ONLINE CORPORATE REPORTING

I. Introduction

The various corporate scams have increased the awareness among the people
regarding the financial disclosures made by the corporate houses. Companies are also
trying to have financial transparency in order to win the confidence of the investors.
New methods and ways are being explored for providing timely, accurate and up-to-
date information to the company publics. One of such ways is to use the internet for
the reporting purposes. Now-a-days, a number of companies are using internet for
providing financial information online. Thus, in this paper, some aspects related with
online corporate reporting would be discussed.

II. Objectives of the Study

The purpose of this paper is to review the existing literature on online

corporate reporting and throw some light on the issues such as the current status of the
online corporate reporting, ways of providing financial information on the internet,
benefits & costs of online reporting, factors affecting online corporate reporting, and
the issues arising from the growth of online corporate reporting. In the last,
recommendations for the growth of online corporate reporting, as suggested in the
literature, have been explained.

III. Research Methodology

For examining the various above-stated aspects of the online corporate

reporting, research papers have been taken from the journals of Accounting Horizons,
European Accounting Review, Global Journal of International Business Research,
Journal of International Financial Management and Accounting, Problems and
perspectives in Management, The Cost and Management, and The International
Journal of Digital Accounting Research.

IV. Current Status of Internet used by Corporate Houses and Online

Reporting across the World

For analysing the use of internet for the financial reporting purposes, it is also
important to know how much internet is being used by the corporate houses generally.
The data regarding the number of companies having websites would further pave the

1
way for determining the use of those websites for the corporate reporting purposes.
So, in this section, the status of the internet as well as the online reporting used by the
corporate houses all over the world would be explained.

The literature has suggested that online corporate reporting is still in its
infancy (Gowthorpe & Amat 1999, Khan, Muzaffar & Mahmood, 2006 and Dutta &
Bose 2007). Gowthorpe and Amat (1999) found that out of 379 quoted companies,
seventy (18.5 per cent) are listed as having websites. Larger companies are far more
likely to have a website: twenty-six of the IBEX-35 companies (74.2 per cent) have
sites. Out of these seventy companies, nine companies’ advertised site had not yet
been established or was still under construction. Twenty-seven companies
communicated no financial or accounting information. Out of the remaining thirty-
four companies, only 19 companies communicated substantial amount of information
via their websites. Craven and Marston (1999) found that 153 companies (74 per cent)
out of the 206 largest UK companies had websites or home pages on the internet. Of
these 153 companies, 109 disclosed financial information on their websites. Dutta and
Bose (2007) examined 268 companies listed on the Dhaka Stock Exchange (DSE) and
Chittagong Stock Exchange (CSE) in Bangladesh and found that only 104 companies
(38.81 per cent) had websites. Among the rest, 143 (53.36 per cent) companies did not
have any website and the websites of 21 (7.84 per cent) companies were not
accessible/under construction/not in use during the period of the study. Allam and
Lymer (2003) stated that US, UK, and Canadian companies are on the lead regarding
financial reporting over the internet. Australian companies follow with a small gap,
while Hong Kong companies lagged behind with considerable differences on both
technological and content matters. Oyelere et.al. (2003) found that out of 229
companies studied in the New Zealand, 123 companies (53.7 per cent) have websites.
Almost three-quarter (73.2 per cent) of companies with websites provide financial
information on their websites. Davey and Homkajohn (2004) examined the quality of
internet financial reporting (IFR) among top 40 Thai listed companies. They
developed a qualitative index having four disclosure categories, namely content,
timeliness, technology and user support. They found that only eight companies (21.6
per cent) scored more than 50 per cent by having reasonably well developed sites.
Shukla and Gekara (2010) concluded that of the fortune 500 companies in India, 416
(83.2 per cent) had active websites while 22 (4.6 per cent) companies did not have

2
any website and the websites of the remaining 62 (12.4 per cent) were not
accessible/under construction/not in use during the period of the study as compared to
the Chinese fortune 500 companies, 402 (80.4 per cent) companies had active
websites, 29 (5.8 per cent) did not have any website and the websites of 69 (13.8 per
cent) companies were not accessible/under construction/not in use during the period
of the study. Out of 416 Fortune 500 Indian companies, 415 (99.76 per cent) reported
at least one financial item whereas one company (0.24 per cent) did not report any
single item. While all 402 Fortune 500 companies in China with websites reported at
least one financial information.

Although, the use of internet by the companies has been poor in many
countries. However, Pirchegger and Wagenhofer (1999) have stated that the websites
of the Austrian companies have been improved over the year 1997 and 1998. They
also concluded that the quality of the Austrian websites rises with size and percentage
of free float. Ashbaugh et.al. (1999) have concluded that 70 per cent of the companies
studied engaged in internet financial reporting. Moreover, firms engaging in internet
financial reporting also have reputation for excellent corporate reporting practices.
Allam and Lymer (2003) also concluded continued progress in the area of corporate
reporting over the internet in the countries of USA, UK, Canada, Australia and Hong
Kong. Davey and Homkajohn (2004) have also concluded that Thai companies are
increasingly using web for financial reporting purposes.

Thus, it is agreed that the use of internet for the business purposes as well as
for the financial reporting purposes is still in its beginning stage. However, many
researchers (Pirchegger & Wagenhofer 1999, Larran & Giner 2002, Allam & Lymer
2003, Davey & Homkajohn 2004, and Shukla and Gekara 2010) have identified
improvement as far as the use of internet by the corporate houses is concerned.

V. The Role of the Internet

Xiao, et.al. (2002) identified some characteristics of the internet particularly

relevant to financial reporting. These points are:

 As a communication tool, internet would enhance the communicative aspects

of financial reporting such as access, dissemination, interaction and
presentation.

3
  The internet allows one-way, two-way and multi-way communications and
permits the development of highly interactive applications.

 The internet enhances the timeliness of the financial information.

 Internet makes the accounting data electronically portable and globally

accessible and as a result, makes it more difficult to regulate cross-border
financial reporting.

 The ability of the internet to integrate with other technologies, such as

database, wireless communication and multimedia. This would further
enhance the utility of the financial statements.

 The internet may also affect some data processing aspects of financial
reporting (i.e., the underlying recording and measurement system).

VI. Online Reporting: Sector-Wise Segregation

A number of research studies have found the impact of the industrial sectors
on the reporting practices of the companies on the internet. Dutta and Bose (2007)
revealed that banking, leasing and finance sector has the highest number of companies
(39 companies) having a corporate website whereas other sectors lag far behind.
Craven and Marston (1999) found no significant relationship between the extent of
internet financial disclosure and industry type. Oyelere et.al. (2003) found that in New
Zealand, highest proportion of websites is in the primary industry (32.5 per cent) or
the services industry (27.6 per cent). Shukla and Gekara (2010) examined Fortune 500
companies in India and China and distributed all the companies into 15 sectors. They
found that Engineering and Electrical in India had the highest number of websites
with 92.54 per cent and the Cement industry had the lowest number of websites 57.14
per cent. While in china, the Banking, Leasing and Finance had the highest number of
websites with 90.41 per cent while the Insurance sector had the least number of
websites.

VII. What kind of information is being provided on internet and

how?

The use of the internet for financial reporting purposes is quite poor in many
countries. Due to the lack of guidelines and standards, the quality and the method of

4
the presentation of the financial information on the websites varies a lot from
company to company. Some companies do upload the electronic versions of their full
annual reports whereas some companies have only some sections of their annual
reports on their websites. In this section, the various ways of representing financial
information online, as found in the literature, has been summarised.

Craven and Marston (1999) stated that out of the 109 UK companies
disclosing financial information on their websites, 67 disclosed detailed annual
reports, and 42 disclosed only parts or summaries of their annual reports. Gowthorpe
and Amat (1999) revealed that only twenty-six of the sixty-one companies having
websites offer English as well as Spanish versions, although these are often limited to
certain parts of the site only, and translations are sometimes of poor quality, and
occasionally completely incomprehensible. Allam and Lymer (2003) examined 250
companies of five developed countries i.e. USA, UK, Canada, Australia and
Hongkong and stated that the most popular format used in building websites is HTML
(Hyper Text Markup Language) or close derivatives of HTML. However, for the
purposes of reporting financial information and presenting annual reports, the most
popular formats are HTML and PDF (Portable Document File). Oyelere et.al. (2003)
found that 38 per cent of the companies studied in New Zealand provided
comprehensive annual financial statements only, 18 per cent provided financial
highlights only, and 44 per cent provided both financial statements and highlights on
their websites. Two main formats Hypertext Mark-up Language (HTML)and Portable
Document File (PDF) are predominantly used for the provision of financial
information. About 81 per cent of such companies use graphics, video and/or audio
features to enhance the provision of financial information on their sites. Davey and
Homkajohn (2004) have stated that most Thai companies’ websites present a full set
of financial statements. However, the most part of the financial reporting is in the pdf
format. None of the companies allow users to download financial information or
provided analysis tool for users to make their own analysis. The common technology
feature provided by the companies is the download plug-in on spot and online
feedback. Khan, Muzaffar and Mahmood (2006) identified certain areas for which
web can be used. These are the use of the graphics, use of the hyper-linked data,
ability for downloading of data, pres release provision, trend data & analysis, other
jurisdiction data, dynamic data provision and non-financial measures of performance.

5
Dutta and Bose (2007) found that 64 companies (61.54 per cent) out of 104
companies of the study having websites reported at least one financial item whereas
40 companies (38.46 per cent) did not report a single financial item. As regards the
annual report or items relating to the annual report, companies either published the
full annual report or different annual report items separately at their websites. Most of
the companies (30 companies) presenting their full annual reports (current year’s or
past years’) on the corporate websites did so in PDF format. Shukla and Gekara
(2010) stated that Fortune 500 companies in India and China either published the full
annual report or different annual report items separately (e.g. Balance Sheet, Profit
and Loss Account, Auditor’s Report etc.) at their websites. The annual reports of
current year and past years were provided online by 409 and 366 companies
respectively by 416 of Fortune 500 companies in India and 400 and 207 respectively
by 402 of Fortune 500 companies in China. Cash Flow Statements of current year and
past years were made available online by 327 and 102 companies respectively in India
and 334 (83.08 per cent) and 102 (25.37 per cent) companies respectively in China.

Thus, different research studies have shown that companies across the world
adopt different ways of representing financial information on their websites. This
results into the lack of standardisation and comparability of the financial information
amongst the companies.

VIII. Factors affecting Online Corporate Reporting

As summarised in the above section, some companies present more financial

information online and some companies present less information on their websites.
The scenario is different in different countries. Thus, it is clear that there must be
some factors which determine or affect the use of internet for the financial reporting
purposes. In this section, an overview of all those factors, as suggested in the existing
literature, is being taken.

Craven and Marston (1999) stated that larger UK listed companies are more
likely to disclose their financial information on the internet. Xiao, et.al. (2002) have
taken views of twenty experts from the areas of accounts and internet and found that
in the viewpoint of the experts, technological as well as non-technological both
factors affect the growth of the online reporting. He has suggested five categories of
the non-technological factors i.e. behavioural, cultural, legal, organisational and

6
political. Larran & Giner (2002) have also founda significant positive relationship
between the company size and the disclosure of the financial information online in
case of Spanish companies. Oyelere et.al. (2003) have also concluded that firm size,
liquidity, industrial sector and the spread of ownership are certain determinants of
internet financial reporting. The larger a company is, the more likely it is to set up a
website and to use it for internet financial reporting.

IX. Benefits and Costs of Online Reporting

Some research studies have analysed the benefits and costs of online reporting.
Xiao et.al. (2002) analysed the responses of twenty experts representing five
constituencies i.e. academics, auditors, regulators, reporting companies and users and
concluded the following benefits and costs to the reporting companies and users. Few
other studies have also given some benefits. These benefits can be categorised into
two classes i.e. benefits to the reporting companies and benefits to the users. Benefits
to the reporting companies are explained below.

Benefits to Reporting Companies

Xiao et.al. (2002) stated that the benefits to the reporting companies included
facilitating interaction with stakeholders; disseminating information more quickly,
more widely and less cost; providing a platform to integrate different technologies;
reducing the cost of providing hard copy annual reports; and providing small
companies with an opportunity for global marketing.

Lymer (1999) and Davey and Homkajohn (2004) have also identified the benefit of
cost saving in providing financial information online. Ashbaugh et.al. (1999) have
also agreed that internet is an important way for disseminating financial information
to customers and shareholders and for keeping pace with their competitors. Davey and
Homkajohn (2004) have stated that online reporting would bring improvements in
financial reporting strategies.

Benefits to the Users

Xiao, et.al. (2002) have stated that users will also get various benefits from
internet reporting. These are:

 Allows users more easily to relate financial information to non-financial

information,

7
  Makes financial information more readily accessible to non-accounting users,

 Makes available the latest information on a company,

 Offers an efficient way for investors and other users to give the company
comments and feedback,

 Improves equality of information access (for example, when the company

publishes its meetings with institutional investors and analysts on its website
or via a broadcast service),

 Enables investors to purchase and sell securities more efficiently and at a

lower transaction cost.

Lymer (1999) and Davey and Homkajohn (2004) have also stated that easy and
detailed availability of financial information to the users is a major advantage of the
online corporate reporting.

Costs to the Reporting Companies

Xiao, et.al. (2002) have identified certain costs of online reporting to the
reporting companies. They stated that the cost savings of posting the company’s
results on the web were offset by increased follow-up queries. In addition, potential
costs will arise from litigation caused by increased and inconsistent information and
issues relating to confidentiality, data security and data credibility. Westarp et.al.
(1999) have also identified the deficiencies concerning content, security and
presentation format for the limited use of the digital documents.

Costs to the Users

Xiao, et.al. (2002) stated the potential of information overload caused by

internet reporting as a major disadvantage of online reporting. Other potential costs
may arise from data security and an increased amount of unaudited corporate
information being placed into circulation.

X. Issues arising from the Growth of Online Reporting

Online corporate reporting has proved to be very beneficial to the reporting

companies as well as users. However, it has also created a number of issues for
accounting authorities and regulatory bodies across the world. Lymer (1999) has
stated such issues and these are explained below:

8
 How should the process of online financial reporting be managed and
controlled?

 Should online financial information be separately or differently regulated?

 Do third-party disclosures create unique reporting problems?

 How should data be better structured to assist in the automated production,

submission and examination of data?

 In what forms and quantity should financial data be provided?

 Why should national standards have to apply to accounts when they are
accessible globally?

 Who should set the standards? Are these accounting or auditing issues, for
professional bodies or securities regulators?

 Who is responsible for the validity and accuracy of online financial data?

 Who provides assurance that online financial data remain valid and are not
tempered within an unauthorised way?

 What is the impact of online reporting on statutory reporting requirements?

 How might online reporting change the balance of information asymmetries

that undoubtedly exist in the market given the presence of private information
flows?

 Does the demand exist for disaggregated corporate data?

 Who is liable for errors in online financial reports and data?

 Can technology be misused to distribute financial data?

 What technological solutions can help assure the reliability of online financial
data?

 Will increasingly sophisticated users become dissatisfied with provision of

financial information in a non-digital format?

 How will the development of more elaborate data-handling tools and greater
power in personal computers, which significantly increases the ability of users
to handle greater volumes of data, impact financial reporting?

9
  What is the potential for development of online systems by which stakeholders
will be able to exercise their ownership rights directly?

 What newly acceptable forms of financial data provision might arise?

 What changes to the attestation function performed by accountants will result

due to technological changes in reporting?

 Will real-time reporting become technically possible? If so, how will data be
verified?

 What auditor concerns will arise about the nature and value of their audit
report in relation to online reports?

 Will continuous auditing become prevalent or required?

 What needs will arise for more rigid structuring of financial data provided
online to support verification and comparability?

Davey and Homkajohn (2004) stated that lack of formal guidance and huge
differences in the nature and extent of reporting on web are some issues regarding the
comparability and reliability of data.

XI. Recommendations as suggested in the Literature

With the advancement in technology, it is sure that more it will be used be the
corporate houses. For ensuring the improvement in the online corporate reporting,
Khan et.al. (2006) and Dutta and Bose (2007) have given a number of
recommendations and these are:

 The standard setters and regulatory bodies for listed companies are to extend
the content of standards to regulate the content of digital financial reporting.

 Necessary internet-specific rules with respect to inter-linking of information,

performance data, press releases on recent events and price sensitive
information and uploading website data after a certain interval are required to
be developed.

 The auditor’s report should be hyperlinked to that part of the website which
consists of the information reviewed.

10
 Further research should be carried out in order to prevent manipulation of
digital data and guarantee the authenticity and reliability of the corporate
information distributed via internet to the users’ satisfaction.

 The domain name of the individual companies must be highly restricted so

that it cannot be used by others.

 Compliance of GAAP (Generally Accepted Accounting Principles) and IASs

(International Accounting Standards) must be ensured in the web based
financial reporting practices gradually for achieving the borderless and wide
acceptance.

 A separate section for investor relations on corporate websites helps

companies attract potential investors. This section should be hyperlinked with
the home page so that existing and potential investors can easily locate and
make use of relevant information.

 Companies should regularly update the information provided on the website,

other wise information will lose relevance for decision making.

 Companies should provide information in the English language as well as in

the language of their land.

 Companies should contain a separate section for social and environmental

information on their websites and information consumers should reach that
section through a minimum effort, for example, just by a single click on a link.

 Companies should make adequate and efficient use of graphs to present

financial and other quantitative information as graphs can make users of
information visualize the financial situation of the reporting company.

 Companies should present their financial information in processable format so

that the users of financial information can manipulate financial data in order to
make useful decisions.companies are recommended to use the eXtensible
Business Reporting Language (XBRL), a widely used mark-up language for
online financial reporting in western countries, for disseminating financial
information on their websites so that extraction of specific information by data
identification and analysis of the same become easier.

11
XII. Conclusion

Online corporate reporting is still in its infancy stage. However, continued

improvement in the use of internet as well as online financial reporting has been
marked in many research studies. The more internet will be used by the corporate
houses, the more it will create issues for the companies, users, regulatory bodies and
auditors. The need is to clearly understand all those issues and to frame strict
guidelines for the financial reporting online so that the accuracy and reliability of the
financial information online can be ensured.

12
 REFERENCES

Allam, Amir and Lymer, Andrew, (2003), “Developments in Internet Financial

Reporting: Review and Analysis across Five Developed Countries”, The International
Journal of Digital Accounting Research, 3: 6, 165-199.

Ashbaugh, Hollis, Johnstone, Karla M. and Warfield, Terry D., (1999), “Corporate
Reporting on the Internet”, Accounting Horizons, 13: 3, 241-257.

Craven, B.M. and Marston, C.L., (1999), “Financial Reporting on the Internet by
Leading UK Companies”, European Accounting Review, 8: 2, 321-333.

Davey, Howard and Homkajohn, Kanya, (2004), “Corporate Internet Reporting: An

Asian Example”, Problems and Perspectives in Management, 2, 211-227.

Dutta, Probal and Bose, Sudipa, (2007), “Web-based Corporate Reporting in

Bnagladesh: An Exploratory Study”, The Cost and Management, 35: 6, 29-45.

Gowthorpe, Catherine and Amat, Oriol, (1999), “External Reporting of Accounting

and Financial Information via the Internet in Spain”, European Accounting Review, 8:
2, 365-371.

Khan, M.A.H., Muzaffar, A.T. and Mahmood, A.S., (2006), “The Use of Internet for
Corporate Reporting: A Discussion of the Issues and Surveys of Current Usage in
Bangladesh”, http://bai2006.atisr.org/CD/Papers/2006bai6365.doc

Larren, Manuel and Giner, Begona, (2002), “The Use of the Internet for Corporate
Reporting by Spanish Companies”, The International Journal of Digital Accounting
Research, 2: 1, 53-82.

13
Lymer, Andrew, (1999), “Internet and the Future of Reporting in Europe”, European
Accounting Review, 8: 2, 289-301.

Oyelere, Peter, Laswad,Fawzi, and Fisher, Richard, (2003), “Determinants of Internet

Financial Reporting by New Zealand Companies”, Journal of International Financial
Management and Accounting, 14: 1, 26-63.

Pirchegger, Barbara, and Wagenhofer, Alfred, (1999), “Financial Information on the

Internet: A Survey of the Homepages of Austrian Companies”, European Accounting
Review, 8: 2, 383-395.

Shukla, Anita, and Gekara, Mouni Geoffrey, (2010), “Corporate Reporting in Modern
Era: A Comparative Study of Indian and Chinese Companies”, Global Journal of
International Business Research, 3:3, 42-56.

Westarp, Falk, Ordelheide, Dieter, Stubenrath, Michael, Buxmann, Peter and Konig,
Wolfgang, (1999), “Internet-Based Corporate Reporting – Filling the Standardisation
Gap”, Proceedings of the 32nd Hawaii International Conference on System Sciences.

Xiao, Zezhong, Jones, Michael John and Lymer, Andy, (2002), “Immediate Trends in
Internet Reporting”, European Accounting Review, 11: 2, 245-275.

14