Internal Audit’s Role in Nonfinancial Reporting

The newest issue of Global Perspectives and Insights discusses internal audit’s role in nonfinancial reporting. More than a passing trend, nonfinancial reporting is required in some jurisdictions; global frameworks and standardized approaches to nonfinancial reporting are gaining recognition; and spending on related assurance is projected to grow.

Internal auditors are familiar with annual reports — crisp recitations of organizational activities, a few words from the CEO, eye-catching graphics, pages of financial outcomes, and, for publicly traded companies, a long list of required disclosures relating a vast array of sometimes confusing and mind-numbing detail. The reports encompass everything the reader needs to know about the company, especially if that reader is contemplating investing in the organization. Right?

Maybe not. Increasingly, investors and other stakeholders want more from company reporting. They want to know if the organization is operating sustainably, if it monitors its impacts on the environment, if it is mindful of social issues such as diversity and equal opportunity. When making decisions about supporting a company, stakeholders increasingly expect a more comprehensive report — one that goes beyond financial health. Many organizations also want stakeholders to have improved insight into activities they perform that benefit the greater public good or serve a public interest.

Nonfinancial reporting fills the void by reporting quantitative and qualitative information that falls outside the scope of mainstream financial statements. Though not an exhaustive list, related terms include corporate social responsibility (CSR) reporting; sustainability reporting; integrated reporting; holistic reporting; enhanced reporting; service efforts and accomplishments reporting; and environmental, social, and governance (ESG) reporting.

This is not a passing trend — the European Union has required nonfinancial reports for some 6,000 organizations across member countries; global frameworks and standardized approaches to nonfinancial reporting are gaining recognition; and globally, organizations are expected to increase spending on sustainability assurance by 20 percent over the next five years.

Download your copy of Global Perspectives and Insights to learn more about the valuable contributions internal audit brings to nonfinancial reporting.

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