Audit issues and content analysis of audit practices associated with corporate financial reporting on the Internet

Abstract

The use of the Internet as a channel for the dissemination of corporate information is a recent and fast growing phenomenon. Indeed, it is likely that it will become the principal medium for the distribution of financial information to users. The use of the Internet for financial reporting creates unique opportunities and challenges for the auditing profession. Notwithstanding the significance and urgency of the related auditing issues, relatively little research has been conducted in this area. This study seeks to identify the key audit implications of Internet financial reporting, based on a comprehensive review of the academic and professional literature, and to obtain empirical evidence concerning the nature and extent of audit-related web practices through a content analysis of New Zealand listed company websites. The literature review highlighted issues relating to the role and responsibility of auditors for information placed on corporate websites; the potential for inappropriate association of the auditor’s report with unaudited information located at the auditee’s website, or information linked to/from external websites, and the inappropriate omission of the auditor’s report from the website; the appropriate audit procedures; and the nature, timing, form, and content of the auditor’s report on the Internet. The results of the content analysis of auditor web-related practices reveal several significant concerns for the auditing profession in relation to the presentation, context, and content of the auditor’s report in a web-based environment. Given the currency and significance of the issues raised in this paper, and the lack of current guidance by accounting professional bodies, the results of this study are likely to be of particular value to practicing accountants, accounting regulators, and accounting research.