Reporting 4.0 - Business Reporting For The Age of Mass Customization

JOURNAL OF EMERGING TECHNOLOGIES IN ACCOUNTING American Accounting Association
Vol. 18, No. 1 DOI: 10.2308/jeta-10764

Spring 2021
pp. 1–15
EDITORIAL
Reporting 4.0: Business Reporting for the Age of Mass

Customization
ABSTRACT: Financial reporting has evolved over centuries in distinct stages. The first reports (Reporting 1.0) were
the trial balances ensuring that debits equaled credits, using the terminology popularized by Pacioli. The next major
innovation was formalized in the Great Depression, with Reporting 2.0 being the standardized and audited financial
Downloaded from http://meridian.allenpress.com/jeta/article-pdf/18/1/1/2831738/i1558-7940-18-1-1.pdf by Mexico user on 14 July 2022

statements. Reporting 3.0 evolved as technology was used to augment that reporting process with ERP-based data
and XBRL. Today, technology is still relying on the automation of existing processes in Reporting 3.0. This paper
proposes the move to Reporting 4.0, where technology will change reporting as fundamentally as Industry 4.0 is
changing business operations. What characterizes Reporting 4.0 is the application of the intelligence inherent in
21st-century technology to create an app-based reporting system characterized by mass customization: the ability
for reports to be tailored to meet the needs of the heterogeneous stakeholder community of the multi-objective
modern enterprise.
Keywords: Reporting 4.0; mass customization; accounting statements; apps.
I. INTRODUCTION
T
oday’s accounting reporting model is a direct evolution of Luca Pacioli’s (1494) 15th century methodology of financial
reporting, and it is no longer appropriate for the measurement, reporting, and assurance of the modern enterprise, either
business or governmental. This paper proposes the replacement of this increasingly outmoded financial reporting
methodology with what we call a Reporting 4.0 model that is more comprehensive, timely, and predictive. Reporting 4.0 is an
app-based reporting mechanism, like those that are ubiquitous on smartphones and tablets today, which will support the myriad
objectives of modern enterprises and their diverse stakeholders with contemporary measurement methods, mode-encompassing
information, and analytics that can be retroactive, current, and forward looking. By moving from a paper-based (and its digital
analogs, PDF and XBRL) to a customizable and flexible communication system, Reporting 4.0 will shift accounting statements
from the constrained mindset of the 15th century to the broad capabilities made possible by the technologies of the 21st
century.
II. FROM ‘‘ONE SIZE FITS ALL’’ TO MASS CUSTOMIZATION

Modern production and information technologies enable medicine, consumer goods, and services to be individually
tailored for each customer’s circumstances at a low cost. For example, automobiles have a wide range of customizable options,
eyeglasses are manufactured directly to match the individual prescription of the patient, and custom photographic albums are
designed, printed, and delivered to customers in hours.
The reason that businesses today provide a wide degree of specialization is the result of not only their recognition that
offering variety results in happier customers and greater sales, but also because modern technology facilitates what is called
‘‘mass customization’’: manufacturing processes that facilitate variation in the finished good without sacrificing the efficiencies
of assembly line mass production. This approach toward production stands in contrast to the assembly line technology
facilitated by the initial technology of the industrial revolution that made the manufacturing process slower and more costly if
variations were allowed.
Piller and Müller (2004) define the objective of mass customization as ‘‘offering individually customized goods and
services with mass production efficiency’’ and write that the demand for it arises because ‘‘consumers with great purchasing
power are increasingly attempting to express their personality by means of an individual product choice. Thus, manufacturers
are forced to create product programs with an increasing wealth of variants, right down to the production of units of one.’’ They
The edits, comments, and suggestions of Dong Gil Kim and Chanyuan Zhang are very much appreciated.
Michael G. Alles, Rutgers, The State University of New Jersey, Rutgers Business School, Department of Accounting and Information Systems, Newark,
NJ, USA; Jun Dai, Michigan Technological University, College of Business, Department of Accounting, Houghton, MI, USA; Miklos A. Vasarhelyi,
Rutgers, The State University of New Jersey, Rutgers Business School, Department of Accounting and Information Systems, Newark, NJ, USA.
Published Online: May 2021
1
2 Alles, Dai, and Vasarhelyi
argue that mass customization is the ultimate expression of Drucker’s (1954) dictum that ‘‘It is the customer who determines
what a business is.’’
Mass customization is essential to the business plans of many companies offering services, most particularly those in the
internet space where the promise of a personalized experience is the rationale for customer participation in the first place. Thus,
companies ranging from Facebook, Inc. in social media, Google LLC in web-based advertising, and YouTube and TikTok in
video all use algorithms to ensure that every user gets to see content that is specific to them.
The business that is far more essential than these service providers to the functioning of the economy, but that is still very
much following the concept of one size fits all, is accounting and its main output, the mandated financial statements of a
business. While the data contained in these reports, as presented in the 10-K and annual reports, are specific to a particular
business, the characteristics of those reports are not in any way customized to the needs and wants of the myriad stakeholders of
the business.
In contrast to Drucker’s (1954) dictum on the role of the customer, financial reporting standards are set from the supply
side by accounting bodies and regulators, and while they may seek feedback from stakeholders, the nature of the reports

precludes specialization to subsets of those stakeholders. Thus, the same reports have to suffice whether one is a current
shareholder in the business who wants to assess how effectively management is safeguarding the business’s assets, a potential
investor wishing to compare future performance against other potential investments, an employee focused on job security,
bondholders whose main fear is going concern, or an NGO wishing to hold the business to account concerning its impact on the
environment.
The lack of customization of financial statements is particularly striking because this is an area that is characterized by the
presence of ‘‘consumers with great purchasing power,’’ which is a requirement for it to arise (Piller and Müller 2004). The fact
that the public is not already provided with better information indicates that the problem lies with the very structure of reporting
itself. That is why it is important to understand the history that has led to reporting being what it is today.
III. THE EVOLUTION OF FINANCIAL REPORTING

The history of accounting dates back at least to the use of the cuneiform tablet to record transactions in Mesopotamian
times, some 5,000 years ago. The first financial statements were probably the trial balances made possible by the double-entry
accounting popularized by Luca Pacioli in 1494.1,2 If we call that Reporting 1.0, it was made possible using the technologies of
the accounting equation and its matching debits and credits, as well as the printing press that enabled the widespread
communication of financial information. As Smith (2018) writes:
Friar Luca Pacioli changed the world of accounting, which in turn revolutionized how business managers were able to
keep track of internal operations, and thereby attain greater efficiency and profitability. The fundamentals of double-
entry accounting have been largely unchanged for over 500 years.
What eventually compelled the change to the reporting framework was the shock of the Great Depression. With the
passage of the securities legislation of 1933 and 1934, reporting stopped being a private arrangement between management and
shareholders and became regulated and standardized, what we call Reporting 2.0. The securities legislation passed in those
years in the U.S. was the culmination of a long process going back over centuries, which witnessed the rise of accounting and
auditing as professions and research into its conceptual basis. The key technologies that made Reporting 2.0 possible were the
concepts of standardized accounting principles, mandated audits, and the use of telegraphs to communicate information, while
still primarily relying on the printed word.
Reporting 3.0 is the application of computer technology to automate the existing accounting and reporting process, and it
slowly emerged over several decades alongside the development of computer technology. For example, frustrated by the
difficulty of writing down by hand accounting numbers that changed constantly due to their interdependence upon each other
(as in a trial balance, as individual transactions change), Harvard Business School student Dan Bricklin created a PC-based
spreadsheet application, VisiCalc.3
The impact of technology on accounting reporting was the shift from the reliance on paper statements to finally going
digital, first with PDF technology, and then, in 2008 in the U.S., to XML tagging using XBRL (Figure 1).
In other words, Reporting 3.0 does not fundamentally change the accounting and reporting model; rather, it simply makes
its existing processes and outputs more efficient—a practice technologists tend to describe as ‘‘paving over the cowpaths.’’
1
See, https://www.bbc.com/news/business-41582244
2
See, also, Sangster (2018).
3
See, https://www.bbc.com/news/business-47802280. Proto-spreadsheets, however, can be found in mainframes as early as 1961 (Galassi and
Mattessich 2014).
Journal of Emerging Technologies in Accounting

Volume 18, Number 1, 2021
Reporting 4.0: Business Reporting for the Age of Mass Customization 3
FIGURE 1
XBRL-Based Financial Statement

What this approach does not do is to fundamentally reengineer the business process to take full advantage of all the capabilities
that new technology offers. In particular, Reporting 3.0 does not change the fact that the accounting statements remain one size
fits all. Traditional financial statements aim at being comparable, but, by and large, this comparability is only obtained in like-
to-like comparisons, across businesses with similar operations and similar accounting choices such as bases of valuation,
depreciation schedules, methods of inventory valuation, etc.
To move away from this one-size-fits-all mentality, we introduce what we call Reporting 4.0, which takes reporting into
the age of mass customization by completely rethinking and reengineering the reporting process to fully exploit the
technologies of today, such as the internet, ERP systems, databases, visualization software, smartphones, and highly educated
and sophisticated participants in the financial markets. The defining characteristic of Reporting 4.0 is that the accounting
profession will finally satisfy Drucker’s (1954) dictum that it is the customer and not the producer that should decide the
content of accounting reports. Table 1 shows the shifts from Reporting 1.0 to Reporting 4.0.
IV. BROADENING THE OBJECTIVES OF BUSINESS AND FINANCIAL REPORTING

The most important assumption of Reporting 4.0 is that financial reporting should be only a means toward the end of
satisfying the needs and wants of its users, and not an end in itself. In other words, the driver for the nature of business
reporting has to be the demand side and not what is convenient to the supply side of managers, accountants, and regulators. For
most of its history, accounting standards have arisen largely through the political action of these players and not through some
rationalistic attempt to measure financial performance ‘‘correctly’’ (Watts and Zimmerman 1978).
The problem that arises with seeing financial reporting as an ‘‘end’’ is disagreement as to what that might be. For almost 50
years now, the objective of the publicly traded corporation has been perceived to be the maximization of its stock price, based
on Milton Friedman’s (1970) argument that ‘‘there is one and only one social responsibility of business—to use its resources
and engage in activities designed to increase its profits.’’ Indeed, the Financial Accounting Standards Board (FASB) changed its
conceptual statement on financial reporting to adopt what has come to be called the ‘‘Friedman Doctrine.’’
The first conceptual statement, the Statement of Financial Accounting Concepts No. 1, Objectives of Financial Reporting
by Business, was issued in November 1978 and states:

TABLE 1
Reporting Paradigms
Reporting 1.0 Reporting 2.0 Reporting 3.0 Reporting 4.0
Accounting Accounting equation, debit Regulation, profession of XBRL, spreadsheets, IT More data, less aggregation
Innovations and credits, t-accounts, accounting auditing and consolidation, role for
ledgers nonfinancial information
Reporting Trial balance Audited financial statements PDF, tagged statements App with user preferences
Mechanism
Reporting Stewardship Protecting unsophisticated Facilitating information User-driven reporting, CSR
Objective investors sharing perspective
Underlying Printing, paper Newspapers, telegraph XML, internet, cloud, Industry 4.0, mass
Technologies ERP systems customization

Financial reporting is not an end in itself but is intended to provide information that is useful in making business and
economic decisions. (FASB 1978)
It goes on to address in exhaustive detail all the potential users of financial reports:
Many people base economic decisions on their relationships to and knowledge about business enterprises and thus are
potentially interested in the information provided by financial reporting. Among the potential users are owners,
lenders, suppliers, potential investors and creditors, employees, management, directors, customers, financial analysts
and advisors, brokers, underwriters, stock exchanges, lawyers, economists, taxing authorities, regulatory authorities,
legislators, financial press and reporting agencies, labor unions, trade associations, business researchers, teachers and
students, and the public. (FASB 1978)
Contrast that with FASB (2010), the 8th iteration of the conceptual statement, in which the principal users of financial
reports are described in Friedmanite terms:
The objective of general purpose financial reporting is to provide financial information about the reporting entity that
is useful to existing and potential investors, lenders, and other creditors in making decisions about providing resources
to the entity. Those decisions involve buying, selling, or holding equity and debt instruments and providing or settling
loans and other forms of credit.
The absence of emphasis on other stakeholders in the Friedman doctrine has resulted in a vigorous pushback, especially
with the rise of the corporate social responsibility (CSR) movement. Bower and Paine (2017) call it ‘‘the error at the heart of
corporate leadership.’’ The Chicago Booth School of Business (2020) published an e-book on the 50th anniversary of
Friedman’s article, where most of the 28 sets of authors disagreed with the Friedman doctrine. In 1997, the Business
Roundtable stated that ‘‘the principal objective of a business enterprise is to generate economic returns to its owners.’’4 On
August 19, 2019, that same body announced in a press release that:
Since 1978, Business Roundtable has periodically issued Principles of Corporate Governance. Each version of the
document issued since 1997 has endorsed principles of shareholder primacy—that corporations exist principally to
serve shareholders. With today’s announcement, the new Statement supersedes previous statements and outlines a
modern standard for corporate responsibility.5
The Roundtable goes on to list stakeholders as customers, employees, suppliers, communities in which the business operates,
and shareholders, in that order.
The superseding of the Friedmanite emphasis on the interest of shareholders as the principal objective of a business opens
the door to rethink what the ends are of financial reporting itself. So far, however, the criticisms of Friedman have not extended
to the goals of financial reporting. For example, nowhere in the entire Chicago Booth School of Business (2020) e-book is
4
See, https://cdn.theconversation.com/static_files/files/693/Statement_on_Corporate_Governance_Business-Roundtable-1997%281%29.
pdf?1566830902
5
See, https://www.businessroundtable.org/business-roundtable-redefines-the-purpose-of-a-corporation-to-promote-an-economy-that-serves-all-
americans

accounting or financial reporting even mentioned. Consequently, it is necessary to examine the axioms of a new reporting
system for addressing the needs of multiple stakeholders and not just shareholders.
V. THE FAILURES OF FINANCIAL REPORTING 3.0

Financial statements are based on business ledger accounts. Hence, those statements cannot communicate more
information than is contained in that underlying dataset. Even when the financial statements contain contextual
information from outside the business (such as fair values for assets listed on the accounts), that information applies only
concerning what appears on the books, such as the historic cost of those assets. For this reason, current financial reports
also have no place for exogenous data outside of the control of the business, which are often highly value relevant,
particularly social media about the business and its products and services (Luo and Zhang 2013; Brown-Liburd and
Vasarhelyi 2015).
Accounting standards determine how transactions are entered into the ledger accounts in the first place, in terms of timing

and value recorded. Financial reports are always an aggregation and summarization of these underlying data. That is evident
more clearly when it comes to the trial balance, which is the total at the end of the accounting period of all the accounts in the
ledger, and that is used to check that the sum of debits equals the sum of credits. The unadjusted trial balance is then adjusted
for accruals, and the adjusted trial balance serves as the basis for the main financial statements: the income statement, balance
sheet, and statement of owner’s equity (the changes in the cash account over the accounting period are the basis of the statement
of cash flows). Since only the ending balances appear on the adjusted trial balance, all the details of how that balance came
about are lost.
That loss of information is the inevitable weakness of the traditional accounting model. For reasons of communication
constraints in the past, and a desire to protect proprietary information, which remains a legitimate, albeit, often abused concern,
no business can convey to stakeholders the full dimensionality of its complete accounting dataset. The question is how to
balance the need to aggregate and summarize data versus ensuring that the financial statements convey relevant and reliable
information.
Three facts indicate that financial statements are failing that test today. The first is that the overwhelming bulk of firm
disclosures are not the financial statements—the income statement, balance sheet, etc.—but footnotes that expand and elaborate
on the numbers on the face of those statements. Standing alone, the statements are no longer sufficient to meet the needs of
stakeholders and have not been so for many decades. Indeed, professional financial analysts use a much wider range of
information to assess businesses and form their recommendations.
The second point is that even as the conceptual basis of financial reporting has embraced Friedman’s argument that the
statements should be primarily aimed at satisfying the needs of stakeholders, they have increasingly failed to do so. It has long
been noted that the market value of businesses is progressively less and less related to the value of assets on the balance sheet,
indicating that the business possesses intangible assets outside the accounting dataset (Lev and Gu 2016). Accompanying the
fall in the book-to-market ratio has been the declining correlation coefficient between market value and earnings, to a range of
only 2–7 percent (Lev 1989)—a far cry from the stated intentions of the FASB. By contrast, Amir and Lev (1996) showed how
nonfinancial information can be value relevant when combined with financial information, a lesson we incorporate into
Reporting 4.0.
The third argument is the increasing use of pro forma earnings, in which the GAAP financial statements are accompanied
by unaudited statements whose content is entirely chosen by the business (Figure 2). The business is effectively using its own
standards for what should be presented in its public reports. The Securities and Exchange Commission has explicitly warned
against excessive reliance on these firm-produced numbers (their use of quotation marks is probably sufficient to express their
viewpoint):
We are concerned that ‘‘pro forma’’ financial information, under certain circumstances, can mislead investors if it
obscures GAAP results. Because this ‘‘pro forma’’ financial information by its very nature departs from traditional
accounting conventions, its use can make it hard for investors to compare an issuer’s financial information with other
reporting periods and with other companies.6
On the other hand, much academic research has shown that pro forma statements are significantly valued relevant,
indicating that stakeholders can see through their self-serving nature to obtain information not otherwise conveyed by standard
financial reports. As Brown and Sivakumar (2003) write:
6
See, https://www.sec.gov/rules/other/33-8039.htm

FIGURE 2
IFRS and Pro Forma (PF) Earnings for Solway Corporation

Source: https://solvay.gcs-web.com/static-files/caab69ca-1248-4d90-bf76-7eaa86cc84b6.
We show that operating earnings reported by managers and analysts are more value relevant than a measure of
operating earnings derived from firms’ financial statements, as reported by Standard and Poor’s. Our evidence is
important because it indicates that operating earnings reported by managers and analysts contain value relevant
information beyond that provided by operating earnings obtained by sophisticated users from firms’ financial
statements.
In response to these failings in the traditional financial statements, there have been numerous attempts to update accounting
standards. For example, Sunder (2016) points out that accounting regulators have tried no less than 43 times over the last half
century to develop a method to account for capital leases.
Outside of accounting, various initiatives have arisen to develop new metrics for businesses to report on specific topics
of interest to particular stakeholders, such as corporate governance, environmental impact, ethics and treatment of labor,
and so forth. The World Economic Forum (2020), in collaboration with the Big 4, consolidated many of these initiatives
into 21 ‘‘core’’ and a further 34 ‘‘expanded’’ metrics and disclosures to supplement the traditional financial statements
(Figure 3).
Many of the new disclosures are nonfinancial, such as greenhouse gas emissions and the percentage of diversity hires.
Hence, these are outside the accounting dataset, which demonstrates that a new reporting model need not be restricted to that
alone. Other variables, for example, the ratio of CEO salary to median pay or spending on CSR activities, can be obtained from
accounting records if they are not reported in such a highly disaggregated form.
Academic evidence (Amir and Lev 1996; Lev and Gu 2016) demonstrates that nonfinancial and nontraditional financial
metrics help explain stock price changes. This motivates the development of Reporting 4.0 to formally incorporate these new
metrics into corporate disclosures. Reporting 4.0 also helps address a significant problem that arises as the Friedman doctrine is
replaced with a broader set of objectives for the firm and, hence, for financial reporting, which is choosing between multiple
objectives for reporting. Sunder (2016) warns that:
‘‘better’’ in financial reporting could be defined to mean multiple things: meeting specified societal or individual goals
or possessing some general qualitative or specific statistical attributes. It is difficult, even at a conceptual level, to
obtain agreement on what kind of financial reports do or can meet the criteria within either of these interpretations.
Reporting 4.0 deals with this dilemma by adopting the mass customization assumption that the best way of dealing with
customers with different needs is to give them what they want. In other words, avoiding having to choose between different

FIGURE 3
Excerpts of Proposed Metrics from the World Economic Forum

Source: World Economic Forum (2020).
objectives for financial reporting by instead developing an agnostic financial reporting system: one capable of being customized
to provide information on a different objective to different stakeholders.
VI. REPORTING 4.0: MASS CUSTOMIZED REPORTING AS AN APP

Smartphones and tablets have resulted in the development of a wide arsenal of apps to perform a wide range of
functionalities. These apps, be they Facebook, Waze, or Microsoft Exchange, are designed to be customized to the needs and
wants of users. Our intent with framing Reporting 4.0 as an app is similar to use of the intelligence inherent in technology to
increase the value-added of the reporting model to a heterogeneous group of users by moving away from being one size fits
all.

Like a smartphone app, Reporting 4.0 will be delivered from a cloud-based platform and will enable the user to make
choices about what information about the business they see and in what format it is presented. For example, selections could
include information for traditional GAAP only or pro forma, financial and/or nonfinancial information, or information that
focuses on share price, a broader CSR perspective, or many combinations and expansions on the above, in the view of the style
sheets/apps.
Analysts often extract raw data from a 10-K and then discard the rest of the report.7 With a Reporting 4.0 app, any user
could even create and upload their model for the firm and have data directly feed into it. XBRL tagging would accurately and
efficiently obtain data, and exogenous data bridging and tagging would extend the range of data used outside the accounting
dataset alone.
There are several features that the Reporting 4.0 app must possess if it is to be feasibly adopted. First, as with any reporting
system, the aggregated and consolidated reports only work one way, meaning that they cannot be reversed to reveal the
underlying data. While we envision less aggregation and different consolidations for different audiences in the app, some
proprietary disclosure filters will remain to protect the privacy and competitive issues (the authentication and authorization

layer in Figure 4).
Second, less consolidated and aggregated reporting has more consolidated and aggregated as a proper subset. Hence,
GAAP reporting remains at the heart of financial disclosures to serve as the benchmark against which other perspectives of
accounting and nonfinancial data can be compared: but GAAP statements will no longer retain their primacy as the only way of
viewing those data.
Third, the conception of reporting as an app that interacts with data in the same way as any other data analytic
software like Excel or Tableau decisively opens up reporting to encompass more than the business’s accounting dataset
alone. Even more important is that by lowering the degree of aggregation, the user will be able to shape how those data are
aggregated, consolidated, and presented. In effect, it will now be the user and not the manager that will create pro forma
statements.
For example, accounting cannot communicate uncertainty, relying on point estimates rather than the more descriptive
range, let alone probability distribution. Under Reporting 4.0, businesses will be encouraged to share more information about
uncertainty, such as best case and worst case and most likely (mean or median) estimates, with the user being able to observe
the effect of these differing assumptions on the financial statements. This is putting into action the underlying dictum of
Reporting 4.0—that there is no longer any need to use a one-size-fits-all approach to communicating information between the
business and its varied set of stakeholders.
VII. INDUSTRY 4.0 AND REPORTING 4.0

One of the most significant advances in technologies in recent years is called ‘‘Industry 4.0,’’ which Marr (2018) describes
as follows:
From the first industrial revolution (mechanization through water and steam power) to the mass production and
assembly lines using electricity in the second, the fourth industrial revolution will take what was started in the third
with the adoption of computers and automation and enhance it with smart and autonomous systems fueled by data and
machine learning.
Industry 4.0 aims to improve manufacturing processes through the linkage between the physical world and its digital twins—
constant connectivity among machines as well as machines and humans, and decentralized decision making using a variety of
technologies such as the Internet of Things (IoT), cloud, blockchain, and artificial intelligence (AI) (Deloitte 2020; Kagermann,
Helbig, Hellinger, and Wahlster 2013; Muhuri, Shukla, and Abraham 2019). Dai and Vasarhelyi (2016) discuss how auditing can
evolve to take advantage of the capabilities provided by Industry 4.0. Similar to the previous industrial revolutions, financial
reporting has had three phases of evolution and has a high potential to move forward to a new paradigm shift leveraging the
technologies promoted by Industry 4.0.
In the context of Industry 4.0, the next generation of reporting enhances the dynamic, intelligent, and timely features of
financial reports. To achieve this goal, the design principles of Industry 4.0, which are interoperability, virtualization,
decentralization, modularization, real-time capability, and service orientation (Hermann, Pentek, and Otto 2015), are applied to
the design of new financial reports.
7
Cong, Du, and Vasarhelyi (2018) show that XBRL-tagged financial statements are now downloaded more often than traditional 10-Ks due to the ease
of reuse of their data content.

FIGURE 4
The Reporting 4.0 Paradigm

Figure 4 demonstrates a potential paradigm that could support Reporting 4.0.
Interoperability
Interoperability emphasizes the connections and communications between machines as well as machines and humans. For
example, when products are shipped, the Internet of Things (IoT), an integrated range of sensors, automatically detects location
changes and reports their status (shipped) to ERP systems that record sales and reduce the inventory (Dai and Vasarhelyi 2016).
This contrasts with the accounting system that only records business transactions and, hence, excludes data on the
consequences of those transactions. For example, accounting records are only made upon the shipment and the receipt of
products, but the physical conditions during the transit period can significantly affect the value of a perishable product like food
or medicines. Interoperability facilitates real-time measurement of physical conditions, and Reporting 4.0 will incorporate those
data into the reporting process rather than exclude them.
Virtualization
Virtualization connects objects in the physical world to the cloud and integrates their locations, conditions, surrounding
environment, etc., to create a virtual copy of the physical world (Drath and Horch 2014). This produces Big Data, whose
exclusion from the reporting process becomes increasingly hard to defend as all other aspects of the business increasingly rely
on it. Information on the virtual state of the enterprise can be distributed to interested stakeholders in a much timelier fashion
than it is now, if at all. For example, customers might be interested in the farms where their chickens are raised, and regulators
could monitor greenhouse gas emissions. Sophisticated businesses today can use Industry 4.0 to monitor virtual models of their
underlying processes. Subject to the confidentiality issues discussed above, Reporting 4.0 can also give external stakeholders a

‘‘peek under the hood’’ of how the business processes operate in a way that is not possible when everything is aggregated and
measured only on financial terms.
Decentralization
Decentralization grants the decision of which components should be included in reports to each user. Since each user has
his/her special interests/needs in information and different strategies to make decisions, diversified reports could provide
tailored details targeting individuals’ interests. This is where Reporting 4.0 borrows most from the analogy to an app on a smart
device. Identifying what information should be included in a report from a very large amount of data could be challenging. To
facilitate this process, a recommender system can be developed that can suggest to users the appropriate components and
information be included in a report (Dai 2017).
Modularization

Modularization is both a feature of Industry 4.0 and a consequence of interoperability, virtualization, and decentralization:
You could say that modularity has everything to do with a shift from rigid systems, inflexible models and linear
manufacturing and planning to an environment where changing demands from customers, partners in the overall
supply chain, regulators, market conditions and all other possible elements causing the need for transformation and
flexibility are put in the center. The modules are locally controlled without hierarchy.8
When applied to Reporting 4.0, modularization facilitates the development of sub-apps, by either the business or by third
parties, designed for specific measurement and reporting purposes that can be easily added to the main reporting app to
customize it for users. For example, there can be modules capturing and presenting information related to a specific topic such
as pollution control modules, customer relationship modules, social impact models, etc. With the modularity of reports and
supports from recommender systems, users would be able to generate their unique customized reports rather than relying on a
one-size-fits-all report.
Real-Time Capability
Real-time measurement and interactive communication are the essence of Industry 4.0. Foundational Industry 4.0
technologies such as IoT enable uploading data continuously to the cloud to capture changes in processes and their analysis on
an ongoing basis, with communication by exception to interested parties. The same capabilities would extend to the Reporting
4.0 system built on top of the Industry 4.0 infrastructure, making real-time reporting a reality.
Service Orientation
Service orientation is the object of Industry 4.0 and the entire purpose of the mass-customized Reporting 4.0 system, where
it is the customer that determines what it is. It would involve a chain of service providers, such as accountants, auditors, IT
professionals, cloud providers, recommender system developers, environment experts, etc., that would collaborate to generate
dynamic, intelligent, and timely reports to meet the needs of individual stakeholders.
VIII. THE REPORTING 4.0 PARADIGM

Industry 4.0 promotes the digitization of manufacturing and business processes and even the entire society, resulting in
billions of objects, such as products, machines, buildings, delivery trucks, etc., connected to the cloud via IoT and collecting
and transmitting data regarding their locations, conditions, activities, and the surrounding environment. Data in this integrated
cloud enable the creation of a ‘‘mirror world,’’ which comprises a virtual representation of the physical world (Dai and
Vasarhelyi 2016). With the integration of data from various sources and entities, the mirror world would serve as a
comprehensive data repository to provide a foundation to create diversified reports for users with various needs.
In the Reporting 4.0 paradigm shown in Figure 4, data are captured in the physical layer by IoT and other data entry
processes, including accounting transactions posted to the ledger as in Reporting 1.0–3.0. Those data are then stored in a
blockchain layer that would be operated and managed by multiple stakeholders to ensure data integrity and enable cross-
verification of those data. For example, accounts receivable records could be approved by customers and also confirmed by
delivered products (Dai and Vasarhelyi 2017).
8
See, https://www.i-scoop.eu/industry-4-0/

Although blockchain could automate certain functions of auditing, auditors would still need to actively participate in the
paradigm to provide adequate assurance for reporting. For example, auditors could build rule-based auditing and monitoring
models (Vasarhelyi and Halper 1991) and predictive audit models (Kuenkaikaew 2013) for real-time abnormal transaction and
irregularity detection. These comprise the smart auditing and monitoring layer in Figure 4. Auditors can also play an important
role in identifying emerging risks that could result from the use of new technologies and ensuring that adequate controls are in
place.
The smart auditing and monitoring layer in Figure 4 would be integrated with the new audit paradigm proposed by Dai and
Vasarhelyi (2016); namely, Audit 4.0, which also leverages the Industry 4.0 model and technologies to enhance audit quality
and timing. The authentication and authorization layer would filter out sensitive information of corporations to protect their
confidential data, business secrets, customers’ private information, etc. It would also grant different data-viewing authorities to
individual users based on their roles and interests. For example, stakeholders would have better access to data reflecting
management effectiveness, while NGOs would be granted the view of corporations’ efforts on pollution control.
The smart reporting layer in Figure 4 is comprised of a variety of modules to analyze and report on specific aspects of the

business. These modules form the components of the overall Reporting 4.0 app. A recommendation system could be used to
suggest potential interesting modules to each user according to his/her position, background, strategy in making decisions, and
other specific preferences, and prioritize the modules based on the likelihood of interests or the relevance of information on
users’ decision making. Users would be able to drill down on each module for detailed data. Users could also interact with the
smart reporting layer to extract information of particular interest to them that is not already provided in a module on the app. If
there is enough demand, such information would be embedded in new modules for future reporting and recommendation.
Figure 5 shows a mockup of what the Reporting 4.0 app may look like when viewed on a smartphone, although it would be
available on many other platforms too.
IX. THE EVOLUTION OF REPORTING 4.0

In the early 2000s, the U.S. had a series of extraordinary accounting scandals at Enron Corporation and WorldCom,
followed by the meltdown of the global economy in the Great Recession of 2008. At that stage, there was substantial
overvaluation of tech companies and widespread concern that existing business reporting models did not adequately help in the
understanding of business operations and valuations. In response, the AICPA created a committee on ‘‘enhanced business
reporting’’ aimed at thinking about new forms of reporting.9 This committee generated four alternative reporting models, with
the one being the most distant from the traditional being called the ‘‘Galileo Disclosure Model.’’10 The key feature of the
Galileo approach was the understanding that there is a range of stakeholders for accounting reports and that a relational
database reporting system would be more democratized and informative.
Building on the Galileo work, Alles and Vasarhelyi (2008) proposed a potential technology-based reporting model, as
described in Figure 6. Their model was forward looking and included the ideas of limited customization, provisioning an
infinite set of potential drilldowns and online-analytic-processing (OLAP) views based on relational databases, filtering for
critical information blockage, and intelligent agents. The Galileo model, however, did not foresee the major development of
exogenous variables (Brown-Liburd and Vasarhelyi 2015; Cho, Vasarhelyi, and Zhang 2019) in the economy, the explosion of
applications of AI, the fact that cloud applications would become ubiquitous, the full democratization of computer access, and
the emergence of millions of apps being used in a wide range of computational devices. These new technologies greatly
enhance what is now possible in a new reporting paradigm.
Reporting 4.0 proposed in this paper adds mass customization and the inclusion of the technologies of Industry 4.0 to
modernize the Alles and Vasarhelyi (2008) Galileo model, with a set of ideas on new business needs and contemporaneous and
radically changed technological capabilities. Among these modern needs we find dealing with very fluid markets, the advent of
cyber-currencies, concerns for environmental, social, and corporate governance (ESG), and an enterprise that has many
objectives and dimensions.
Moreover, European standard setters are marching toward the required inclusion of nonfinancial ESG data by public
disclosers. Work is also proceeding on creating XBRL taxonomies for the expanded sets of data and rules of disclosure. Since
the Enhanced Business Reporting (EBR) days, several entities have emerged arguing for or creating a new set of standards to
expand reporting, but they have not focused on how these data will be captured, processed, delivered, and managed. The basic
Galileo model is expanded with features to include nonfinancial variables, continuous reporting with exogenous variables,
intelligent prediction module, and active behavior (Figure 7).
9
See, https://www.journalofaccountancy.com/issues/2005/jun/ebrthenextstep.html
10
See, http://accounting.rutgers.edu/gdl/Galileo.html

FIGURE 5
A Mockup of the Reporting 4.0 App

FIGURE 6
The Galileo Model
Source: Alles and Vasarhelyi (2008).

FIGURE 7
Reporting 4.0 as an Enhanced Galileo Model

Although, disclosure of nonfinancial data is becoming prevalent among listed companies, and their assurance is growing,
there is a wide range of relevant items that could and should be disclosed in a more complete reporting model. That is why we
call our proposal Reporting 4.0 and not Financial Reporting 4.0, recognizing that the model must include a much wider set of
information, both financial and non-financial. Some of the data reported will come from the environment and be continuously
updated rather than annualized as they are now. Reporting 4.0 will also encompass a large number of intelligent agents
(Vasarhelyi and Hoitash 2005) that will collect information, run models, provide predictions, and provide alerts for users, in
addition to blocking transactions with high suspicion ratings from flowing downstream.
Other aspects of the business environment that Reporting 4.0 needs to encompass include the following.
Continuous Data
Markets are now largely dominated by automatic trading (Pei and Vasarhelyi 2020) software and index-oriented funds that
typically look at three factors: price, volume, and peer company performance. Today, automated trading software continuously
monitors real time events, which reduces the relevance of sporadically provided Reporting 3.0 statements. Annual or quarterly
financial reports are of very limited value for automated, real-time trading. Progressively, these algorithms are looking at
exogenous variables such as tweets, Facebook utterances, discussion groups, car traffic, parking lot occupation, internet traffic,
and other variables subject to privacy and access limitations. These data, however, are only available at variable narrow
intervals, and even their frequency of appearance is a signal that gives some marginal information to users. A modern reporting
system should be detailed enough to be close to continuous and be able to respond to the oscillations of the markets and display
the rhythm of the organization’s operations.
Futurity
Prediction of results and features of the organization can benefit from advanced analytics and detailed data. Models can be
fed with detailed data without these data being publicly disclosed in case that privacy or competitive contingencies exist. Pro
forma statements can be constructed using a wide range of different analytical models (Appelbaum, Kogan, and Vasarhelyi
2017), which can also be used in predictive audits with the difference between predicted and actual serving as a proxy for risk.
They can then be used for continuous monitoring and downstream incorrect transaction prediction.
The Data Ecosystem of Reporting 4.0

In the world of Big Data, with a wide multiplicity of sources with different rhythms, levels of aggregation, and data
definition, the conversion and linkage of data take a much larger role. It may be that governments take upon themselves the role

of disclosure simplification and aggregation, as the Dutch government did with standard business reporting (SBR), but that
does not resolve the issue of integration with external data sources.11 Cho et al. (2019) discuss the need for data interfacing and
integrating from different source streams. The Reporting 4.0 app would have to interface with its databases, external databases
employing parameterization and choice, and choose usage models.
X. CONCLUSION
This paper proposes the replacement of the current anachronistic financial reporting with the Reporting 4.0 paradigm,
which is built for and on Industry 4.0 and that is more comprehensive, timely, and potentially predictive, supporting modern
entities and their stakeholders with contemporary measurement methods, mode encompassing information, and analytics that
can be retroactive, current, or forward looking. Reporting 4.0 is designed from the ground up to be app-based rather than the
paper one that has characterized all previous iterations of accounting and reporting. It is supported by a relational database with
OLAP disclosure and a multiplicity of data feeds, both internal and exogenous to the business. It is a reporting system for the
age of mass customization, where different stakeholders in a business with multiple objectives can each obtain the information

that they need and want without being forced to rely on a one-size-fits-all set of accounting statements.
—Michael G. Alles
Rutgers, The State University of New Jersey, Newark
—Jun Dai
Michigan Technological University
—Miklos A. Vasarhelyi
Rutgers, The State University of New Jersey, Newark
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JOURNAL OF EMERGING TECHNOLOGIES IN ACCOUNTING American Accounting Association

Vol. 18, No. 1 DOI: 10.2308/jeta-10764

Reporting 4.0: Business Reporting for the Age of Mass

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II. FROM ‘‘ONE SIZE FITS ALL’’ TO MASS CUSTOMIZATION

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III. THE EVOLUTION OF FINANCIAL REPORTING

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IV. BROADENING THE OBJECTIVES OF BUSINESS AND FINANCIAL REPORTING

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V. THE FAILURES OF FINANCIAL REPORTING 3.0

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VI. REPORTING 4.0: MASS CUSTOMIZED REPORTING AS AN APP

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VII. INDUSTRY 4.0 AND REPORTING 4.0

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VIII. THE REPORTING 4.0 PARADIGM

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IX. THE EVOLUTION OF REPORTING 4.0

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Source: Alles and Vasarhelyi (2008).

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The Data Ecosystem of Reporting 4.0

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