Calls to redefine capitalism are rising. To succeed, the field of financial reporting & the content of financial statements must evolve.
This paper starts with the proposition that the most effective place for information on performance and stewardship to inform user decisions and shift resource allocation at speed and scale is in the financial statements. That is, in the calculation of the assets, liabilities, income, expenditure, and, critically, the equity of a reporting entity. One type of information that informs an understanding of performance and stewardship is a business’s impacts on the capitals and the management of those impacts.
This paper aims to explore the interface between financial and non-financial reporting in this context and to stimulate discussion on:
- The opportunities for disclosure of impacts on all capitals that are assets or liabilities within financial statements, based on existing accounting standards.
- Where the disclosure of those impacts could be considered within financial statements.
- Where there are not opportunities for disclosure, the specific areas where the application of accounting and auditing standards or the standards themselves could evolve.
We invite you to consider your own financial disclosure and how you identify the information that is ‘useful’ to users without overreliance on historic information or previous reporting processes.
We would be particularly interested in examples where you have disclosed information on natural, social and human capital impacts and dependencies in the financial statements.
We look forward to continuing the discussion and offer the opportunity to discuss the proposals set out here with us and with others in the growing community of practice.
This paper builds on the Capitals Coalition’s report on Improving Nature’s Visibility in Financial Accounting, which set out four options to include the capitals in the financial statements ranging from further analysis of existing information through to changing the basis for the calculation of profit.