Internet financial reporting can be a powerful tool in the hands of companies. The potential benefits of providing financial information on the internet include supplementing traditional disclosure, reducing the time and cost of distribution, improving and increasing the type of information disclosed and boundary-less communication with a wide audience.
The quality of online financial reporting varies from country to country and according to the size of the disclosing company. Studies show that US companies are much better at managing investor relations via the internet than their counterparts in the UK and Germany.
Although internet financial reporting can provide many benefits, not least in reducing the cost to firms of information dissemination, it seems that those newer and better methods of disclosure will be adopted by choice only if it is perceived that the benefits outweigh the costs.
Internet financial reporting should encourage more progressive and innovative corporate reporting. By using the internet creatively, companies can distribute information dealing with such issues as liquidity, profitability, marketing, taxation and CSR programmes.
Financial data can be combined with other information to allow rapid analysis of performance. This is to the advantage of customers, investors, analysts and the rest, as well as the companies themselves.
But there is the constant problem of regulation and standardisation. Information on websites is not controlled by anybody, so the quality and content of internet financial reporting varies considerably. As yet, there are no standards for internet financial reporting. It is of vital importance that professional bodies and regulators act now to rectify this.
As companies move to web-based disclosure, it is essential that information is disclosed in a timely manner and in a way that is useful to decision-makers. Above all, it is vital that the internal and external integrity and honesty of the company is maintained. Every business should have an internet reporting policy, which should determine the content, format, timing and authenticity of the information disseminated.
Confusion and mistakes have resulted from a lack of standardised definitions and formats for financial information. The introduction of XBRL, a computer language that allows companies to close their books at any time and then report their performance instantly, will make documents more accessible and easier to understand. It should also reduce the cost of dissemination of information and increase efficiency.
In the meantime, international accounting regulatory bodies and government agencies need to develop guidance for companies and make this public, so that users have a better idea of the reliability of internet financial information.
Source: Navigating the web of financial reporting,
Arumugam Seetharaman and Ramaiyer Subramanian
European Business Forum, Issue 23
Review by Roger Trapp