Gerald Trites, FCA
The SEC was the major regulatory body that got the ball rolling in 2009, when it mandated rules for the use of the interactive data format (XBRL) for public company financial statements. Then several other countries and organizations got on the band wagon. There was a relatively quiet period for a few years, when the new electronic form of reporting seemed stalled. But then the EU stepped in and began requiring their ESEF filings in 2021. That meant most of the major companies in the world were using digitized reporting.
For regulators and governments, digital filing of reports has been an opportunity to streamline the processing and analysis of the reports. Users such as investors, on the other hand, have often been unsure about what to do with these reports.
The fact is, much attention has been given in recent years to the production of digital reports, but very little given to their consumption. True, there are utilities that can be purchased to enable people to read reports in digitized form, the SEC provides such a one, and the recent moves to inline XBRL mean the reports can be read in the conventional way, (ESEF is a variation on inline XBRL). But most of these attempts to render digital reports readable cater to the idea of sequential reading in the conventional sense. Most people do not read this way, unless perhaps they are reading a novel. When they want information, they tend to go to that information as fast as they can. This is the standard approach most people follow in using the internet. People don’t read the internet. Nor generally do they read a corporate website from beginning to end. That would be bizarre!
But yet, we provide annual reports in paper or PDF form, which extend to around 150 pages and often more, of difficult, often technical, material and expect people to read them. It doesn’t happen. Professional analysts might, but they are more likely to employ analytical tools to get the information they need.
There is an excellent article on the website of the International Federation of Accountants (IFAC) by Amir Ghandar, titled “The Accounting Revolution Will Be Digitized”.[1] In that article, Mr Ghandar points out that “A 2D, static annual report format in paper or pdf is not that different to the papyrus on which Egyptian scribes reported on the royal inventories more than 7,000 years ago.”
Much more than this is needed in the modern world. Technology and complexity have advanced tremendously and the style of reporting needs to keep pace.
Two areas need further work. One involves the steps necessary to encourage legislators and regulators in countries to adopt digital reporting. While a majority of countries have adopted it, there is still a number who haven’t. Then there is the need to take the steps to change digital reporting to make it more understandable and usable to the users. This means providing the resources for them to actually draw out the data they want. These resources need to be made available along with the reports themselves. Some companies in their websites have started doing this, through the provision of data banks and some analytical tools, however it needs to become commonplace and much more powerful and sweeping.
Developing this approach to corporate reporting requires interaction and discussion between corporate reporters and users, regulators and standards-setters to address the issues.
Those issues involve more than figuring out how to present digital information and how to use it. It involves determining what information to present, how to present it and when. It involves looking back at the basic tenets that have ruled accounting since its beginnings. The need for annual and other periodic reports. Can they be continuous? Can we eliminate the need for those pesky annual accounting judgements that cause so much trouble? Can we include the tools for analysis within the disclosures rather than relying on the software industry to deliver them? This cannot be accomplished within paper or pdf reports, but rather on the corporate websites. Most companies have moved their reporting to their websites. But they generally have ported over the old paper paradigm, rather than seriously adopting new and innovative ways to report in the information age. It’s well past time we did that.
https://www.ifac.org/knowledge-gateway/contributing-global-economy/discussion/accounting-revolution-will-be-digitized
[1] https://www.ifac.org/knowledge-gateway/contributing-global-economy/discussion/accounting-revolution-will-be-digitized
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