PAPER PRESENTATION

BY
Akshaya Katiyar
Assistant Professor
Faculty of Management,
Jodhpur National University,
JODHPUR.

Two days UGC sponsored National Seminar on Studies in

Accounting, Finance & Management.
On 19th and 20th March, 2009

At
Department of Accounting
Faculty of Commerce and Management Studies,
Jai Narain Vyas University, Jodhpur.
CORPORATE FINANCIAL REPORTING ON INTERNET

Mr. Akshaya Katiyar1

Within a short period of less than 15 years, the Internet has grown

from an essentially academic facility to the backbone of the information

superhighway. It is one of the most rapidly growing areas which offer the

users the facility to access documents containing text, graphics, sound, and

video. It is now widely used in universities, business companies, homes,

schools, and public sector organizations for a variety of purposes. India has

the fourth largest number of Internet users in the world, with over 85 million

users. The Internet has also become an increasingly attractive market place

with the e-commerce set to grow at a 30 percent pace to touch Rs. 11,900

crores in 2008-09 from Rs. 9,210 crores in 2007-08 boosted by strength in

the classifieds, subscription and downloads businesses (IAMAI, 2007).

The Internet appears particularly pertinent to financial reporting. First,

it is a global network which makes physical and national boundaries less

meaningful and thus provides a seamless information delivery channel. With

1
Assistant Professor, Faculty of Management, Jodhpur National University, Jodhpur,
Rajasthan

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the advent of World Wide Web, it supports powerful hypertext and

hypermedia presentations. In addition, the Internet is capable of integration

with other information and communication technologies. In particular, its

convergence with database technology opens many opportunities for

improving financial reporting. Indeed, the Internet is increasingly used for

corporate reporting.

Given the growing importance of the Internet and its evident

relevance to financial reporting, it is important to investigate the future

impact of the Internet on financial reporting. As the business world becomes

increasingly dynamic, academics and practitioners have called for

improvements in financial reporting. Furthermore, the accounting profession

is anxious to gain an insight into its future position in an Internet

environment.

FINANCIAL REPORTING AND ITS USERS

The reporting process of an entity to a user or a group of users is

known as the reporting of accounting information. Communicating of

information both financial and non-financial about the resources and

performance of the said entity is defined as Corporate Financial Reporting. It

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is also known as a system through which the accounting information is

communicated to the external users. This information is very useful in

making business and economic decisions. Going by the spirit of The

Companies Act, 1956 the basic purpose of Financial Reporting is to provide

the company’s shareholders, financial statements and other related

information.

Financial reporting is regarded as an important and effectual means of

dissemination of financial information. It is useful because it assists people

to answer questions and make better decisions. Financial information is

better provided by means of financial reporting other than formal financial

statements. Examples include the president’s letter, supplementary schedules

in the corporate annual report, prospectus, news releases and management’s

forecasts. The demand for information in financial reports regarding

business enterprises comes from both outside and inside. The users of

financial reporting outside the business, especially capital market

participants, governments and to some extent from special-interest groups

usually want summarized information in standardized forms and reported at

certain intervals. On the contrary, the insiders represent by two groups –

managers and employees, look for tailored information to help them in

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taking specific decisions and reported at frequent intervals and sometimes

produced on the basis of request.

Since the late 1960’s with the development of the value verses events

reporting agenda (Sorter 1969) the possible role of computers in the

reporting cycle has received much attention. The majority of this research

has concentrated on the database approach to reporting. The major limitation

of this approach has been the lack of an effective distribution mechanism for

the system output. The debate as to whether or not there is a ‘best way’ for

presenting accounting information is of real concern to many standard

setters and such a debate is essential in supporting the value-based approach

to accounting common in many countries at present (Sorter 1969). The

development of an aggregated value-based accounting model was, to some

degree, driven by the practical inadequacies of any other approach available

at the time to deliver financial information in a way acceptable to both users

and producers.

The issues in Financial Reporting of national verses international

patterns of behavior are currently central to the activities of the national

standard setting bodies around the world and to the IASC (International

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Accounting Standards Committee) as the primary international body. The

establishing of the G8 and the bringing forward of the IASC timetable for a

set of international standards are evidences of the importance of this subject

at the current time.

MODES OF FINANCIAL REPORTING ON INTERNET

Companies throughout the world use different computer software for

financial reporting purposes. Amongst the technologies are Microsoft Word

and Microsoft Excel which were previously used to distribute and exhibit

financial as well as other forms of information through Internet. The major

technologies currently employed in internet financial reporting are HTML

(Hypertext Markup Language) and Adobe Acrobat. Very recently, an

exclusively new technology, XBRL (eXtensible Business Reporting

Language) has appeared to be most effective and has gained acceptance as a

unique computing language with seamless fashion in developed countries of

the world.

• MS Word and MS Excel

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 Microsoft Word and Microsoft Excel are two widely used application

software developed and marketed by Microsoft. Some companies structure

their financial information on their websites in Microsoft Excel spreadsheets

or comma-delimited text files. These types of files can be imported into the

database of the receiver’s system for further processing. These formats

imply great potential benefits especially for financial analysts by transferring

financial data to their own financial indicators. However, common attributes

that characterize information on the websites like hypertext and user friendly

visualization of data are neglected. Moreover, credibility and authenticity of

financial information is quite impossible to ensure because the downloaded

files can be manipulated before use and digital signature of concerned

authority is not possible.

• HTML

Most of financial information dispersed through websites of

corporations is presented using the Hypertext Markup Language (HTML).

HTML documents consist of text, graphics, and formatting information.

There are also hyperlinks that point to other documents for further and

detailed information. Although hypertext structure of HTML derives great

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advantages, it has deficiency concerning the exchange of structured data.

The data is not at all structured or indexed by specifying semantic elements

so as to enabling the receiver's computer processing data automatically

(Westarp, Ordelheide, Stubenrath, Buxmann and Konig, 1999).

• Adobe Acrobat

Many companies offer financial information in downloadable format

known as Portable Document Format (PDF). PDF documents are

independent formats written by Adobe's Acrobat software, which retain

original fonts, colors, formatting and images on multiple computer

platforms. To view, navigate, and print a PDF document the Adobe Acrobat

Reader is necessary. Adobe Acrobat has many advantages in presentation of

accounting information. The information comes as a package, and is

identical to the printed version since fonts, colors and images are embedded.

Further, it provides technical solutions for signing the reports electronically

and new versions of PDF allow hyper linking of text. The advent of Acrobat

provides solutions to some of the problems that exist in earlier modes of

financial reporting on internet.

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 It can, however, be argued that a long-term solution to Internet

financial reporting cannot be made by Acrobat. Some important plausible

fundamental advantages of Internet based information distribution are

missing in PDF documents. Downloadable files are generally too large and

automated extraction of semantic meaning from the reports is impossible

(Westarp, Ordelheide, Stubenrath, Buxmann, and Konig, 1999).

Furthermore, and even more important, PDF does not enable further

automated data processing.

• XML and XBRL

XBRL is a freely available electronic language for financial reporting.

It is an XML (eXtensible Markup Languages)-based framework that

provides the financial community with a standard-based method to prepare

and publish financial statements in a variety of formats and automatically

exchange the information they contain (Richards and Smith, 2004). XBRL is

not about establishing new accounting standards but enhancing the usability

of the ones that we have through the digital language of business. XBRL will

not require additional disclosure from companies to outside audiences.

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 The official website of XBRL states that it, at least at first, will be

used to digitally publish financial statements of companies that are issued to

external users. An XBRL-based financial statement is a digitally enhanced

version of paper-based financial statements, which include the balance sheet,

income statement, statement of equity, statement of cash flows, and the notes

to the financial statements as well as the accountant’s report. “XBRL for

Financial Statements” enables a dramatic improvement in the processing of

financial reports. XBRL documents can be prepared efficiently, exchanged

reliably, published more easily, analyzed quickly, retrieved easily by

investors, and enables smarter investments.

XBRL solves two significant problems through efficient preparation

of financial statements in many forms and reliable extraction of specific

detailed information from the different forms of financial statements

(Debreceny and Gray, 2001).

The first problem is that preparing a financial statement for printing,

for a Web site, and for filing today means that a company could typically

enter information three times. With XBRL, information will be entered once

and the same information will be “rendered” as a printed financial statement,

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an HTML document for a Web site, an EDGAR filing file, a raw XML file,

or a specialized reporting format such as periodic banking and other

regulatory reports (Richards and Smith, 2004).

The second problem is that today, extracting specified detailed

information from an electronic financial statement is a manual process. For

example, a company cannot tell a computer program to “Get the

depreciation expense for 1999” from an electronic financial statement. If a

financial statement is prepared using XBRL, computer programs can easily

extract every piece of information in that statement. This also includes Web

browsers on the Internet.

XBRL and XML can derive optimal benefit to various participants in

the financial information supply chain, such as companies who prepare

financial statements, analysts, investors, regulators, financial publishers, data

aggregators, Independent Software Vendors etc.

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TABLE:-BENEFITS OF DATA PRESENTATION FORMATS

Hypertext Information Further automated

retrieval processing
PDF ●
Excel ● ●
HTML ● ●
XBRL and XML ● ● ●

Source: Westarp, Ordelheide, Stubenrath, Buxmann, and Konig (1999)

IMPORTANT ISSUES

There are other complex challenges which the management has to

take crucial decisions such as:-

• What to report - Important issues like the coverage & Depth of

information to be provided.

• When to report - The frequency and time of reporting will depend

on the type of financial information reported. Some important issues are:

– Should the interim results be reported on a quarterly or biannual

basis?

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 – Should the annual report (which includes the auditor report) be

provided online immediately after the completion of the annual audit

exercise?

– How long, should the financial performance data be posted to the

firm’s web site after the data have been released officially via the press?

• Who is responsible to report - Typical issues are:

– Who is/are responsible for deciding which financial information

should be posted online?

– Who is/are responsible for posting the online financial information?

– Who is/are responsible for verifying and approving the

online financial information?

CONCLUSION

Without doubt, the growing popularity of corporate financial reporting

on internet will continue in many countries and cities, after companies have

realized the many advantages associated with it. It will be risky for the

management and internal auditors of the company to ignore corporate

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financial reporting on internet. Indeed, in the interest of the users of financial

information, management and internal auditors have to provide their

expertise to ensure that the electronic forms of reporting produce quality

financial information.

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