The Audit of Corporate Reporting on the Internet: Challenges and Institutional Responses Andrew Lymer University of Birmingham & Roger Debreceny Nanyang Technological University, Singapore Click for Paper

Overview Background Issues facing auditors Professional Pronouncements –Non-auditing specific –Auditing specific Technological developments in reporting Research Needed

Background Paper based periodic reports Selected Investor Meetings Physical AGMs/EGMs Investor Relations websites Webcast Meetings Electronic Proxy Interactive reporting Video conferencing Electronic voting

Table 2: Comparison of percentages of top 50 (Allam) or top 30 (IASC) companies in geographic domains who provide key elements of an annual report on their Website for accounting periods ending to end 2001 (Allam) or mid 1999 (IASC) Source: from Table 3 Allam & Lymer, 2002 p10 and Table 6 in IASC 1999 p55 Background

Issues facing auditors 1. Scope of Verification Drawing the boundary Provision of wider range of information Depth of data Forward Looking reports

Issues facing auditors 2. Functions of Verification Organisation wide information systems Boundaries of organisations Role for continuous audit?

Issues facing auditors 3. Assigning responsibility in the audit function Sharing of risk v limited liability New players in verification market 4. Justification of the statutory audit Value added? Cost coverage of wider audit remit

Issues facing auditors 5. Other issues Is the audit opinion safe from change by the client or other party?  Should the web-based auditor's report reside at the auditor's or the client's website?  What weight should be given to an auditor's report date when documents on the web can be changed?  Should the auditor allow hyperlinks to, and/or from, the auditor's report?  Auditor's report look and feel when available online  The expression of authority of audit statements  What does ‘signing’ actually mean in online context?

Professional Pronouncements 1. Non-specifically auditing related regulations and standards –Securities Market Regulators SEC, COB, LSE, TSE COB (2000) - calls for effective auditor guidance or will regulate

Professional Pronouncements –Accounting Standard Setters IASC Discussion paper  indicating whether specific items of data had in fact been subject to external verification,  which GAAP (or GAAPs) had been so audited,  how excerpts from financial statements, and their related audit statements, should be shown if made available outside of the context of the full statements in an annual report  use of different languages  …...

Professional Pronouncements –Accounting Standard Setters cont AICPA/FASB –Active groups in area eg the Jenkins Committee Report (94) and the Elliott Committee Report (96) –'Business Reporting Research Project’ - Jan 98 »'Electronic Distribution of Business Reporting Information’ Jan 2000 »democratisation of business reporting »changes in the reporting model »completeness of reports »timeliness »variability of content

Professional Pronouncements - Accounting Standard Setters cont ASB 'Year-end Financial Reporting Structure' project Discussion Paper February 2000 Standards for Internet reporting?

Professional Pronouncements - Other Groups ICAS - ‘Business Reporting - An Inevitable Change?’ –Database reporting model –Audit processes instead of outputs –Different assurance levels for different levels of data –Better understanding of use of non-financial indicators –Demand for wider assurance services –Skills base to deliver wider range of services

Professional Pronouncements - Other Groups cont. –ICSA Best Practice Guide for Electronic Shareholder Communications - March 2000 Form of the audit report when delivered online? –UK Electronic Communications Act May effective December 2000 All forms of shareholder communications can be electronic Voluntary reporting becomes statutory fulfillment? Early to see full effect

Professional Pronouncements 2. Auditing Standards Trend - 1. Ignore online reporting as solely communication medium (USA) 2. Changes the whole nature therefore too big to handle (initial UK) 3. Pick up bits where guidance can be offered (Australia and recent UK)

Professional Pronouncements 2. Auditing Standards cont –USA AU550 (SAS 8 interpretation) March 1997 Website not equal ‘other documents’ Auditors can ignore Various AICPA task forces and panels monitoring position Practice Alert 97-1 (current) –AU550 still valid –Boundaries around audited information necessary

Professional Pronouncements 2. Auditing Standards cont. –Australia AGS December 1999 clarity over responsibilities need for specific auditor training presentation of audited v unaudited data –not displayed together referencing and signatures active monitoring of audit report use special reports for selective info presentation

Professional Pronouncements 2. Auditing Standards cont. –UK Bulletin 2001/1 ‘Electronic Publication of Auditors Reports’ - Jan 2001 reflects many of AGS1050 issues for UK BUT audit report should be largely common for all reports plus dating still valid (no evergreen reports?) responsibility for checking conversion from audited manual to electronic

Technological Developments in reporting

XBRL Accounting System Other Sources XBRL Investors Other Parties XBRL: The Standard for Publishing and Distributing Financial Information Printed Financials Regulatory Filings Website Tax Returns Bank Filings Generation Interpretation

Research Needed Examples : –Actual Usage e.g. how companies using audit reports in conjunction with online information –Judgment Studies users influenced by verification process when reports online? –Demand for Assurance Services what demand exists? Funding models? –Impact of Legislation Changes ECA etc

Conclusion Online reporting common Move from voluntary to statutory Traditional audit techniques may be of reduced use Need for useful guidance becoming important Bigger technological issues on the horizon to be addressed