Audit of Corporate Reporting on the Internet


Online Continuous Reporting



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Online Continuous Reporting


In this paper, we have concentrated on the audit of static, periodic IFR. Some companies have moved beyond the reporting of static, periodic accounting data to providing more timely access to corporate data that is statutorily required

Insert about here.

In 1999 the Scottish Accounting Institute issued a paper entitled ‘Business Reporting - An Inevitable Change?’ (ICAS 1999) which outlined a proposed development path for business reporting in the UK, and beyond. This paper forms part of their ‘Making Corporate Reports Valuable’ series, and is complemented by a number of other studies performed by the Institute in this area.

In this paper the authors outlined a reporting environment in which business reporting would be undertaken via providing access to a corporate database of reporting information. Whilst this database would not be the full dataset available internally to the business it would provide much greater depth than is currently available in the traditional reporting model.

Some discussion of the assurance implications of this proposal was offered. Specifically, the report outlined the need to move away from the assurance of outputs to address assurance of processes. It suggested there would be an ongoing need for this verification, but the database approach would significantly reduce the value of an outputs based examination. The report also highlighted the possibility that differing assurance levels and forms may need to be introduced to deal with the differing levels and forms of information provision available via the database.

The report concluded by outlining a number of key areas in which further research is needed to confirm the validity of these suggestions for a very different approach to business reporting. Those offered that could be considered to have at least some audit implications include:



  • the call for greater understanding of non-financial indicators and their verification, such as the development and use of intangible assets and assessments of the quality of management,

  • the extent and nature of the demand for related assurance services, such as the reliability of systems, reliability of specific data and the relevance of overall information to specific decisions.

  • development of relevant assurance procedures and reporting formats, such as online auditing systems and the way in which assurance is to be communicated.

  • examination of the skills base of professional accountancy firms - what will the structure and dynamics of the market for independent assurance services be as it evolves and will these services be offered by professional accounting firms, or by other professionals?
  1. Conclusion


This paper addresses the changing environment in which external audit is conducted resulting from the use of electronic means of reporting by corporations. Its primary focus is on the use of the Internet as the most established electronic communications tool for reporting at present, although the implications of changed reporting patterns are applicable to a wider range of electronic communications media.

The paper then examined the existing pronouncements related to the audit function from numerous professional bodies. It looked initially at the statements made by bodies who were commenting more widely than solely on audit implications and then examined the positions of the auditing standard setters in the USA, Australia and the UK at the time of writing this paper.

It is clear from this analysis that, although many of the general, procedural issues related to the external audit of online financial information are being addressed by these standard setting bodies, the wider implications of the impact on the audit function have not yet been addressed in detail. The recent change in the legislative environment in the UK at least will require these bodies to continue to consider these wider issues and to eventually issue further guidance on this area.

We argue that the professional responses to IFR are an inadequate response to the technological developments. We do not argue, as some in the profession do, that we should replicate the paper-based environment in electronic form by, for example, providing Adobe Acrobat versions of printed documents. To the contrary we argue that the global accounting and audit community has a public responsibility to promulgate the most effective and efficient distribution of accounting data via the Web.


  1. Bibliography


AASB. 1999. Auditing Guidance Statement AGS 1050 - Audit Issues Relating to the Electronic Presentation of Financial Reports. December. Melbourne: Australian Auditing Standards Board, Australian Accounting Research Foundation.

AASB. 2001 Auditing Guidance Statement AGS 1020 - IT Environments 0 Online Computer Systems. Auditing and Assurance Standards Board, Australian Accounting resaerch Foundation (issued October 2001)

AICPA. 1996. Report of the Special Committee on Assurance Services. New York, NY: American Institute of Certified Public Accountants.

Allam, A and A. Lymer 2002. Benchmarking Financial Reporting Online: the 2001 Review. Working Paper, University of Birmingham, UK.

APB. 2001. The Electronic Publication of Auditors' Reports. January. London: Auditing Practices Board (UK).

Arthur Andersen. 2000. Spice up the Story: A survey of narrative reporting on annual reports. April. Arthur Andersen: London, UK.

Ashbaugh, H., K. M. Johnstone, and T. D. Warfield. 1999. Corporate Reporting on the Internet. Accounting Horizons 13 (3):241-257.

COB. 1999a. Guidelines concerning the use of Internet by listed companies in a regulated market when they communicate financial information. Paris: Commission des Operation de Bourse.

COB. 1999b. Recommendation de la COB relative a la promotion ou la vente de produits de placement collectif ou de services de gestion sous mandat via Internet. 3 Septembre. Paris: Commission des Operation de Bourse.

COB. 2000. La COB lance une consultations publique sur un project de recommendation Internet. 2 Octobre. Paris: Commission des Operation de Bourse.

Cushing, B. 1989. On the Feasibility and the Consequences of a Database Approach to Corporate Financial Reporting. Journal of Information Systems 3 (1):29-52.

Debreceny, R., and G. Gray. 1999. Financial Reporting on the Internet and the External Audit. European Accounting Review 8 (2):335-350.

Debreceny, R., and G. Gray. 2001. The Production and Use of Semantically Rich Accounting Reports on the Internet: XML And XBRL. International Journal of Accounting Information Systems 2 (1):47-74.

Deller, D., M. Stubenrath, and C. Weber. 1999. A Survey of the Use of the Internet for Investor Relations in the USA, UK and Germany. European Accounting Review 8 (2):351-364.

Ettredge, M., V. J. Richardson, and S. Scholz. 1999. Determinants of Voluntary Dissemination of Financial Data at Corporate Web Sites. University of Kansas.

FASB. 2000. Business Reporting Research Project: Electronic Distribution of Business Information. Norwalk, CT: Financial Accounting Standards Board.

FASB. 2001. Improving Business Reporting: Insights into Enhancing Voluntary Disclosures. Norwalk, CT: Financial Accounting Standards Board.

Ford, W., and M. S. Baum. 2000. Secure Electronic Commerce: Building the Infrastructure for Digital Signatures and Encryption. Upper Saddle River: Prentice Hall.

hodge, F. 2001. Hyperlinking unaudited information to audited financial statement: Effects on investor judgments. The Accounting Review 76(4) p675-691.

Hoffman, C., C. Strand, and Z. P. Coffin. 2001. XBRL Essentials. Tacoma, Wa: XBRL Solutions Inc.

Hussey, R., J. R. Gulliford, and A. Lymer. 1998. Corporate Communications: Financial Reporting on the Internet. London: Deloitte & Touche.

IASC. 1999. Business Reporting on the Internet. London: International Accounting Standards Committee.

ICAS. 1999. Business Reporting: The Inevitable Change? Edinburgh: Institute of Chartered Accountants of Scotland.

ICSA. 2000. Electronic Communications with Shareholders: A Guide to Recommended Best Practice. March. London: Institute of Chartered Secretaries and Administrators.

IFAC. 2001. Electronic Commerce using the Internet or other Pubic Networks - effects on the Audit of financial Statements. International Auditing Practice Statement, issued October 2001.

Levitt, A. 1999. Quality Information: The Lifeblood of Our Markets [URL]. Securities and Exchange Commission, 18 October 1999 1999 [cited 5 November 1999]. Available from http://www.sec.gov/news/speeches/spch304.htm.

Lymer, A., and A. Tallberg. 1997. Corporate Reporting and the Internet - a survey and commentary on the use of the WWW in corporate reporting in the UK and Finland. Paper read at 20th Annual Congress of the European Accounting Association, April, at Graz, Austria.

March, S., and G. Smith. 1995. Design and natural science research on information technology. Decision Support Systems 15:251-266.

Pirchegger, B., H. Schader, and A. Wagenhofer. 1999. Financial Information on the Internet - A Survey of the Homepages of Austrian Companies. European Accounting Review 12.

Trites, G. 1999. The Impact of Technology on Financial and Business Reporting. October. Toronto: Canadian Institute of Chartered Accountants.

Wallman, S. M. H. 1996. The future of accounting, Part III: Reliability and auditor independence. Accounting Horizons 10 (4):76-97.

Wyatt, A. R. 1997. The Accounting Profession--Major Issues: Progress and Concerns. Accounting Horizons 11 (2):127-131.



Financial/Annual Report Related Attributes

Attributes

USA

UK

Canada

Australia

Hong Kong

Total

 

No.

%

No.

%

No.

%

No.

%

No.

%

No.

%

Chairman's Message

49

98.0

47

94.0

48

96.0

48

96.0

44

89.8

236

94.8

Corporate Information

49

98.0

48

96.0

50

100.0

49

98.0

43

87.8

239

96.0

Board of Directors & Officers

49

98.0

49

98.0

50

100.0

49

98.0

45

91.8

242

97.2

Customer Profile

2

4.0

3

6.0

2

4.0

0

0.0

0

0.0

7

2.8

Employee Profile

1

2.0

20

40.0

2

4.0

0

0.0

1

2.0

24

9.6

Corporate Citizenship

 

 

 

 

 

 

 

 

 

 

 

 

None

4

8.0

3

6.0

10

20.0

6

12.0

29

59.2

52

20.9

Social

23

46.0

4

8.0

14

28.0

13

26.0

8

16.3

62

24.9

Environmental

1

2.0

0

0.0

5

10.0

7

14.0

1

2.0

14

5.6

Social and Environmental

22

44.0

43

86.0

21

42.0

24

48.0

12

24.5

122

49.0

Financial Highlight Summary

49

98.0

50

100.0

50

100.0

48

96.0

44

89.8

241

96.8

Auditor's Report

 

 

 

 

 

 

 

 

 

 

 

 

None

2

4.0

1

2.0

0

0.0

1

2.0

6

12.2

10

4.0

Signed

48

96.0

8

16.0

28

56.0

41

82.0

4

8.2

129

51.8

Not Signed

0

0.0

41

82.0

22

44.0

8

16.0

40

81.6

111

44.6

Management Report or MD&A

45

90.0

49

98.0

50

100.0

49

98.0

44

89.8

237

95.2

Balance Sheet

49

98.0

49

98.0

50

100.0

50

100.0

44

89.8

242

97.2

Income Statement

49

98.0

49

98.0

50

100.0

50

100.0

44

89.8

242

97.2

Cash Flow Statement

46

92.0

48

96.0

50

100.0

50

100.0

44

89.8

238

95.6

Statement of Shareholders' Equity

44

88.0

46

92.0

50

100.0

7

14.0

43

87.8

190

76.3

Notes to Financial Statements

45

90.0

48

96.0

50

100.0

50

100.0

44

89.8

237

95.2

Segment Report

45

90.0

44

88.0

50

100.0

50

100.0

23

46.9

212

85.1

Statement of Directors

42

84.0

47

94.0

48

96.0

48

96.0

0

0.0

185

74.3

Proxy Statement

35

70.0

2

4.0

22

44.0

6

12.0

21

42.9

86

34.5

Financial Ratios

 

 

 

 

 

 

 

 

 

 

 

 

In Context Only

16

32.0

22

44.0

19

38.0

20

40.0

28

57.1

105

42.2

Tables and In Context

34

68.0

28

56.0

31

62.0

30

60.0

21

42.9

144

57.8

Vision Statement

47

94.0

37

74.0

41

82.0

31

62.0

21

42.9

177

71.1

Cosolidated Statement of Operations

49

98.0

49

98.0

50

100.0

48

96.0

44

89.8

240

96.4

Quarterly Statement

46

92.0

5

10.0

49

98.0

5

10.0

0

0.0

105

42.2

Table 1 – Attributes of financial reporting websites of five countries as at end 2001 (based on Allam & Lymer 2002, table 3, p10)


 

Financial Summary

Balance Sheet

Income Statement

Cash Flow Statement

Notes to Accounts

Audit Report

 

Allam

IASC

Allam

IASC

Allam

IASC

Allam

IASC

Allam

IASC

Allam

IASC

Australia

96

53

100

20

100

23

100

17

100

17

98

7

UK

100

57

98

47

98

47

96

47

96

47

98

34

USA

98

90

98

70

98

70

92

70

90

57

96

43


Table 2: Comparison of percentages of top 50 (Allam) or top 30 (IASC) companies in geographic domains who provide key elements of an annual report on their Website for accounting periods ending to end 2001 (Allam) or mid 1999 (IASC)

Source: from Table 3 Allam & Lymer, 2002 p10 and Table 6 in IASC 1999 p55





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