352 Accounting: Business Reporting for Decision Making
The information provided by financial statements alone is not enough to form predictions about an entity’s
financial health.
Financial statements are historical statements reflecting past transactions. Often, the past is a good guide
to the future, but the use of information outside the financial statements needs to be considered when forming
predictions as to an entity’s financial health. For example, what are the technological advances, swings in
consumer tastes and changes in economic conditions that may affect an entity’s future operations? Financial
data alone cannot adequately reflect the intricacies of an entity’s operations. Effective analysis and interpret-
ation of financial statements generally requires a comprehensive analysis of an entity, its management, its
competitors, its location and the industry in which it operates, and the surrounding economic conditions.
Users are also becoming more concerned about non-financial aspects of a business, particularly sustain-
ability aspects. As discussed earlier in chapter 2, an entity’s environmental and social performance is often
factored into users’ assessments of the entity. Many entities prepare a sustainability report either in addition
to or contained within the annual report. Often the sustainability report contains non-financial ratios designed
to provide users with information on how effectively the entity manages the environmental and social impact
of its business activities. Some entities have developed environmental targets and publicly report against those
targets. For example, Fuji Xerox Australia produces a sustainability report. The report lists all of the com-
pany’s carbon output as an eco-efficiency factor, reflecting how many millions of dollars of revenue are earned
per tonne of carbon produced. Other measures reported by Fuji Xerox Australia include the percentage of
waste that goes to landfill relative to the total waste generated, the water usage per capita at various business
sites, and the proportion of recycled paper used. As Fuji Xerox Australia’s sustainability report demonstrates,
economic, social and environmental performance is important to users when making decisions about an entity.
There is a movement to reshape reporting by entities to make reports more useful to users. In July
2011, the International Integrated Reporting Committee (IIRC) released a discussion paper titled
‘Towards integrated reporting — communicating value in the 21st century’. The concept of integrated
reporting is that the reports should be strategically focused, connect information, be future oriented and
be responsive and inclusive of all stakeholders, and the information should be concise, reliable and mat-
erial. The reality check ‘Integrated reporting at the crossroads?’ discusses the movement to transform
business reporting and the challenges it faces.