Online electronic financial reporting : practices and issues

Abstract

Paper-based hard copy annual reports have been the traditional instrument for the distribution of corporate financial information. The development of the Internet, providing electronic and online reporting, allows for the improvement of corporate communication with shareholders and other stakeholders. It also raises many issues, which challenge regulators and the accounting profession. This paper examines the extent of online financial reporting by New Zealand companies and analyses the content of such reporting with the aim of identifying strengths and weaknesses. Many New Zealand listed companies make use of the web for the dissemination of their financial information, although such usage is relatively lower in comparison with other countries, suggesting that the use of such medium is likely to increase in the future. The quality of display and use of contemporary electronic features are found to be of comparable standard to those of companies in other countries. However, many companies are not utilising the opportunities of the electronic format by merely providing an electronic version of their paper based annual reports. Furthermore, the paper examines the advantages and issues in relation to providing financial information on the Internet. The advantages of online in comparison with hard copy financial reporting include: lower production and distribution costs, flexible access to information, ability to provide relevant information to users, and ability to provide real-time information. The issues associated with online reporting include: blurring the distinction between audited and unaudited information, access is limited to individuals with costly equipment and service and computer skills, and the possible introduction of errors in re keying information. Some of the issues pose a challenge to standard-setters and regulators such as whether all online financial reporting should comply with GAAP, whether all online financial reporting should be audited and if not a disclaimer should be provided, and whether there should be a compulsory filing system for financial reports on a regulator-controlled server to ensure access to the information and its integrity. The paper identifies a number of research opportunities. There is a need to reexamine many of the research issues addressed for hard copy financial reporting under the new reporting medium, such as content, timing and the determinants of voluntary online financial reporting. There are additional research issues that are unique to online reporting, such as, whether online financial reporting enhances the understanding of corporate reporting, and whether users find online reporting an acceptable substitute for hard copy financial reports. Online reporting is likely to extend to real-time financial reporting that provides further research opportunities.