Why Is Verification Of Non-Financial Reporting Important?

Legal News

The elaboration of Sustainability Reports, ESG Reports and Non-Financial Reporting Statements is on the rise. An increasing number of organisations are producing these reports, either as part of strategic stakeholder management or to meet financial or regulatory obligations.  In any case, there is a growing expectation about the quality and reliability of the information that organisations issue. In particular, there is a growing need for reports to be a truly useful resource to facilitate stakeholders’ decision making.

In this context, having the expert opinion of an independent third party plays a critical role. Verification of non-financial reporting is a way to provide stakeholders with a greater certainty about the data reported, their quality, and the internal controls of the issuing organisation.

Which are the verification benefits?

In addition to being an indispensable requirement for companies obliged by Law 11/2018. Verifying non-financial reporting provides a set of benefits both internally and externally to companies.

With respect to an organisation’s external audiences, as we have mentioned, verification is vital to increase the credibility and reliability of data and thus strengthen stakeholder confidence, especially of investors. This confidence in turn reverts to an improved reputation for the issuing entity.

However, the verification process can also be critical to improving the sustainability performance of organisations internally. For example, the verification process can be useful in improving the identification and management of the organisation’s sustainability and reputation risks, and in improving the internal control and information systems used to collect data.

On the other hand, the collaboration of an independent expert with the organisation can promote a greater involvement of top management and boards of directors, both in the preparation process and in subsequent verification.

One of the most notable advantages is that through this process and the subsequent recommendations of the independent expert, the recommendations resulting from the verification are often extremely useful in setting the roadmap for future reports.

What does non-financial reporting verification involve?

Using international standardized norms such as ISAE 3000, or Accountability, the verification team should provide an opinion and ensure that the process is carried out with rigour and consistency. The opinion provided can be of two types: limited assurance; the verifier states that no material misstatements of information have been found or, reasonable assurance, the verifier expresses in positive terms that the information is adequately prepared and presented, according to the requirements of the issuing organisation.

For verification to be possible, the independent expert must determine whether the information reported by the issuing organisation meets certain criteria, such as relevance, meaning that it must objectively contribute to the decision-making of the users of the information. Likewise, this information must comply with the approach of integrity; the information processed must be sufficiently complete to avoid bias or errors that lead to inappropriate conclusions. Equally then, this information should be understandable and neutral in a way that allows users of the reports to reach clear, objective conclusions. Finally, the information must meet the approach of comparability, so that the evolution over time of the indicators can be understood, as well as the comparison with other organisations.

The independent expert must carry out tests and procedures that allow him to gather evidence in order to issue a verification report. The verification report should be a notification written in simple language, allowing users of the non-financial reporting to know the scope of the verified information, the performed procedures and the reached conclusions.

As we can see, carrying out the verification process, in the end gives users of non-financial reporting a greater degree of confidence in the quality of the reports issued by the company.

 

 

 

 

Joyce Bruce

Sustainability and CSR Manager

jbd@uhy-fay.com

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