Case Study: Auditor's Responsibility for Non$-$Financial Information

As an experienced auditor at a reputable accounting firm, you've been assigned to audit a large manufacturing company's financial statements. In addition to financial data, the company also discloses non$-$financial information related to sustainability, environmental impact, and social responsibility in its annual report. Your audit team is tasked with evaluating the reliability and accuracy of both financial and non$-$financial information to provide stakeholders with a comprehensive understanding of the company's performance and operations.

During the audit process, you implement various procedures to fulfill your responsibility for auditing non$-$financial information:

Understanding Non$-$Financial Reporting Frameworks: Begin by familiarizing yourself with relevant non$-$financial reporting frameworks and standards, such as the Global Reporting Initiative $($GRI$)$ or the Sustainability Accounting Standards Board $($SASB$).$ These frameworks provide guidelines for disclosing non$-$financial information and help assess the completeness and reliability of such disclosures.

Assessing Management's Processes and Controls: Evaluate the processes and controls implemented by management to collect, compile, and report non$-$financial information. This involves reviewing policies, procedures, and data collection methods to ensure accuracy, consistency, and transparency in non$-$financial reporting.

Testing Data Accuracy and Completeness: Conduct substantive testing to verify the accuracy and completeness of non$-$financial data disclosed in the annual report. This may include reviewing supporting documentation, performing analytical procedures, and testing the reliability of data sources used for non$-$financial reporting.

Evaluating Key Performance Indicators $($KPIs$)$: Assess the appropriateness and reliability of key performance indicators $($KPIs$)$ used to measure the company's sustainability and social responsibility efforts. Verify the calculation methodologies, data sources, and underlying assumptions to ensure the integrity of KPI reporting.

Reviewing External Assurance Reports: Consider external assurance reports, if available, from third$-$party providers or internal audit functions that assess the company's non$-$financial performance. Review the scope, findings, and conclusions of these reports to gain insights into the effectiveness of management's controls over non$-$financial reporting.

Assessing Alignment with Organizational Objectives: Evaluate the alignment of non$-$financial disclosures with the company's strategic objectives, values, and stakeholder expectations. Determine whether non$-$financial reporting provides meaningful insights into the company's sustainability initiatives and social impact.

Communication with Stakeholders: Engage in dialogue with key stakeholders, including management, board members, and external parties, to gain perspectives on the relevance and reliability of non$-$financial information. Address any concerns or discrepancies identified during the audit process and provide assurance on the credibility of non$-$financial disclosures.

Objective Type Question:

Based on the case study, which step is essential for auditors to fulfill their responsibility for auditing non$-$financial information?

A$)$ Assessing Management's Processes and Controls

B$)$ Reviewing External Assurance Reports

C$)$ Testing Data Accuracy and Completeness

D$)$ Communication with Stakeholders