The Audit of Corporate Reporting
on the Internet: Challenges and
Institutional Responses
Andrew Lymer
Click for Paper
University of Birmingham &
Roger Debreceny
Nanyang Technological University, Singapore
Overview
• Background
• Issues facing auditors
• Professional Pronouncements
– Non-auditing specific
– Auditing specific
• Technological developments in reporting
• Research Needed
Background
• Paper based periodic reports
• Selected Investor Meetings
• Physical AGMs/EGMs
• Investor Relations websites
• Webcast Meetings
• Electronic Proxy
• Interactive reporting
• Video conferencing
• Electronic voting
Background
Financial Summary
Australia
UK
USA
Allam
96
100
98
IASC
53
57
90
Balance Sheet
Allam
100
98
98
Income Statement
IASC
20
47
70
Allam
100
98
98
IASC
23
47
70
Cash Flow Statement Notes to Accounts
Allam
100
96
92
IASC
17
47
70
Allam
100
96
90
IASC
17
47
57
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
Audit Report
Allam
98
98
96
IASC
7
34
43
Issues facing auditors
1. Scope of Verification
Company
Website
• Drawing the
boundary
• Provision of wider
range of information
Investor Relations
Website
Authorised
Financials
• Depth of data
• Forward Looking
reports
Issues facing auditors
2. Functions of Verification
Int er-net worked O rganisation
Organisat ion’s Informatio n
System
Accounting Syste m(s)
Financial
Sta tements
• Organisation wide
information
systems
• Boundaries of
organisations
• Role for
continuous audit?
Issues facing auditors
3. Assigning responsibility in the audit
function
• Sharing of risk v limited liability
• New players in verification market
4. Justification of the statutory audit
• Value added?
• Cost coverage of wider audit remit
Issues facing auditors
5. Other issues
• Is the audit opinion safe from change by the client or other
party?
 Should the web-based auditor's report reside at the auditor's or
the client's website?
 What weight should be given to an auditor's report date when
documents on the web can be changed?
 Should the auditor allow hyperlinks to, and/or from, the auditor's
report?
 Auditor's report look and feel when available online
 The expression of authority of audit statements
 What does ‘signing’ actually mean in online context?
Professional Pronouncements
1. Non-specifically auditing related
regulations and standards
– Securities Market Regulators
• SEC, COB, LSE, TSE
• COB (2000) - calls for effective auditor guidance or
will regulate
Professional Pronouncements
– Accounting Standard Setters
• IASC Discussion paper
 indicating whether specific items of data had in fact been subject
to external verification,
 which GAAP (or GAAPs) had been so audited,
 how excerpts from financial statements, and their related audit
statements, should be shown if made available outside of the
context of the full statements in an annual report
 use of different languages
 …...
Professional Pronouncements
– Accounting Standard Setters cont
• AICPA/FASB
– Active groups in area eg the Jenkins Committee Report (94) and
the Elliott Committee Report (96)
– 'Business Reporting Research Project’ - Jan 98
» 'Electronic Distribution of Business Reporting Information’
Jan 2000
» democratisation of business reporting
» changes in the reporting model
» completeness of reports
» timeliness
» variability of content
Professional Pronouncements
- Accounting Standard Setters cont
• ASB
'Year-end Financial Reporting Structure' project
Discussion Paper February 2000
Standards for Internet reporting?
Professional Pronouncements
- Other Groups
• ICAS - ‘Business Reporting - An Inevitable
Change?’
–
–
–
–
–
–
Database reporting model
Audit processes instead of outputs
Different assurance levels for different levels of data
Better understanding of use of non-financial indicators
Demand for wider assurance services
Skills base to deliver wider range of services
Professional Pronouncements
- Other Groups cont.
– ICSA Best Practice Guide for Electronic Shareholder
Communications - March 2000
• Form of the audit report when delivered online?
– UK Electronic Communications Act
• May 2000 - effective December 2000
• All forms of shareholder communications can be electronic
• Voluntary reporting becomes statutory fulfillment?
• Early to see full effect
Professional Pronouncements
2. Auditing Standards
Trend -
1. Ignore online reporting as solely
communication medium (USA)
2. Changes the whole nature therefore too big
to handle (initial UK)
3. Pick up bits where guidance can be offered
(Australia and recent UK)
Professional Pronouncements
2. Auditing Standards cont
– USA
•
•
•
•
•
AU550 (SAS 8 interpretation) March 1997
Website not equal ‘other documents’
Auditors can ignore
Various AICPA task forces and panels monitoring position
Practice Alert 97-1 (current)
– AU550 still valid
– Boundaries around audited information necessary
Professional Pronouncements
2. Auditing Standards cont.
– Australia
•
•
•
•
AGS1050 - December 1999
clarity over responsibilities
need for specific auditor training
presentation of audited v unaudited data
– not displayed together
• referencing and signatures
• active monitoring of audit report use
• special reports for selective info presentation
Professional Pronouncements
2. Auditing Standards cont.
– UK
• Bulletin 2001/1 ‘Electronic Publication of Auditors Reports’ Jan 2001
• reflects many of AGS1050 issues for UK
• BUT audit report should be largely common for all reports plus
• dating still valid (no evergreen reports?)
• responsibility for checking conversion from audited manual to
electronic
Technological Developments
in reporting
Dynamic
Intelligent
Agents
Push
XML
Flexibility
HTML
Static
CD-ROM
Single Use
Adobe
Acrobat
Information use
Reuse
XBRL: The Standard for Publishing
and Distributing Financial Information
Printed
Financials
Accounting
System
Generation
Other
Sources
Regulatory
Filings
XBRL
Website
Tax
Returns
Bank
Filings
Investors
XBRL
Interpretation
Other
Parties
Research Needed
• Examples :
– Actual Usage
• e.g. how companies using audit reports in conjunction with
online information
– Judgment Studies
• users influenced by verification process when reports online?
– Demand for Assurance Services
• what demand exists?
• Funding models?
– Impact of Legislation Changes
• ECA etc
Conclusion
• Online reporting common
• Move from voluntary to statutory
• Traditional audit techniques may be of
reduced use
• Need for useful guidance becoming
important
• Bigger technological issues on the horizon to
be addressed