1. The Audit of Corporate Reporting on the Internet: Challenges and Institutional Responses
Andrew Lymer
University of Birmingham &
Roger Debreceny
Nanyang Technological University, Singapore
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2. Overview Background Issues facing auditors Professional Pronouncements
Non-auditing specific
Auditing specific
Technological developments in reporting
Research Needed

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

4. Background
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

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

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

7. 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

8. 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?

9. 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

10. 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
…...

11. 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

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

13. 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

14. 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

15. 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)

16. 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

17. 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

18. 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

19. Technological Developments in reporting

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

21. Research Needed Examples : Actual Usage Judgment Studies
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

22. 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