the audit of corporate reporting on the internet: challenges and institutional responses
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The Audit of Corporate Reporting on the Internet: Challenges and Institutional Responses. Andrew Lymer University of Birmingham & Roger Debreceny Nanyang Technological University, Singapore. Click for Paper. Overview. Background Issues facing auditors Professional Pronouncements - PowerPoint PPT PresentationTRANSCRIPT
The Audit of Corporate The Audit of Corporate Reporting on the Internet: Reporting on the Internet:
Challenges and Institutional Challenges and Institutional ResponsesResponses
Andrew LymerUniversity of Birmingham &
Roger DebrecenyNanyang Technological University, Singapore
Click for Paper
OverviewOverview• Background• Issues facing auditors• Professional Pronouncements
– Non-auditing specific– Auditing specific
• Technological developments in reporting• Research Needed
BackgroundBackground
• Paper based periodic reports• Selected Investor Meetings• Physical AGMs/EGMs
• Investor Relations websites• Webcast Meetings• Electronic Proxy
• Interactive reporting• Video conferencing • Electronic voting
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
Notes to Accounts Audit ReportFinancial Sum m ary Balance Sheet Incom e Statem ent Cash Flow Statem ent
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
Background
Issues facing auditorsIssues facing auditors
1. Scope of Verification
Investor RelationsWebsite
CompanyWebsite
Authorised Financials
• Drawing the boundary
• Provision of wider range of information
• Depth of data
• Forward Looking reports
Issues facing auditorsIssues facing auditors
2. Functions of Verification
Financial Sta tements
Accounting System(s)
Organisat ion’s Informatio nSystem
Inter-networked O rganisation • Organisation wide information systems
• Boundaries of organisations
• Role for continuous audit?
Issues facing auditorsIssues 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 auditorsIssues 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 Professional PronouncementsPronouncements
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 Professional PronouncementsPronouncements
– 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 Professional PronouncementsPronouncements
– 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 Professional PronouncementsPronouncements
- Accounting Standard Setters cont
•ASB'Year-end Financial Reporting Structure'
projectDiscussion Paper February 2000
Standards for Internet reporting?
Professional Professional PronouncementsPronouncements
- 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 Professional PronouncementsPronouncements
- 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 Professional PronouncementsPronouncements
2. Auditing StandardsTrend -
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 Professional PronouncementsPronouncements
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 Professional PronouncementsPronouncements
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 Professional PronouncementsPronouncements
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 Technological Developments in Developments in reportingreporting
In fo rm atio n u se In fo rm atio n u se
F le x ib il ity F le x ib il ity
R e u se R e u se Sin gle U se Sin gle U se
Stat ic Stat ic
Dyn am ic Dyn am ic
H T ML H T ML
XML XML
C D C D - - R O M R O M
A d o b e A d o b e A c ro b at A c ro b at
In te llige n t In te llige n t A ge n ts A ge n ts
P u sh P u sh
XBRLXBRL
AccountingSystem
AccountingSystem
OtherSources
OtherSources
XBRLXBRL
InvestorsInvestors
OtherParties
OtherParties
XBRL: The Standard for Publishing XBRL: The Standard for Publishing and Distributing Financial Informationand Distributing Financial Information
PrintedFinancialsPrinted
Financials
RegulatoryFilings
RegulatoryFilings
WebsiteWebsite
TaxReturnsTax
Returns
BankFilingsBankFilings
Generation Interpretation
Research Needed 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
ConclusionConclusion
• 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