In examining the development of audit pronouncements related to IFR, it is clear that a trend has emerged in tackling the concerns considered most important. The initial position (that adopted by the US) was that the Internet makes no difference and therefore auditors can discount the presence of this communications medium in performing their various functions. The second trend in examining these issues was to take the opposite extreme position and suggest that the technology in fact changes everything and subsequently is too big to handle at present. This was the initial UK position. The third, and most recent, trend has been to attempt to pick out areas of concern the regulators and standard setters believe they can helpfully comment upon, or specifically address and to provide guidance or standards in those areas. This trend more closely typifies the current Australian and UK stances.
The use of newer technologies for accessing and reporting IFR has implications for the audit and verification of IFR. We argue that developments in technology is widening the gap between traditional paper-based reporting practices, the technologies being currently utilized by many large reporting entities and the forthcoming application of current technologies, notably XBRL. In this section we traverse two primary and related issues. First, how do users access IFR? Second, how do users retrieve information from IFR Websites and Web pages? We discuss each of these in turn.
User Access to IFR
The major technologies that are employed in IFR are HTML and Adobe Acrobat. While reporting in HTML is widely found, the electronic paper or Acrobat technology continues to be popular as a foundation for IFR. Indeed, while we do not have recent statistics, our observation is that the proportion of companies reporting in HTML has declined in favor of Acrobat. As discussed in some depth by both Trites (1999) and IASC (1999), Adobe Acrobat has many advantages in the presentation of accounting information. The information comes as a “package”, comparable to that of the printed report. As a package, the boundary between the annual report and the rest of the financial statements is clearly demarcated. The Acrobat report cannot readily be changed. Adobe Inc. provide a variety of technical solutions for the ‘signing’ of such Acrobat reports. Acrobat is an appropriate solution to the obvious problems that current Web technologies bring to IFR. These include poor support for printing and downloading, browser-dependent screen display on uncertainty in the authenticity of documents11.
We argue, however, that Acrobat does not represent a long- or even medium-term solution to IFR. We argue that Acrobat fails three important tests: (1) the files that must be downloaded are too large for all but those with a high speed link to the Internet, (2) extraction of semantic meaning from the reports is difficult or impossible and (3) the contents of the reports are not indexed on the major search engines. We consider that we are at a point where the benefits of HTML/XML/XHTML are beginning to outweigh those of electronic paper (i.e. Acrobat). A major driver of this change is the advent of XBRL, a technology to which we will return shortly.
Presentation of IFR in HTML, XML or XHTML to a greater extent, or in Adobe Acrobat to a lesser extent, give rise to a number of issues in terms of the manner in which users access IFR. There are three principal ways that users retrieve IFR. First, users proceed directly to the corporation’s Web site, and follow links to the IFR component on the Website. They follow links typically titled “Investor Relations” or “Annual Report.” Once at the Investor Relations portion of the Website, they access a variety of information, most of which is not audited. Given that Acrobat documents are not indexed on most search engines, this often circuitous route is the manner in which most users will be forced to retrieve IFR information. Second, they search for information on a general-purpose search engine such as Google.com or AltaVista.com. From the results of the search they navigate directly to one of the pages on the corporate Website, or to some other Website that will usually not be associated with the corporation in question. Third, they access information on third party sites. In the US context this would include information that has been derived from filings under the SEC’s EDGAR system. Information accessed under this category also includes third party information intermediaries such as Hoovers.com, which provides free, pay-per-use and subscription services to corporate performance databases.
The audit guidance discussed in the previous section seems, in our view, to assume that most users access IFR by the first of these options, i.e. by users navigating to the corporate Website. The UK APB recommendation that management provide warnings within these links that a user is moving from audited to unaudited information is an example of the navigation styles to be used by information consumers. Such guidance is entirely futile should users navigate directly from a general purpose search engine to a particular page on the corporate Website or if they extract information from a third party’s information database. Such suggestions are entirely reasonable in the short-run – indeed we made similar suggestions in our report to the IASC – but do not represent a realistic solution to the practical ways in which users access their desired IFR. The most popular sites on the Web are search engines (e.g. Google.com) or information portals (e.g. Yahoo.com – and of course such information portals provide search engines as a bookend to their portal services). We need to establish methods for providing assurance to users on the status and authenticity of individual reporting elements and not just complete packages of information or by providing dialog boxes to advise users that they are about to access information on a page that has not been subjected to an audit.