

Most companies focus on earning profit and that is why they mostly only look on financial information. However, lately it has become clearer that non-financial information can have an impact on the profitability of a company. Therefore, managers should realize the importance of non-financial information as they can affect the profitability of companies. When the managers start to realize the importance of non-financial information on profit earned, they would want to include non-financial information in their reports. Globalization would affect the profitability of a company as there are some risks that cannot be seen just by looking at the financial information; those risks can only be seen from non-financial information. Technology advancement can help to measure non-financial information more accurately and provide a better assurance that is reliable and relevant. Nowadays, many people depend on technology to do their work. Technology should be able to help in improving the reliability and relevance of non-financial information reporting.

All in all, assurance does play a role in improving reliability and relevance of non-financial information reporting and it is important to include non-financial information in reporting. There are many users who on assurance to provide assurance on the reliability and relevance of non-financial information. This is because the users of financial statement might not be competent enough to determine the reliability and relevance of non-financial information reporting. Therefore, only those who are competent enough about non-financial information reporting should provide assurance of non-financial information reporting. Without assurance, most companies may hide information and do not provide reliable and relevant non-financial information reporting.

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