Financial Reporting on Internet - CA Journal Jan 2006

8/9/2019 Financial Reporting on Internet - CA Journal Jan 2006

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996 The Chartered Accountant January 2006

T HEME

Financial Reporting On Internet

Who are the Userso Financial State-ments and how has

the Internet changed the oldnorms o nancial reporting?

The users o fnancial state-ments include present and poten-tial investors, employees, lenders,suppliers and other trade credi-

tors, customers, governments andtheir agencies and the public.They use fnancial statementsin order to satisy some o theirinormation needs (Framework

or the Preparation and Presen-tation o Financial Statements

Issued by ICAI)In countries with ma-

jor capital markets, almostall large companies have

websites and the majority othese sites include some ormo nancial reporting. A ew

years ago, the users o nan-cial statements dependedon the hard copies (print) oAnnual report to reach them.Not everyone had access tothe Annual reports / nancialinormation and at times onehad to either get the inorma-tion rom a library or roman analyst. With Financialinormation and Annual re-ports being available on In-

ternet, anyone can access theinormation.

Advantages of FinancialReporting on Internet

What makes the Internetpotentially useul in corporatereporting is the act that it o-ers the ollowing advantages:

l It oers a low cost solu-tion (to both users andproducers) to access ocorporate data by usingan established networkstructure that all can par-ticipate in easily. Largecompanies can virtuallyeliminate the substantialcost o printing and post-ing annual reports to thethousands

l It oers instant (relativeto paper versions) ac-cess to data at convenienttimes or users.

l It provides or a broadcast(mass communication)medium or corporatereports. The inorma-tion can be accessed bya much wider audiencethan more conventionalmeans o communication

permit. There are no na-tional borders, the reach

Traditionally nancial reporting by corporates was in printormat and the annual reports were mailed to the users o thenancial statements. Financial inormation was also releasedto media by way o press releases. The exponential growth inInternet usage is steadily changing the way users access -nancial inormation. Today, it is imperative or a corporate tohave a website. Corporates are increasingly using Internet orFinancial Reporting in the last ew years. The article throwslight on the changing scenario o nancial reporting, the is-sues involved and the trends in Internet nancial reporting inIndia and other parts o the world.

is international. Improv-ing access to potentialinvestors or small com-panies.

l It oers dynamic updat-ing potential.

l Fewer constraints on pre-sentation fexibility thantraditional paper ver-sions.

l Access to greater volumeso data than previouslypossible.

l Flexibility in user mod-els o data provided. In-creasing the amount andtype o data disclosed andsupplementing traditionaldisclosure practices.

l Hypermedia delivery odata (using the inter-linking o inormationcapabilities o the World

Wide Web).l The possibilities or ex-

porting o data or usermanipulation.

l The regular maintenanceo websites means thatthe nancial inormationprovided can be kept up-to-date whereas paperreports have a very shortshel-lie.

l It oers possibilities toenhance the provision ocorporate reports to us-ers. Some o the advan-tages / enhancements areprovided in the ollowing

ways:l The use o graphics,

Ability or download-ing o data , Press releaseprovision,Trend Data andanalysis, Dynamic DataProvision & Non-nan-cial measures o peror-mance provided

(The author is a mem-ber of the Instituteas well as AICPA,working with Lason

Systems Inc, MI, USA.He can be reached at

[email protected])

Shrikant Sortur


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The Chartered Accountant 997January 2006

General and Financial/Annual Report relatedattributes found onwebsites

Today, the type and amounto inormation that companiesput on their websites varies

considerably depending on thetype o disclosure, the compa-nys industry and its size. Ev-ery company provides a briedescription o its operationsand a list o its products andlocations. Additional inorma-tion such as companys marketshare, mission statement, -nancial reports and corporategovernance initiatives can beound amongst other inorma-

tion.Some o the common at-tributes that are ound on

website are as ollows:(a) Business related inor-

mation: (i) Historicalgrowth, (ii) Risks (iii)Management Discussion& Analysis (MD&A)(iv)Marketing strategies,(v) Plant Volume or ca-pacities and (vi) Quality

o products(b) Company Background:(i) Brands or Products, (ii)History, (iii) Key Drivers,(iv)Locations, (v) Mis-sion statements and (vi)Vision / Core values

(c) Forward Looking Data :(i) Future sales or earn-ings, (ii) Industry trends,(iii) Future goals / plans& (iv) New products

(d) Investor Relations/Fi-nancials: Investor relatednancial and business in-ormation is oten main-tained in a separate sectiono the companys web siteand is accessible rom itshome page. These inves-tor sections usually con-tain at least the ollowingtypes o inormation: (i)Financials/Quarterly &

Annual Reports Mul-tiple le ormats (EitherPDF or HTML or both)

See paragraph below orsome o the common at-tributes ound in Annual/ Financial reports, (ii)Financial History, (iii)Shareholding pattern /Ownership makeup, (iv)

Board o Directors, (v)Corporate Governance,(vi) Stock Price, (vii) Fil-ings, (viii) Press releases,(ix) Analyst coverage,(x) Financial ratios andKey statistics, (xi) Man-agement presentationtranscripts and slides,(xii) Online companyact book, (xiii) Earningscommentary, (xiv) In-

vestor relations calendarevents, (xv) Email alertsetc

(e) Other Inormation: (i)Search Box, (ii) Site mapand a host o other busi-ness inormation and e-commerce related menus.

Attributes ound in Annual/Fi-nancial Reports

l C h a i r m a n sMessage

l Corporate Inorma-tion

l Board o Directors& Ocers

l Customer Prolel Employee Prolel Financial highlightsl Directors Reportl Management Dis-

cussion & Analysis(MD&A)

l Auditors Reportl Balance Sheetl Prot and loss ac-

count / IncomeStatement

l Cash fow state-ment

l Schedules / Notesto accounts

l Statement o share-holders equity

l Risk Management

Reportl Corporate Gover-nance Report.

Issues in FinancialReporting on Internet

The main concern with -nancial reporting on the Inter-net is the act that inormationon a Web site is available toanyone, anyplace, at any time.

Increasing use o the WorldWide Web or reporting pur-poses is challenging the verynature o nancial reporting -its boundaries, its rameworksand even its undamental rolein society. While the advantag-es o the Web as a new modeo inormation disseminationare clear, nancial reportingon the Web creates a numbero challenges or companies

and their auditors as well asor regulatory and standard-setting organisations. It is nosurprise that Web-based -nancial reporting has alreadydrawn the attention o theinternational groups such asInternational Federation oAccountants (IFAC), Interna-tional Accounting StandardsCommittee (IASC), FinancialAccounting Standards Board

(FASB), USA and major na-tional regulatory organisa-tions.

Some o the issues/con-cerns that arise due to nan-cial reporting on the Internetcan be seen in the ollowingareas:

Financial reporting on the Internet and external audit:Electronic dissemination onancial reports on the In-

ternet is becoming ubiquitousor larger corporations in developed market economies. This orm o reporting pres-ents many challenges or thenancial statement audit. Itis critical that the audit pro-ession proactively addressthe challenges or they will becertainly addressed by govern-ment, regulatory bodies andthe courts o law. Corporates

reporting on the Internet usu-ally include auditors report ontheir website which could lead

The mainconcernwith nan-cial report-ing on theInternetis the factthat infor-mation ona websiteis availableto anyone,anyplace,at anytime.


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to certain issues. These issuesinclude the ease with whichthe auditors report can bechanged without any indica-tion that a change was made;the meaning o the look andeel o the auditors report in a

rapidly changing web environ-ment; and the implications ohyperlinks to and rom web-based auditors reports as wellas the location and placemento the auditors reports. It isone thing to not know how aclient is inappropriately usingthe paper version o the audi-tors report, but it is a dierentthing when the whole worldcan see the auditors report on

a clients Web site. Audit Report along withSummarised Financial State-ments - Many corporationsthat do summarise their nan-

cial statements do include theauditors report. Generally, theonly place in an annual reportthat indicates that the nan-cial statements were complet-ed in conormity with GAAP(or IASs, appropriate national

accounting standards or rel-evant statutes o law) is in theauditors standard report. On asignicant number o websitesthere will be a link labeled,Annual Report, however, inmany cases, the link will takethe user to a web page whosecontent will be signicantlydierent than the paper-basedannual report. Sometimes the

web page will only include a

summary income statement, asummary balance sheet, and aletter rom the chairman o theboard. For those companiesthat disclose less than their

paper-based annual report, arequently missing elementis the notes to the nancialstatements. The question that

would come up is: what is therisk o associating at auditorsreport with less than complete

annual report? Is the companywho included the auditors re-port on the website at risk orimplying that the summarynancial disclosure is in accor-dance with GAAP? What isthe auditors risk and respon-sibility?

Borders o Annual Re- port/Financial Statements- When the investor has thepaper-based annual report in

their hands, they have a clearsense o the beginning and theend o the annual report. Theboundaries that are indicatedon web sites are not as clear. It

Lamiya Lokhandwala


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is not unusual to have hyper-links inside an annual reportthat takes the user outside theannual report--and almostnever is there any warning tothe user that they are leavingthe annual report. Similarly

there are hyperlinks outsideo the annual report that takesthe user inside the annual re-port. Generally, the nancialreports are included as a rela-tively small part o a companysoverall website that includessignicant other materials.As such, it can be dicult orthe user to know when theyare inside or outside the an-nual report. The entire report

may be a ew pages within theinvestor relations web pages,which in addition to the annu-al report, may include a wide

variety o unaudited nancialstatements, orward lookingnancial inormation, as wellas press releases and otherinvestor relations material.Unless the borders are clearlylabeled, a user o the nancial

website may misinterpret the

scope o the auditors reportthat accompanies the nan-cial statements. These borderissues have implications orauditors. Companies are reelyadding hyperlinks that links tothe auditors report and theyare creating hyperlinks insidethe auditors report to pages(e.g., ootnotes) included inthe auditors report. Shouldcompanies be reely allowed

to add hyperlinks to/rom theauditors report? Who is atrisk here?

Convergence o manage-ment and fnancial reporting:

With the increasing use o In-ternet or nancial reportingand the ever increasing usertrac, oten companies resortto publishing various kinds oreports on their website. Ob-

viously, management has more

inormation available to itselthan to outside stakeholdersand this is likely to continue.

It is, however, probable thatthe web will blur the distinc-tion between nancial inor-mation used by managementand inormation made avail-able to the public. I an ap-proach similar to that used

or internal reporting were tobe used or reporting to ex-ternal stakeholders, the inex-perienced investor/ user couldend up interpreting unauditednancial data as being sancti-ed by the audit.

Usage o Financial inor-mation on the Internet by In-vestors/ other agencies: Onlinebrokerages and inexperiencedinvestors are using websites

or their investment researchand subsequent placement otheir investment orders. Theyare not discussing their invest-ments with human brokers orreviewing paper-based annualreports. Using incomplete an-nual reports rom websitescould lead to bad decisions.Companies may argue that in-

vestors should recognise thatthese Web-based annual re-

ports are summaries. This maybe a big assumption. Similarlymany online brokerages andother agencies or third partyconsultants use the company

website to source nancialinormation which in turn isused by their clients or vari-ous purposes.

Links to Analyst websites:There are cases where a com-pany provides links to web-

sites o analysts who ollowthe company. What are riskshere? Is the company tacitlyagreeing with orward-look-ing statements on those ana-lysts sites? Again, companiesrarely included any orm oappropriate disclaimers.

Downloading Annual Re-ports: Many companies whohave summary disclosures ontheir Web sites requently in-

clude downloadable versionso their annual reports in anAdobe Acrobat Portable

Document Format (PDF)le. When downloaded andprinted these les can providean exact duplicate o the print-ed annual reports. However, toread or print these PDF lesrequires that the users down-

load and install the Adobe Ac-robat reader on their comput-ers. The size o these reports istypically very large. Users withdial-up modems will nd it

very dicult to the completeles.

Administering: Internetnancial reporting by compa-nies creates new challenges tomanagement in charge o es-tablishing the control rame-

work and to internal auditorsin charge o reviewing thecontrols. The issues in admin-istering can be related to theollowing aspects:l What to reportl When to reportl How to reportl Who is responsible to

reportIt is essential to have poli-

cies and guidelines on report-

ing o nancials on the Inter-net.Third Party Website Main-

tenance: Oten Corporatesoutsource their website main-tenance to third parties. Thisposes questions in terms ocontrol, risk and ecient ad-ministering that needs to bekept in mind.

Security: In the absenceo appropriate security mea-

sures the inormation on thewebsites is open or alterationand manipulation either bysomeone internally or by thirdparties and oten can be unde-tected or apparent. The man-agement has responsibility orimplementing and monitoringcontrol procedures.

The trend towards the pro-vision o nancial inormationon the Internet is irreversible

and the above disadvantagesare, by and large, matters thatlarge companies simply have

With theincreas-ing use ofInternet fornancialreport-ing andthe everincreasinguser traf-c, oftencompaniesresort topublishingvariouskinds ofreports ontheir web-site.


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to live with they are notactors to be taken into ac-count when deciding whetheror not provide such inorma-tion: the issue or all largecompanies now is not i, but

when and how, they will pro-

vide nancial inormation. The provision o detailed -nancial inormation to a wideraudience inevitably meansmore criticism by groups andindividuals that are increas-ingly well-inormed and well-organised, thanks to Internettechnology. Legislation insome countries permits com-panies to send annual reportsand other nancial inorma-

tion to shareholders electroni-cally, rather than by post, butonly i the shareholder agreesto this and only a very smallproportion o shareholders doso. Paper reports still have tobe produced or a very largenumber o shareholders. Themaintenance o websites canbe costly and the security o

websites, particularly thosesections containing nancial

inormation, is paramount.Users can be irritated to saythe least, and even misled, bypoorly designed websites andmany companies do not prop-erly understand that despitethe absence o specic regula-tion, the publication o nan-cial inormation on corporate

websites is regarded by manylegal experts as being subjectto the same stringent regula-

tions that apply to paper-basednancial publications. Many websites are too technologi-cally advanced or the noviceuser because they requiretime and space consum-ing downloads or multi-mediaplug-ins which too oten havethe eect o locking the inex-perienced user out.

Safeguards/Controls over

Financial Reporting on theInternet

Notwithstanding the act

that there are issues in nan-cial reporting on the internetas evidenced by the above dis-cussion it is bound to grow inthe coming years. Some o thesaeguards that can be takenby the concerned parties when

nancial numbers are put outon a website can be seen asollows:

Auditors: The inorma-tion provided by companies

varies enormously. Financialhighlights, interim reports,preliminary announcements,summary nancial statements,ull accounts and nancial in-ormation that do not t anyestablished category can be

ound on corporate websites,most o it in downloadableAdobe Acrobat (PDF) orHTML ormat. Some inor-mation is audited and some isunaudited, but the audit statuso inormation is not madeclear in too many cases. So to

what extent should auditors beconcerned about nancial in-ormation on websites? Opin-ions dier as to the auditors

responsibilities in relation toinormation on the Internet.However, i a question were toarise on the issues that auditorsmight wish to take account oin this context, the ollowingmatters should be considered:I. Under the International

Federation o Accoun-tants (IFAC) and othercodes o proessional eth-ics, auditors should not

permit their names to beassociated with inorma-tion that is misleading.Auditors should thereoreensure that when theyagree to act as auditors,their clients agree thatthe rms name and theaudit report should not beincluded in the corporate

website without the rmsexpress permission;

II. In deciding whether ornot to permit their clientsto use the rms name

or audit report, auditorsshould consider whether:i. the inormation is

secure. I the inor-mation is not secure,hackers might alternancial inorma-

tion and the rmsname might then beassociated with mis-leading inormation.Auditors might wishto test the securityo the website gen-erally, and o thosesections containingnancial inorma-tion with whichtheir name is to beassociated in par-ticular;

ii. the nancial inor-mation with whichthe rms name oraudit report is to beassociated is clearlydistinguished romother inormation.

This issue is evenmore important in

the context o web-based nancial re-porting than it is inthe context o papernancial reports. Ithe annual report isan original versionscanned into a pdle then the pagenumbers on theoriginal version andthe electronic ver-

sion would match.But this is not thecase many a time.

Where HTML isused, the inorma-tion has to be keyedin rom paper origi-nals. Keying in givesrise to two risks:

l That errors will beintroduced;

l That the page num-

bers (or other re-erence identiying

The infor-mationprovidedby compa-nies var-

ies enor-mously.Financialhighlights,interimreports,preliminaryannounce-ments,summarynancialstate-

ments, fullaccountsand nan-cial infor-mationthat donot t anyestablishedcategorycan befound oncorporate

websites.


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the inormation au-dited) in the paperaudit report will notcorrespond with thepages as displayedon the website (andin most cases this

is highly likely aspaper pages andHTML pages rarelycorrespond exactly).

The auditors should ensurethat controls to prevent anddetect keying errors are oper-ating adequately, and perormsubstantive tests to ensure thatnancial inormation on the

website is the same as nan-cial inormation in the paper

report. They should also en-sure that i adjustments to theauditors report appearing onthe website are necessary, thatthey are properly made.III. The auditor should en-

sure that the website isrequently maintained.

The auditors should alsomake sure that i nancialinormation with whichthe rms name or audi-

tors report is to be asso-ciated is to be changed, itshould only be changed

with the agreement o therm;

IV. There are local regula-tions on the publicationo nancial inormation.Many jurisdictions re-quire that where statutoryaccounts are published,the auditors report should

be published with them.Regulation may also re-quire that when otheraccounts are published, astatement should be madeby the company statingthat they are not statuto-ry accounts, and whetherstatutory accounts dealing

with the period to whichthe published inorma-tion relates have been

audited and led with therelevant authorities. Au-

ditors should ensure that where such regulationsexist, the proper state-ments have been made onthe website. Similar regu-lations may apply to thepublication o statutory

summary nancial state-ments.Administering the Website:

Many o the issues associatedwith the traditional paper re-porting are also relevant whenenterprises use their website.Directors and senior manage-ment need to ensure that anynancial inormation providedhas the same integrity as thatpublished in paper orm. The

International Federation oAccountants (IFAC) in itspaper on Financial Reportingon the Internet issued in Au-gust 2002 listed the ollowingin this context:Responsibilities o directors andmanagement

Management has a respon-sibility to determine:

l how the corporate website will be used to pro-

vide nancial inorma-tion,

l what inormation will beprovided,

l the timing o that inor-

mation andl the ormat o such inor-

mation.l These decisions should

be ormulated into an ap-proved policy that is alsopublished on the websiteso that users are aware tothe enterprises approachto the provision o nan-cial inormation.

Management may wish to

take legal advice when con-sidering and ormulating thispolicy.

The management shouldensure that an Internet Re-porting Policy is in place thatis comprehensive.

Governance: To improvethe reliability o the inorma-tion that companies put on the


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web, and knowing that people will reply on the web site,companies should incorporatetheir sites in their governanceprocedures. This would in-clude adding website disclo-sures to the responsibilities o

the board o directors and theaudit committee. The boardshould consider setting up aspecial website subcommitteeto report to it on website activ-ities and security. In addition,the internal auditor should in-clude the web site in the scopeo the internal audit.

Boundaries: The issue oboundaries might be addressedby developing new standards

o presentation - or example,situations in which hyper-links would be allowed andthe kind o inormation thatcould legitimately be linked tothe nancial statements. I hy-perlinks are included with theaudited nancial inormation,the inormation on the linkedpage is eectively incorporatedinto the nancial inormation.

The auditors should ensure

that any inormation so incor-porated has in act been au-dited. This is particularly im-portant where links are made

with pages outside the annualreport. Electronic signposts

warning users that they areleaving ormal nancial in-ormation can be installed sothat users activating certainhyperlinks would encounterthem. Background colour and

distinctive boundaries can beused to identiy a particulartype o document, such as anannual report, to assist users indetermining when they havelet the report.

Inormation DisclosureSaeguard: Where an enter-prise is producing inorma-tion in other orms such asin printed reports or in pressreleases, the enterprise should

include on its Web site ver-sions o its nancial reportsthat include the inormation

provided in those other orms.Inormation disclosed on the

Web should not be contradic-tory to other versions o itspublished nancial reports. I,or some reason, documentsavailable online do not provide

the ull inormation rom theiroriginal ormats, the act thatinormation is missing shouldbe clearly indicated, and apoint o contact or obtain-ing this inormation should beprovided. Conversely, i addi-tional inormation is providedon the Web that is not provid-ed in other ormats, the actthat this is additional inorma-tion should be disclosed.

Disclaimers: When a com-pany is designing its nancialreporting web site it may havea specic audience in mindsuch as nancial analysts, cus-tomers etc. But unless the Webpages are protected by pass-

words, anyone could be usingthe inormation provided onthe Web site. So, what i anunsophisticated investor usesthe inormation on the Web

site to make an investment de-cision, which they are subse-quently unsatised with? Canthe company deend itsel bysaying that the Web site wasnot intended or unsophisti-cated investors? I companies

want to avoid the situation,should they actually put someorm o disclaimer on the Website stating who the intendedaudience is?

Legal: Corporates shoulddesign and maintain their cor-porate websites, particularlythe nancial inormation in a

way that should not give riseto any legal issues that couldaect the company. Appro-priate legal advice should besought that takes into ac-count the legal environmento a particular region, andalso keeping in mind the po-

tential users could be bound-ary less. It is common to seeDisclaimers on almost all the

websites. The disclaimers aresometimes in general naturethat applies to the contents othe whole website or in somecases specic, say to an Annualreport or to a particular pieceo inormation.

International trends inFinancial reporting on theInternet

The variations in report-ing between companies areoten wide enough or an userto be let with the impres-sion that there are no rulesor nancial reporting on the

Web. Depending on a personsinterpretation o current -

nancial-reporting rules it issomewhat dicult to deter-mine what exactly is allowedand what should be avoided

when it comes to Web-basedreporting. A general observa-tion on the nancial reportingtrends on websites o most othe countries reveal that byar and large the attributes on

websites are as discussed in theparagraph captioned General

and Financial / Annual Re-port related attributes oundon websites above. Guidanceand drat guidance on the au-dit o nancial inormationon the Internet has been pro-duced in a number o coun-tries. A brie discussion on thesame ollows:

United States o America:In the United States, the Se-curities and Exchange Com-

mission (SEC), in SecuritiesAct Release No. 33-7233, in-dicates, in part, that, The lia-bility provisions o the ederalsecurities laws apply equallyto electronic and paper-basedmedia. What that means is,the Internet is just anothermedia and the rules that ap-ply to paper-based nancialreporting equally apply to theInternet. By contrast, although

the AICPAs proessionalstandards apply to auditing; its view o the Web provides an

The Inter-net is justanothermedia andthe rulesthat applyto paper-basednancialreporting

equally ap-ply to theInternet.


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interesting dierent perspec-tive. In Other inormation indocuments containing auditednancial statements: auditingand interpretations o Section550 (AU 9550) paragraph 16ends with the question When

audited nancial statementsand the independent auditorsreport thereon are included inan electronics site, what is theauditors responsibility withrespect to other inormationincluded in the electronicssite? The answer, which ap-pears in paragraph 17 statesElectronic sites are a meanso distributing inormationand are not documents, as

that term is used in Section550 ... Thus, auditors are notrequired by Section 550 toread inormation contained inelectronics sites, or to considerthe consistency o other inor-mation (as that term is used inSection 550) in an electronicsites with the original docu-ments. However, companiesshould careully consider theironline disclosures in light o

the SECs Securities Act Re-lease No. 33-7233 (or theirown country-specic rules)so as to ensure that their Websites are not inadvertently

violating existing nancial re-porting regulations.

What the above means isthat, the current thinking doesnot regard nancial inorma-tion on websites as constitut-ing published inormation

at all. Auditors are thereorenot required to read nancialinormation on websites, norare they required to considerits integrity or completeness,even i the auditors report ispublished with the inorma-tion. Clearly, ew US rms aregoing to take the risk o ignor-ing nancial inormation oncorporate websites in the cur-rent litigious climate but it is

important to note that thereis at present, no obligation todo so.

Australia: Auditing guid-ance emphasises manage-ments responsibility or thepreparation and presentationo nancial inormation onthe corporate website and theneed to distinguish clearly be-

tween audited and unauditedinormation. Auditors must becondent that managementhas addressed the security andcontrol issues that ensure thequality and integrity o nan-cial inormation on the web-site. It is important to distin-guish, however, between theprovision by auditors o assur-ance relating to the nancialcontent o the website, and the

provision by auditors o assur-ance relating to the security othe website generally, whichare two quite dierent issues.

United Kingdom: A discus-sion paper was issued on thesubject some time back, whichsuggested that corporate web-sites should be divided intorestricted and unrestrictedsections. Restricted sectionsshould only contain inorma-

tion on which auditors haveissued a report, and the unre-stricted section should makeit clear that the inormationit contains has not been au-dited. In the restricted section,there should be no externalhyperlinks and the ull annualreport should be reproduced.Highlights or abridged ver-sions o the audited nancialstatements should not appear

in the restricted section. Audi-tors should satisy themselvesas to website security but thesite itsel should state that theresponsibility or the securityand integrity o the websiterests with directors.Some o the Interesting (Non In-dian) corporate websites are:l The annual report section

opens in a new window(Microsot, Wal-Mart,

Coca Cola, Cisco etc)l Appearance o a message

to notiy the surer upon

leaving the annual reportarea (Microsot, Intel)

l Use o unique designand dierent colors romthe rest o the websitesections (Royal Bank oScotland UK)

l Appearance o the titleAnnual Report on everypage o the annual reportsection (Pzer USA)

l Microsot USA has itsAnnual report in Worddocument ormat apartrom having it in an

XBRL ormat. There arealso Financial tables andAlternate Views (Finan-cial highlights in 7 dier-

ent currencies) availableor download in Excelormat.

Financial Reporting on theInternet in India

India has the 5th high-est number o Internet usersin the world (Source: website

www.internetworldstats.com).From 5 million users in 2000to the present number o 39

million. That is a growth o680% in 5 years in terms oInternet users. Mumbai Stockexchange has one the highestnumber o listed companies inthe world 4743 companieslisted as at July 2005. Thereare many private companies inIndia, but the Mumbai stockexchange statistics is relevantto this article since publiccompanies have to share their

nancials with stakehold-ers/investing public. Link theact that India boasts o a veryrobust sotware industry (nodearth o web proessionals tocreate and maintain web sites)to the statistics on Internet us-ers and listed public compa-nies; we are looking at the po-tential o tremendous activityin terms o nancial reportingon the Internet.

There is no guidance orstandard on the audit o nan-cial inormation on the Inter-

It is impor-tant to dis-tinguish,however,

betweenthe provi-sion byauditors ofassurancerelatingto thenancialcontent ofthe web-site, andthe provi-

sion byauditors ofassurancerelating tothe secu-rity of thewebsitegenerally,which aretwo, quitedifferentissues.


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net in India. It is common tosee the auditors report beingreproduced in the annual re-ports that are available on the

websites o Indian companies.Financial statements / Annualreports o Public companies

are in the nature o public doc-uments in India and one canaccess the same rom Registraro companies. That being thecase, as long as Schedule VIaccounts are presented along

with the Audit report on the web site, it would not aectthe auditor. But i the compa-ny makes a modication to anyo the contents o the nancialinormation signed o by the

auditor, then the auditor needsto make sure he is aware o thesame and has agreed to the in-ormation contents to be putout on the website as long asit adheres to the existing guid-ance / standards.

There is no study on thetrends in nancial reportingon the Internet in India avail-able at present. For the purposeo this article, 32 companies

were selected or a study. 30companies that are the con-stituents o BSE Sensex as atAugust2005 and 2 companiesthat were moved out o BSEsensex as on 06/06/2005. Theollowing is the summary othe trend related to this study:1. Websites: All the compa-

nies have websites.2. Under what attribute withinthe website o a Company can

one fnd the Annual Report?(a) Investors/Investor

R e l a t i o n s / I n v e s -tors Center/Inves-tors Desk/Investors

Interests: 24 com-panies out o 32 i.e.75% have the annualreport listed underthe Investors attri-bute. It is interest-ing to note the vari-

ous variations to theterm as listed above.

(b) Financials/FinancialInormation: 4 com-panies out o 32 i.e.12.5% list it underthis attribute.

(c) Exceptions : i) Zeetelevision has In-

vestor Inormationlisted under the tabCorporate on itshome page ii) Ci-pla has its annualreport listed underthe menu Corpo-rate Prole within

which is the Fi-nancial Prole iii)NTPC has its an-nual report underCompany Peror-mance but the samecan be seen on itshome page. iv) ITChas its Annual re-port under the menuShareholder Valueon its home page.On the home pageone can nd the In-

vestor relation but

there are no nan-cials / annual reportlisted therein

3. Annual Report Format :(a) PDF les are used

by 30 out o the 32companies.

(b) 6 out o the 32 com-panies do not havea ull Annual reportdownload. The oth-er 26 company an-

nual reports can bedownloaded in ull.

(c) 5 out o the 6 com-panies that do nothave a ull down-load, one can down-load any part romthe Table o con-tents individually.

(d) Inosys has an MSExcel download oits Indian GAAP

and US GAAPdatasheet

(e) Companies listed inUnited States stockexchanges provideUS GAAP nan-cials apart rom theIndian GAAP -nancials.

A discussion as to the con-tents o the Annual reportis not being made here sincethere is a considerable varia-tion rom company to compa-ny. All the companies studieddo carry most o the Generaland Financial / Annual Re-port related attributes oundon websites listed earlier inthe discussion.

The future for CorporateReporting on Internet

The emerging trends incorporate reporting on the In-ternet can be briefy listed un-der the ollowing heads:

Frequent and real timeCorporate Reporting: Thereare major orces shaping thenew world o business report-ing to external stakeholders.

The old concept o periodicity

is changing to a more fexibleconcept o continuous report-ing on a basis closer to real-time reporting. The World

Wide Web, combined withother Internet tools, also o-ers the possibility o a revolu-tion in the delivery o corpo-rate reports. The web oersa number o possible uturesor corporate reporting. It o-ers a mechanism to support

more requent reporting thanthe current quarterly reportsdistributed by most o thecompanies. I combined witha more events-based databasereporting strategy it oers thepossibility o perpetual report-ing with access to real timedata or users to analyse them-selves rather than relying ondelayed, aggregated data. Theimplications o such a move

however, are signicant. Forexample, the concerns o datacomparability, condential-

If com-bined with

a moreevents-baseddatabasereportingstrategyit offersthe pos-sibility ofperpetualreportingwith ac-

cess to realtime datafor usersto analysethemselvesrather thanrelying ondelayed,aggregateddata.


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ity, liability concerns over dataownership and use, integrityquestions and the subject oquality all become importantissues that need to be resolvedand managed. There is alsosome evidence (Jenkins 1994)

that reporting more requentlythan quarterly is not actuallydesired by users who are onlyinterested in more requentdata i critical to their invest-ment decisions. The problemo inormation overload willbe a signicant concern withmore requent and more dy-namic publication o corporateinormation. There would be aneed or computer support to

deal with this. Such technolo-gies do exist and are being re-ned.

Democratising the disclosure process: The traditionalmodel o corporate reporting isstatic and unilateral, the inter-net model will be dynamic andinteractive. A move toward us-ing more complex technologyon a real-time basis aectsreliability. Users can become

more involved in the design oreports by drawing down dataand creating their own reports.Reporting is moving beyondnancial measures to includenon-nancial measures. Bal-anced scorecard, value report-ing and the AICPAs SpecialCommittee on Financial Re-porting model are all variationson this shit. Email alerts, chatgroups and web based nan-

cial inormation release couldlead to investors and users ask-ing or more inormation andclarications on the nancialnumbers.

User-designed reportingmodels: Because o the easeo putting inormation on the

web and the capacity o usersto ask or inormation, nan-cial inormation presented on-line is more likely to be pre-sented in an unstructured ordisaggregated ormat that has

traditionally been the case withprinted reports. Although it isunlikely that investors wouldbe given access to raw dataor databases, there is a likeli-hood o customisation o sites,perhaps based on user proles

or preerences. For example, ashareholder would get access toa shareholder conguration othe site and a customer wouldgain access to a customer con-guration, refecting their di-erent interests. Analysts andothers will quickly nd waysto import the data into modelsthat they build or their ownpurposes - in act, some are al-ready doing this.

Intelligent sotware agentsare now being used to searchor inormation on the In-ternet and it is expected they

will be integrated into a rangeo applications and inorma-tion services over the next ew

years, including models orretrieval and analysis o inor-mation. The use o intelligentsotware agents in the corpo-rate reporting process has the

potential to provide a meansby which users can search orrelevant inormation withinthe extensive volumes o cor-porate data available to them.

The importance o models toenable users to make use oraw accounting data meansthat preparers, users and stan-dard-setters should give moreattention to the ormulationo the user models - includ-

ing the use o sotware agents- as distinct rom generalisedorms o nancial statements.

Using Financial inorma-tion on the websites o Com- panies & fling o reports bycompanies: At present almostall o the nancial numbersare ound on websites either inHTML or PDF les or both.

The problem is that users can-not import such inormationdirectly into any spreadsheetprogram or their analysis.

Instead, the data will have tobe manually keyed in into thespreadsheets. On the otherhand, Corporates need to letheir nancial reports to vari-ous agencies and organisationsin various ormats that are not

compatible in HTML or PDFormat.

The solution to this couldbe XBRL, which has beenaround or some time now. Ac-tive support rom Corporates,users and Agencies and organ-isations could see XBRL be-come to Corporate Reporting

what HTML became to Web. XBRL (Extensible BusinessReporting Language) is a lan-

guage that has been developed.The language helps in solvingthe context and problems ocomputers and establishinglinkage between the contentand ormat to make the inor-mation more complete.

XBRL delivers corporateinormation along with theidentication tags (metadata)and makes it possible or thecomputers to present the in-

ormation in the same manneron dierent platorms. As anexample, i a particular asset

value has to be sent on the In-ternet, programming was re-quired to recognise the gureas asset value. XBRL deliversthe gure along with the tags,

which identiy it as asset value,mention its currency and alsothe period to which it pertains.

The capabilities o XBRL are

not limited to nancial inor-mation alone. It can tag anykind o inormation, whichmay be industry-specic orcompany-specic. Users cancapture the inormation into

various analytical and deci-sion-making tools rom theInternet and use it. The mostimportant aspect rom thecompany perspective is that

XBRL enables the use o theinormation generated onceor many purposes. For exam-

The im-portanceof modelsto enableusers to

make useof rawaccount-ing datameans thatpreparers,users andstandard-settersshouldgive moreattentionto the for-mulationof the usermodels- includingthe use ofsoftwareagents - asdistinctfrom gen-eralisedforms ofnancialstate-ments.


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ple, it is generally necessary tocollate inormation again andagain to provide it to dierentusers like shareholders, lend-ers, regulators, etc. This needis obviated and inormationgenerated once can be used

any number o times. A brie list o agencies that areaccepting XBRL ormats:l In The Netherlands, all

government agencies,rom the justice depart-ment to bank regulatorsto tax collectors, are work-ing together on a nationaltaxonomy o business re-porting items, and Dutchmunicipalities are already

ling quarterly reports inXBRL.

l The Australian Pruden-tial Regulation authorityhas been collecting regu-latory data in XBRL or

years.l The Toronto Stock Ex-

change publishes its -nancial statements in

XBRL since 2003.l Japan has already

launched an XBRL-based corporate tax lingsystem, and ve regula-tors are collaborating on

XBRL taxonomy.l Chinas Security Regu-

latory Commission hasmandated XBRL lingor the countrys largeststock exchange.

l The U.K. has issued a

drat o GAAP taxono-my or commercial andindustrial sectors, andInland Revenue is set toobtain corporate tax re-turn inormation or allcorporate lers.

l Denmark has been ac-cepting XBRL lings orcompany registration

l Spains central bank isleading several XBRL-

based data collectioneorts, including inor-mation on annual real

property valuation andmoney laundering.

l European Union (EU)banking regulators arebuilding a taxonomy thatall EU banks will use.

l U.S. Federal Financial

Institutions, U.S. Securi-ties & Exchange Com-mission & NASDAQ also have XBRL projectsrolled out.

XBRL has been slow totake o, it had generated alot o interest when it wasplanned and rolled out, but itdid not gather pace. Maybe,

with a ocused eort rom allthe players will see XBRL be-

ing a orce to be reckoned within nancial reporting on theInternet.

ConclusionFinancial reporting on the

Internet will increase in thecoming years. As we see an in-crease in transparency by Cor-porates and increase in userso Internet, this is a orce tobe reckoned with. At the mo-

ment existing nancial-report-ing rules apparently appliesequally to the Web, the widerange o variations observed in

Web-based nancial report-ing would probably draw oneto conclude that some compa-nies are violating existing -nancial-reporting regulations.Companies should ensure thatthey take a close look at whatthey are reporting (nancials)

on the Internet and make surethat the required saeguardsare in place and they are notin violation o any report-ing requirements / standards.Corporates should not call the

Web-based nancial inorma-tion an annual report unlessit is as complete as the corre-sponding paper-based annualreport and also make sure thatthere they add appropriate

disclaimers.It is also important thatauditors and standard-setting

organisations look at what theauditors roles and responsi-bilities should be. Standard-setting organisations mayneed to take a closer look atthe various aspects involved innancial reporting on the In-

ternet and provide guidance /Standard. Regulatory organi-sations will have to considerthe act that the Web-basedparadigm is so dierent thanthe paper-based paradigm--in terms o multimedia, hyperlinking, virtual space, interac-tivity, bit-based ethereal audittrials--that these organisa-tions will have to specicallyaddress Web-based reporting.

One way o moving towardsan uniorm nancial reportingon the Internet is or the stan-dard setters to come up withan accounting standard or thesame. In uture that may wellhappen.

The discussion can beconcluded by quotes rom SirBryan Carsberg who was thesecretary-general o the In-ternational Accounting Stan-

dards Committee rom 1995to 2001 and which is relevanteven now: Technology has al-tered irreversibly not only thephysical medium o corporatenancial reporting but also itstraditional boundaries. Paperreports are being supplement-ed - and, or many users, re-placed - by electronic businessreporting, primarily via the In-ternet. And while we account-

ing standard-setters have, evento this day, tended to ocusprimarily on the traditional -nancial statements and relatednote disclosures, investors andlenders have moved ar beyondthat. The present scenario onancial reporting on the In-ternet shows that there is nouniormity in terms o access,presentation, or contents o -nancial inormation or annual

reports. With increased us-age and attention we may seechanges to that.r

As we see

an increasein trans-parencyby Corpo-rates andincreasein users ofInternet,nancialreport-ing on theinternet is

a force tobe reck-oned withand willincrease inthe comingyears.

Documents

Financial Reporting on Internet - CA Journal Jan 2006