You are on page 1of 14



Akshaya Katiyar
Assistant Professor Faculty of Management, Jodhpur National University, JODHPUR.

Two days UGC sponsored National Seminar on Studies in Accounting, Finance & Management. On 19th and 20th March, 2009

At Department of Accounting Faculty of Commerce and Management Studies, Jai Narain Vyas University, Jodhpur.


Mr. Akshaya Katiyar1

Within a short period of less than 15 years, the Internet has grown from an essentially academic facility to the backbone of the information superhighway. It is one of the most rapidly growing areas which offer the users the facility to access documents containing text, graphics, sound, and video. It is now widely used in universities, business companies, homes, schools, and public sector organizations for a variety of purposes. India has the fourth largest number of Internet users in the world, with over 85 million users. The Internet has also become an increasingly attractive market place with the e-commerce set to grow at a 30 percent pace to touch Rs. 11,900 crores in 2008-09 from Rs. 9,210 crores in 2007-08 boosted by strength in the classifieds, subscription and downloads businesses (IAMAI, 2007). The Internet appears particularly pertinent to financial reporting. First, it is a global network which makes physical and national boundaries less meaningful and thus provides a seamless information delivery channel. With
Assistant Professor, Faculty of Management, Jodhpur National University, Jodhpur, Rajasthan


the advent of World Wide Web, it supports powerful hypertext and hypermedia presentations. In addition, the Internet is capable of integration with other information and communication technologies. In particular, its convergence with database technology opens many opportunities for improving financial reporting. Indeed, the Internet is increasingly used for corporate reporting. Given the growing importance of the Internet and its evident relevance to financial reporting, it is important to investigate the future impact of the Internet on financial reporting. As the business world becomes increasingly dynamic, academics and practitioners have called for improvements in financial reporting. Furthermore, the accounting profession is anxious to gain an insight into its future position in an Internet environment. FINANCIAL REPORTING AND ITS USERS The reporting process of an entity to a user or a group of users is known as the reporting of accounting information. Communicating of information both financial and non-financial about the resources and performance of the said entity is defined as Corporate Financial Reporting. It


is also known as a system through which the accounting information is communicated to the external users. This information is very useful in making business and economic decisions. Going by the spirit of The Companies Act, 1956 the basic purpose of Financial Reporting is to provide the company’s shareholders, financial statements and other related information. Financial reporting is regarded as an important and effectual means of dissemination of financial information. It is useful because it assists people to answer questions and make better decisions. Financial information is better provided by means of financial reporting other than formal financial statements. Examples include the president’s letter, supplementary schedules in the corporate annual report, prospectus, news releases and management’s forecasts. The demand for information in financial reports regarding business enterprises comes from both outside and inside. The users of financial reporting outside the business, especially capital market participants, governments and to some extent from special-interest groups usually want summarized information in standardized forms and reported at certain intervals. On the contrary, the insiders represent by two groups – managers and employees, look for tailored information to help them in


taking specific decisions and reported at frequent intervals and sometimes produced on the basis of request. Since the late 1960’s with the development of the value verses events reporting agenda (Sorter 1969) the possible role of computers in the reporting cycle has received much attention. The majority of this research has concentrated on the database approach to reporting. The major limitation of this approach has been the lack of an effective distribution mechanism for the system output. The debate as to whether or not there is a ‘best way’ for presenting accounting information is of real concern to many standard setters and such a debate is essential in supporting the value-based approach to accounting common in many countries at present (Sorter 1969). The development of an aggregated value-based accounting model was, to some degree, driven by the practical inadequacies of any other approach available at the time to deliver financial information in a way acceptable to both users and producers. The issues in Financial Reporting of national verses international patterns of behavior are currently central to the activities of the national standard setting bodies around the world and to the IASC (International


Accounting Standards Committee) as the primary international body. The establishing of the G8 and the bringing forward of the IASC timetable for a set of international standards are evidences of the importance of this subject at the current time. MODES OF FINANCIAL REPORTING ON INTERNET Companies throughout the world use different computer software for financial reporting purposes. Amongst the technologies are Microsoft Word and Microsoft Excel which were previously used to distribute and exhibit financial as well as other forms of information through Internet. The major technologies currently employed in internet financial reporting are HTML (Hypertext Markup Language) and Adobe Acrobat. Very recently, an exclusively new technology, XBRL (eXtensible Business Reporting Language) has appeared to be most effective and has gained acceptance as a unique computing language with seamless fashion in developed countries of the world.

• MS Word and MS Excel


Microsoft Word and Microsoft Excel are two widely used application software developed and marketed by Microsoft. Some companies structure their financial information on their websites in Microsoft Excel spreadsheets or comma-delimited text files. These types of files can be imported into the database of the receiver’s system for further processing. These formats imply great potential benefits especially for financial analysts by transferring financial data to their own financial indicators. However, common attributes that characterize information on the websites like hypertext and user friendly visualization of data are neglected. Moreover, credibility and authenticity of financial information is quite impossible to ensure because the downloaded files can be manipulated before use and digital signature of concerned authority is not possible. • HTML Most of financial information dispersed through websites of corporations is presented using the Hypertext Markup Language (HTML). HTML documents consist of text, graphics, and formatting information. There are also hyperlinks that point to other documents for further and detailed information. Although hypertext structure of HTML derives great


advantages, it has deficiency concerning the exchange of structured data. The data is not at all structured or indexed by specifying semantic elements so as to enabling the receiver's computer processing data automatically (Westarp, Ordelheide, Stubenrath, Buxmann and Konig, 1999). • Adobe Acrobat Many companies offer financial information in downloadable format known as Portable Document Format (PDF). PDF documents are independent formats written by Adobe's Acrobat software, which retain original fonts, colors, formatting and images on multiple computer platforms. To view, navigate, and print a PDF document the Adobe Acrobat Reader is necessary. Adobe Acrobat has many advantages in presentation of accounting information. The information comes as a package, and is identical to the printed version since fonts, colors and images are embedded. Further, it provides technical solutions for signing the reports electronically and new versions of PDF allow hyper linking of text. The advent of Acrobat provides solutions to some of the problems that exist in earlier modes of financial reporting on internet.


It can, however, be argued that a long-term solution to Internet financial reporting cannot be made by Acrobat. Some important plausible fundamental advantages of Internet based information distribution are missing in PDF documents. Downloadable files are generally too large and automated extraction of semantic meaning from the reports is impossible (Westarp, Ordelheide, Stubenrath, Buxmann, and Konig, 1999).

Furthermore, and even more important, PDF does not enable further automated data processing. • XML and XBRL XBRL is a freely available electronic language for financial reporting. It is an XML (eXtensible Markup Languages)-based framework that provides the financial community with a standard-based method to prepare and publish financial statements in a variety of formats and automatically exchange the information they contain (Richards and Smith, 2004). XBRL is not about establishing new accounting standards but enhancing the usability of the ones that we have through the digital language of business. XBRL will not require additional disclosure from companies to outside audiences.


The official website of XBRL states that it, at least at first, will be used to digitally publish financial statements of companies that are issued to external users. An XBRL-based financial statement is a digitally enhanced version of paper-based financial statements, which include the balance sheet, income statement, statement of equity, statement of cash flows, and the notes to the financial statements as well as the accountant’s report. “XBRL for Financial Statements” enables a dramatic improvement in the processing of financial reports. XBRL documents can be prepared efficiently, exchanged reliably, published more easily, analyzed quickly, retrieved easily by investors, and enables smarter investments. XBRL solves two significant problems through efficient preparation of financial statements in many forms and reliable extraction of specific detailed information from the different forms of financial statements (Debreceny and Gray, 2001). The first problem is that preparing a financial statement for printing, for a Web site, and for filing today means that a company could typically enter information three times. With XBRL, information will be entered once and the same information will be “rendered” as a printed financial statement,


an HTML document for a Web site, an EDGAR filing file, a raw XML file, or a specialized reporting format such as periodic banking and other regulatory reports (Richards and Smith, 2004). The second problem is that today, extracting specified detailed information from an electronic financial statement is a manual process. For example, a company cannot tell a computer program to “Get the depreciation expense for 1999” from an electronic financial statement. If a financial statement is prepared using XBRL, computer programs can easily extract every piece of information in that statement. This also includes Web browsers on the Internet. XBRL and XML can derive optimal benefit to various participants in the financial information supply chain, such as companies who prepare financial statements, analysts, investors, regulators, financial publishers, data aggregators, Independent Software Vendors etc.



Hypertext PDF Excel HTML XBRL and XML
● ● ●

Information retrieval
● ● ●

Further automated processing
● ●

Source: Westarp, Ordelheide, Stubenrath, Buxmann, and Konig (1999)

IMPORTANT ISSUES There are other complex challenges which the management has to take crucial decisions such as:• What to report - Important issues like the coverage & Depth of information to be provided. • When to report - The frequency and time of reporting will depend on the type of financial information reported. Some important issues are: – Should the interim results be reported on a quarterly or biannual basis?


– Should the annual report (which includes the auditor report) be provided online immediately after the completion of the annual audit exercise? – How long, should the financial performance data be posted to the firm’s web site after the data have been released officially via the press? • Who is responsible to report - Typical issues are: – Who is/are responsible for deciding which financial information should be posted online? – Who is/are responsible for posting the online financial information?

Who is/are responsible for verifying and approving the online financial information?

CONCLUSION Without doubt, the growing popularity of corporate financial reporting on internet will continue in many countries and cities, after companies have realized the many advantages associated with it. It will be risky for the management and internal auditors of the company to ignore corporate


financial reporting on internet. Indeed, in the interest of the users of financial information, management and internal auditors have to provide their expertise to ensure that the electronic forms of reporting produce quality financial information.