FACTORS OF INTERNET FINANCIAL REPORTING:
THE CASE OF MALAYSIA
Mohd Noor Azli Ali Khan, Department of Management, Faculty of Management &
Human Resources Development, Universiti Teknologi Malaysia
Assoc. Prof. Dr. Noor Azizi Ismail, Universiti Utara Malaysia
ABSTRACT
This paper examines the fm:lms that influence companies
in Malaysia to engage in Internet Financ ial Reponing
(IFR), Pereeprions of advantages and problems ill using
this nc« technology for financial reporting were also
examined. The perceptions of prcparcrs of financia l
infonnat ion were solicited using a survey mailed
que-aionnaire . Preliminary findings suggested three
lacrors that arc perceived as important hy re-pondiug
Iirms 10 engage in IFR: (l) enhance corporate image, (~)
company' teller with the technology development, and (3)
competitors in the industry. The findings also revealed
three factors that inhibit firms from engaging in IFR: (I)
need to keep inlormariou updated to be of usc, (2)
required expertise lrom (he company. and (3) concern
over security of inlurmauon. The findings also suggested
that .:;k1ba I leach and mass communication' and
'timeliness and up-date abiluy as the most important
advantages from financial reporting on the 1ntcrnct. On
the other hand, ' security problems and 'l'p~l and
expertise are the disadvantages of placing financial
information on
the lntcrnct.
Fiualiy, plausible
implications of the findings or the study are thcn
presented and areas for future research are :\150 proposed.
Keywords: factor, advantage. disadvantage and internet
financial reponing
Field: Information technology
1. INTRODUCTION
The development of the Jntcmct as a distribution
dianne! of financial information creates a new
communication medium and reporting environment in the
corporate world (Ashbaugh et a I. 1999; Chan &
Wickramasinghc. 2006). The practice of disseminating
business information in a digua! format is spreading
around the world (Benson et al., :!(I06) and becoming a
very important part of hUSlllCSS information services (Liu,
2000), The Internet is a technology with the power to
revolutionize external reporting and increasingly
important tor financial reponing (Jones & Xiao , :'0(4) . It
is a unique information disclosure tool that encourages
flexible (OnTIS of presemarion and allows immediate.
broad, and inexpensive cornrnunicauon 10 investors
(Kelton & Yang. 20(8) . The Internet also provides a
unique lorm of corporate voluntary disclosure that
enables
companies
to
provide
information
insrantancou-Iy to global audience [Abdclsnlam et al ..
20(7).
A comprehensive review of existing litcnuure on
Internet l-inancial Reporting (hereinafter referred to as
IFR) indicates a signi ticant evolution of I fR research.
The evolution of IFR research can be categorized into
four research themes ; classification of 1f< R. descriptive
studies. association surd iL:s and dimension of IrR (Ali
Khan & Ismail . 20M.al. While researchers have give»
considerable attentions [0 [FR research over the last
decade, only a limited number of studies have emerged lu
cxplam die relationship between corporate behaviour and
the attitudes and preferences of preparers of II:R ,
especially in the context or Malaysia Therefore, this
study attempts to fill the gap by investigating the
perceptions of preparers of financial inlorrnarion and 10
solicit their views about the tactor-, advantages and
disadvantages of I FR.
The res! of this paper is arranged as Iollows. The next
section provides an overview of IFR. Section three
discusses about the research methodology. followed by
research findings . The paper ends with a conclusion and
suggestions for future research.
2. PRIOR RESEARCH ON IFR
There have hccn a growing number of empirical
studies on IFR since 1995 reflecting the growth in this
form of information dissemination (Davey & Homkujohn.
2004). IFR is an attractive and tast growing research
topi c (Oyelere et al., 2003; Xiao er al ., 1005). A lots or
IFR researches have eme rged over the last decade . The
earliest .<,1 udies were produced during 1996 and 1997,
only a year a tter the global, corporate Interest in the'
Internet as an advertising med ia had commenced (.A,IJam
& LymL:L 2003). In general. the IFR literature can be
classi fled into two themes; (I) the practice" of companies
177 -
using the Internet for financial reporting purposes and as
an investor relations communication strategy, and (2) the
determinants or web-based disclosure policy choice
(Joshi & Al-Modhahki, 2003) . Furthermore, IFR research
call be d iI' idcd into se vera I themes: descriptive research,
co mpa rat i\ C r..s~' arch and cxp lanatory research (Pcrv an,
2006: Abdclsalarn ~'l :11, 2007).
II has nov becoming increasingly common for large
corporations to communicate information to their
stakeholders hy using a voluntary disclosure medium like
the Internet. Many companies provide wchsites which
include large amounts of information on a rich range 0 f
financial matters. Compared to the traditional printed
reports, tile lnternet offers many more opportunities to
communicate financial information. and its irnportanee in
thi ~ rega I'd IS rap id Iy increasing (Pirehegger &
Wagenhofer. It)lJ) J.
Corporate websites are designed for multiple reasons,
Including. advertising the firms' products, facilitating
electronic commerce, promoting brand identification,
attracting potential employees, and enhancing the
eorporate image (Lybaert, 2002). The advantages or the
Internet for financial reporting are its cheapness. speed,
dynamism, and flexibility (Lyrner, 1999). I FR can he cost
effective, last. flexible in format. and al'L.Ts~ihlc 10 all
users within and beyond national boundaries (T\1011<JIDl'd
Hisham & Hafiz-Majdi, 2004). The la~l live years
witness a growth in the number of companies adopting
IFR. Indeed, IFR is one of the fast growing phenomenon
(Ashbaugh ct al., 1999; Oyclcrc ct al., 20{)}) The
development of IFR practi ce has been mp id. I;) rg<> I)
mirroring, ant! motivated hy, the development of the
world wide web since 1994, being the primary Internet
medium for IFR (Allam & Lyrner, 20(3).
Several professional studies in the US, UK and Canada
have also examined the status of !FR. These include the
1nsritute of Chartered Aeeountants in England and Wales
(lCAEW) (Spaul, 1997). the International Accounting.
Standard Committee (lASe), now the International
Accounting Standards Board (lASB) (Lyrner er al.. 19(9) ,
Canadian Institute of Chartered Accountants (C ICA)
(Trites, 1999) , and the U.S. Financial Acrounung
Standards Board (FASB) (FASB 2000, 2001).
IFR practices have been surveyed hy a number or
academic studies in many countries, lor example US
(Pctravick & Gillel\. \ 996; Ashbaugh ct al., 1999 ;
Eurcdgc ct al.. 200 I). UK (Lymcr, Iqq7; Marston &
l.cow, 199~: Craven & Marston, 19Qql. Japan (Marston,
20(3). New Zealand (\1cDonalt! & Lont, 2001; Oyelere
l'l ul., 20(1) and 1roland (Brennan & Hourigan, 1<}98).
Several studies have abo examined the relationship
Ill'twe~'n fHm ,;peeifie ehilraeteristi..:s ,ind IFR (see, for
l'xample. Ashhaugh et nl.. Iq4q : Craven & Marston,
199'1; H aS~;)1l et al.. 1';14';1: Pirchegger & I,I,-'age nhofer,
1909; H()ll~on 8.:. Escohar. 2002: nebreceny et :1.1. , 2002:
Allam &. Jy:mer. 200} : Joshi & AI-Modhahki. 2003;
Oyderc ('t ai, 20()}; Marston & Polei. 200·L Xiao et aI.,
.:'004; Chan & Wicklamasinghe, 1006l.
\I,hile numerous studies have exam ineJ the St,uns and
determinants of IFR, only few studies haw focused on
the timeliness issne which is an important pan or IFR
(Pirchegger & Wagenhofer, 1999: Euredge et al.. 20m;
Abdelsalam & Street, 2007). Timeliness IS crucial as
users are demanding for more timely information (Fisher
et aI., 2004). It is even more important as shorter delays
are often associated with greater profuability Ireference).
Unfortunately, many eomparues are found \[1 locus more
on the user support and information content than
timeliness ant! technology (Davey and Hornkujohn,
2004).
SIUd ics on the perceptions of I FR fmm the prepa rers'
and users' perspectives are very limited compared to
those of traditional reporting. One exception is a study by
Joshi and Al-Modhahki (2003) . They found 'global reach
and mass eornrnunieation, 'timeliness and updateabiliry'
and' interaction and feedback' as important advantages of
IFR , while "seeurity problems' and ' authentication,
attestation and legal impediments' as important
disadvantages of IFR.
ln summary, the wealth of recent research in this area
also confirms the importance of [he IFR issues . However,
pereeprion stud ies on the facto rs. advantages and
disadvantages of IFR are still lacking in developing
countries, espeeially Asian countries. In additions, to the
best of our knowledge, no studies have asked the
interested parties, and especially preparers about their
pereepuon and attitude ill relation t<l I f'R.
3. RESEARCH METHODOLOGY
of thi» ~tuJy is to investigate the
pn:parcrs toward the advantages and
disadvantages or IFR. F<l1' this pUrr'lSe, data were
rollcctcd bv a mean or survcy questionnaire. ln designing
the questionnaire. commen ts and feedback from post
grnduntc students and academics were elicited in an
endeavour to ensure that questions were clear and precise.
Early draft nn the questionna ire was pre-tested by two
PhI) accounting students, three accounting lecturers at
l-neulry
of Management and Human
Resource
Managemen t, Universiti Teknologi Malaysia, and three
accounting lecturers at College of Business, Universiti
Utara Malaysia. Based on their leedbacks. several
modifications were made to the wording of some
questions aud some less important questions were deleted
to reduce The length of tbc questionnaire,
The target prepares or IFR arc chief financial officer
(CFO), finance manager and accountants. CFO, finance
managers or accountants of the puhlic companies listed
on the main board represented the preparers, Cl-Os were
chosen becausc they are the senior executives who are
rcsponsihlc for hoth accounting and fmancial operations
(liambalvo. 2004) . (FO is a member of the management
team thm would typically be associated with the
development of the cOIlJOrate annual report and be in a
position to comment on what influence the decision to
disclose (Wilmshnrst & Frost, 2000). These individuals
also have the neceSSalY knowledge and competency
regarding IFR matters (Ho & Wong. 2003 ; Mohd Isa,
The main
perception
! 78
()hi~Yli\~'
or
20(6). T he respondents wen: asked [Q indicate their
opinions on a five-point scale in terms of s trong ly
disagree to strong ly agre e,
Since this paper is exploratory in n ature A exploratory
study l ~ conducted to prel iminary determine to get the
respond ent percepti on s. A sampl e o f this s tudy co nsists of
450 respondents (preparers of public listed companies in
Bursa Malays ia). Th e samp le si ze sa tis fies the rule of
thumb proposed by Rosc oe ( 197 5) as noted b)' Sekaran
(2003 ), Sekaran no ted Roscoe as suggcsung that. amon g
others, a sample size larger than 30 and less than 500 is
appropri ate Ior most researc h. with a minimum number
of snh -sam plc ~ILeS of 30 for each category is necessary.
Ih c dala were colle cted during the month o f Jul y ro
Septcrnh cr 2008. Each respondent rec eived a mark ed
quesrionna irc (for track iug purposes) to gethcr W uh J
letter outlin ing the objective o f the research. respondent
confidentiality, and avai lability of survey rc snlt upon
request. as well as a stamped addressed enveloped, We
sent question naire to so licit their opinion o n facto rs,
advantages and disad vantages of report ing financial
information 0 11 the lntcrnct. A total of 6H respondents
responded 10 the questionnaire, repr esenting 15.1 1%
response rare. C FOs and accountants are busy people and
arc generally unw i 1J ing to participate in survey stud ies
(sec, 110 & Wong. 200 I ), the low resp onse ra tes (between
10 to 20 percent I vvere in line with the expect ation ofth is
study. Pricew aterhousetoopers (2002) reported that the
average response rate tor pos tal survcy-: In Malay sia is
around 16 percent
The questionnaire consists of two parts. Pan one
relates to the general as pec ts. .... hich arc the background
of the respondent suc h as gender, age. ed ucation level and
position. Part r.... o , consists of respondent perception s
toward factors. advantages anJ disadvant ages of IFR ,
Accountan ts
16,~
II
The followin g sect ions report the results of the
prep arers ' perceptions toward the factors that influenced
them to adopt [FR. The rcsnl t-, In Table ::! and Table 3
show ' enhance corp orate image'. 'company teller with
the technology development' and ' competltors in the
indu stry' as the three mum factors that influence most
influenced company to adopt IFR , vvhile 'need to keep
inlormatiou updated to he of rise", ' required experti se
from the company' and 'concern over securuy of
informauon' as the three main factors that most inhibited
compa111cs from adopt: ng. IrR. The respondent
perceptions sho....' that a 11 the items arc the tac tor
influence company to engage or not to e ngage with IFR
(mean > 3.00).
Tahle 2. Factors infl uenc ing comp an y engage IFR
'J
Hem
= (i ~
Stauda rd
Rauk
Me an
deviatio n
Enhan ce corporate ima g e
4,1 8
II [,'.10
Comp a ny te ller w ith the
3 ,S!)
lJ,:':.·l'
Competitors in the indu stry
3,66
o ')24
3
Dircct o rs de sire to engage 1l- R
Obligauons to community
3.62
3 ,60
lU.. 11
4
Obtaui f und s trorn wi de r -ource s
.1.54
IUi ('(l
(l.nl
6
Medi a attc n tion
3.4 0
3 ,26
0.849
Rec ei ve government ,UI)P" rt
0.90S
X
Stability and nnprovcrncru in
3,24
0.9 00
'/
2
technol og y d ev el opment
5
sha re pr ices
Pr essu res ti om stakeholders
~U6
1,0 16
10
"ViII awards
:'.15
0 ,950
i. 1t
Table J. Fact ors influ encin g company nOI engage IF R
4. RESULTS
Table I shows the profil e of the respondents. The
results show that a bo ut 53 per cent of ibe resp ondent s arc
CFO while the remaining are finance manager and
accou ntants, Two -third o f the respo ndents arc male .
Eighty-seven percent of the respondents Me 4 (j years old
or below and almost all respondents have at least a degree
or a professiona I qU<lli fication .
M~
Staudard
Mea n
de v iauo u
\l =
Item
:1
Rank
<.)(J
U ~ 66
Required exp ert ixe from the
company
J ,74
O,7l\S
-
C onc ern
J .n
0 ,990
~
3.63
O'JI J
4
.1,50
O.9 S5
5
Need
10
upd at ed
keep mfonnation
[0
he of use
1)\
c r secu ruy o f
informauon
Table I . Profile o f Respondent
Couccm ov er
disclosure o f
proprietary information
Demographic
hem
Frequ en cy
f'e lcenJa gt:
27
39 ,7
2tj
'1
31\ .2
13.2
Cost incurred ou tweig h b en efit s
to company
Potential legal liability
There me alternative form, of
obtaining information
T O il cosi ly to setup and maintain
Dr ) no t w il ll l I C' be lao
-'
4.4
transparem
(" ,,)
Gender
Age
Male
Female
-: 30 ye ars
3 I to 40 ye a r ~
4 I to SO yea rs
:.>
Academic
certificat ion
51 years
Diplornn
Degree !
46
2~
(,
-1<,)
676
32 4
R.lI
72.1
Professional
OctlLp.:lI iun
r">t asters /Ph .1)
CFO
Fina nc e manager
16
23. 5
]6
~:
21
J ()S
.
0.954
6
0.83 4
7
3.4J
0 ,935
7
3.40
1.06 7
9
No lega l requirement
JJ 7
Fea r o f l,hi ng compe titive
J .06
10: I
097t>
II
ad vantage
-
JA 7
J4 3
17Y -
][)
A further analys is was carried out
10
investigate the
perce pt ions of preparers and use rs toward the advantage s
and disadvantages of lFR . These items were extrac ted
from the literature ( Wallman, 1995; Green & Spnul.
1997: l.ymer & Tallberg, 1997: Joshi & Al- Modhahk i,
200.1 ; Ali Khan & Ismail , ~ O{j~ b) . The perceptions were
cliritcd using a Liken scale ranging from I (Strung]y
d i-ugree dj to 5 (Strongly agreed), The results III Table 4
show that responderu s pe rceived 'g lobal reach and mass
comrnunicuti nn ', 't imeliness and updareability ' and
. increased illformat ion' as the three most irnportan t
adva ntages ()f If< R ( mean > 4,(JO).
'l able 4. Advantages of IFR
~
ltcm
= (,k
Mean
Global reach an d mascornmunicnuon
Timelin ess and up- date abihtv
Incrcas cd mformation
I jpwll loadable ) and analysis
"':1\ I gr,t i'111 ;11 case
lnrcrucuo n and [ccdbuck
C0 ,1 beneficial
Presentation Ilexihi lit« illh1
4 .2 ()
.J 10
Standard
Rank
deviation
0.683
4,<1 1
0.694
0 .72 3
.,
1.94
1.11 7
1.72
:U 5
O.t,'I,'<J
(),7.' I
O.7KI I
0 .70X
4
:'i
0
7
2
or
-
11 ~ l b i ll t\'
-
.
On the hand, the results in Table 5 show thai
respon de nts perce ived ' security prob lems'. 'cost and
cxpen isc and ' poor w ebs ite desig n and a dve rtis ing' as
the three rno-: important disad vantages or IFR (mean >
3.50) . Ot he rwi se, the respondent pe rce ptions show rhai
all lh c items are the
adva n t;l g e.~
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Item
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Co , t lind expert ise
PliOI' website Jes ign and
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N = 6X
Mean
3.9-1
Standard
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0.890
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1
.:- .~ ()
ORR9
.J
3.4 4
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5
6
J.l':.J
]
2
kg il l llllp c: d i m~ m;,
In fOllJ)ali ou oycrlO<lll
DCI'eloped and dCI'clllring.
c (1 l!lIlry digital dil idc
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communicati on' as the most important advantage of IFR,
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disad vantage.
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into the factors. advantages a nd disadvantages o f IFR
from the perspecu ves pf prcparers and users which are
neg lected by prior research. However, [here arc several
limu at ions of our study, and fnture research ea refine and
broaden our analyses in severa l as pects. The first is the
small sample size. As the Internet conrmucs til evolve, we
expect more companies to create web sitcs und adopt IFR
within the nexI li'w years. Th ercforc, i l wou Id be
interesting for re searchers to further investigate this issue
....,ith a larger sa mp le siz e, Seeond , the subj eer being
surveyed can be described as a top man ag...·ment issue and
it may he [hat not all respondents cun reveal all the
eonfidcntia' informati on. Th ird, questio nnaire may nOI be
the hvst way
collec ting data ahont IFR. Further
research con ld try other approaches, such as interview ing
compa n ies, prep ares and U5e r. Fourth, th iss rudy only
fileuses on Malaysia. Futur e research may investigate and
compa re the issue between countries. especially between
developed and devel op ing count ri es. Finally, the
Malaysian environment may be nniquc and. therefore. On!'
findings may no t be generalized ill other capital markets.
Rcp l icat ions or I F\{ pract ice in other nationa l se ttings
warrant poremial research extensions of this paper.
:U 4
5, CONCLUSION
On (hi, paper. we examine the perL'ep !ions Ilf prep arer~
on the r ;1L'tOl' <; . ;ld l·antages and disadval1lagcs of IFR.
There arc lwr> imrunant findings emerged from this study
that can he lI ~ en a ~ a has is for fllture re~ eal'ch . Firsi. Ihe
respondc11ts r'l11ked 'enham:c c<Jrpurate image ' , 'c ompany
leller wilb the technol ogy development ' and ' co mpetitors
111 thc indus try' as the most impunan t factors thai
inllucll"" c companies to ada pt IFR . On the other hand,
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volumarv disclosures in Malaysia : The case of inlC1l1el
fimllh.:Hil reporting, Paper presented at IntCl7IHtliHia/
[)usm~'s., ,H.m.lg t."'m elJt
(oJ] fel'e//ce 2(}04, Kuantan.
Pahang. December 6-7. ::004 ,
Hassan, S, Jaaffar. N.. Johl. S," 8.:. 1\1Jt Z:lin, 1'.1 IN ..
Fin;Jl1Ci <:l1 repl'rting on the internet hy r-.1J IJysian
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companies: Perceptions and pracuces. Asia-Pacilic
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corporate disclosure, and the capital marker : i\ review ~)J
the empiri cal discl osure lit erature. Journal ol'A n'lllllllf11~!!
and Economics. ve l. J 1, Pl'. 405-440, 2 (j(j 1.
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between corporate governance structure- and ihc extent
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or
or
[9%, July.
Pricewaterhouscf'oopers,
:\,farket
Rcsdiness
IiII'
Disclosure-Bused Regulation. Highlight.\ limn the 5Uf\o(.:I·
Oil the remltncss of' the Malaysien C-aplial Msrkct
perticipsnt.., Ior DBR, Kuala Lumpur: Securities
Mohd Noor Azli Ali Khan
received tbe Bachelor () f Accounting
(Hons) ( 19911) and 1\1 aster of
Accounting (2001) Irorn U ruversui
Kebangsuan Malavsia. Currently,
pursuing his PhD in Accounting at :
College of Business. Uni vcrsiti
UI<lrJ Malaysia,
He i~ a lecturer, Department of
Management,
Faculty
uf
Management & Human Resources
Development, Univcrsiti Teknologi
Malaysia. HIS current research
interests
include
financial
disclosures and lnrernet financial
report ing.
Commission. 2002,
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Internet Fmancial Reponing by New Zealand Companies,
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Theory snd Practice, \\11. 30. no. r. pr. 1-27,2006.
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on the lntcrnet: a survey of the homcpages of Austrian
companies. Ttie European A cco/lmiflg Review: vol, R, no.
2, pp. 3RJ-1 0 :' . 19\)9.
Sekaran, li.. R cscsrch Methods For Business A Skill
BIl/Ming Apptosc..:'11 (4 1), ed . J. USA: John Wiley & Sons.
l nc., 2003 .
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The Institute or Chartered Accountants in England and
Walcs, 1997.
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business reporting, Canadian I nstirute of Chartered
Acc ountants. j <FN .
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ill Evolving World: The Need for Dramatic Change,
Accounting llorizon, vol. 9, no. 3, pp. 81-91, 1995 .
Wilrnshun« .
Ln.
&
host.
G.R.,
Corporate
environmental reponing A test of legitimacy theory,
A ceounttng. A uditing Accouotsbility ]0 UJlW I. vol , 13. no.
I. pp , 10-25. 2000.
Xiao. .I.Zoo Jones , M.l &; l.yrner, A" A Conceptual
l-rarnework for investigating the Impact of the Internet on
Corporate Financial Reponing, The lnrcmarionsl Journal
or Digifi.ll
Accounting Research; vol . 5.
BO.
Assoc. Prof. Dr. Noor AzizL
Ismail received holds a bachelor
degree (Acconnting) from Universiti I
Kebangsaan Malaysia (1 (92); 31
Master
degree
{Accoumirl~
Svstems)
from
Universitv II
/I.-·ielllphi~, United
10, pp,
131-169,2005,
Xmo. J,Z., Yang, H. & Chow. C. v,'., The determinants
and cbaructcristics or voluntary Inlemd-based disclosures
-
States () 99.~): and
Doctorate degree (PhD) fro
l.oughborough University, Unilc~
Kingdom
(Accounting
an~
Information Systems) (:004).
,
lIe is a associate professor 31
(~ollcge. ?f Business (Acc~unting!
Lnivcrsiti Utara Malaysia, HI
current research interests ! nclu~
accounting aud information SySICm~
in small businesses. the intcraclioj
between organisational issues an~
technical factors in intormatiot
systems development. Rcccntlv, h~
a
l~~
-
work has conceu tratcd au the IT
governance iS511<'S and management
accounting
systems
such
as
acti vity-buscd
management and
perforrnancc me asu rerncnt.
Hc h<l" published articles in both
local and international journals ill
the
domains
of
accounting.
management,
and
information
systems such as lnrcrnarionai
Journal of Accounting Information
Systems,
Journal
of
Global
Information
Technology
Management.
Campus
Wide
lntorruation
Systems.
Malaysian
Management Journal. International
Journal of Management Studies.
Journal of Muarnalat & Islamic
Finance Research, Jurnal Teknologi.
.lurnal Penyelidikan Pendidikan.
Jurnal Kernanusiaan. PRC1<;;PECT
and Accountants Today, He i" :.II ,0
the former editor (or Malaysian
MiJnagcrnen t .Iourna I.
-
IH3