The diversity of modern-day corporate stakeholders brings to mind the words of the poet John Lydgate, famously adapted by Abraham Lincoln: “You can please some of the people all of the time, you can please all of the people some of the time, but you can’t please all of the people all of the time.”
Corporate reporting these days sets out to achieve that impossible aim. One document, all inclusive, delivered for the needs of an expanding, heterogeneous group, including shareholders, analysts and increasingly wider groups interested in the impact businesses have on communities and the environment.
Advances in technology open up the capacity to create incredible amounts of information, along with new ways to access and handle it. A study at the University of California, Berkeley, found that each year about five exabytes (five billion gigabytes) of new stored information is created. Storing that data as hard copy would take about 37,000 new libraries the size of the US Library of Congress. The study says it’s also roughly equivalent to every word ever spoken by humans. Quality including the value of independent assurance and relevance become paramount in this sea of information and the important messages can be easily lost in the noise.
Taking hold of key technologies that have emerged over the past few years is crucial to communicate effectively with an increasingly diverse audience. Could the information now contained in corporate reports be tailored to the needs of stakeholders? We’re at a critical juncture: how can the profession preparers and auditors embrace technology to communicate with an ever-widening audience and deliver high quality, relevant information where it is most needed?
The breadth of stakeholders now interested in corporate disclosure leads to broad diversity in their information needs. Beyond the financial statements, there is a raft of disclosures that drill into different aspects of a company’s finances. In addition, sustainability, governance and other non-financial information is often disclosed in the preamble or in separate reports. With the current buzz around how this could all be integrated, the real challenge is how reporting can be dis-integrated into parts digestible and relevant for individual stakeholders.
While it was the domain of science fiction only a short time ago, the accessing of information in ways that anticipate our interests and respond accordingly are now commonplace. Many consumer websites do this with no direct prompting from the user. Consider Amazon.com or eBay, where the information presented is customised to the individual user based on extensive self-learning systems working in the background that build a profile of our previous searches and purchases. What was originally unique and extremely effective marketing has now become the baseline expectation of consumers.
A parallel can be drawn with the marketing of companies themselves, whether to potential and current investors or to broader society, in establishing and preserving a corporation’s social licence to operate.
Self-educated systems that similarly push relevant disclosures to stakeholders might be asking a bit too much, at least for now. However, the ability for stakeholders to navigate easily to information in a way that recognises their differing needs is becoming imperative. Even the traditional corporate stakeholder the owner is now increasingly diverse, ranging from retail investors, mum and dad investors and self managed super fund trustees to institutional investors and analysts.
The real challenge is how reporting can be dis-integrated and relevant for individual stakeholders. Amir Ghandar
There are sources of corporate information that arguably have some of these qualities. To provide valuable information, however, there is no way around some form of independent assurance. The integrity of audited reports is still an essential element for decision-making in capital markets and there is no indication this will change. This renders the challenges involved here as much, if not more, of an issue for the auditing profession as it is for preparers.
It may only be a few steps from where we are today to providing disclosures in a more customised form. Providing a meaningful level of assurance is another matter. It may require an open-minded approach to some of the paradigms on which the audit profession has operated in the past from practitioners and report users, including a rethink on what assurance means, different levels of assurance needed and how auditors’ accountabilities, including their legal exposure, are defined.
Much of the technology required to implement a new approach has been available for years. eXtensible Business Reporting Language (XBRL, see below) is a key tool that enables a more high-definition version of reporting, adapted to different stakeholders’ needs. It is not difficult to envisage auditing the controls surrounding source transactions and XBRL reporting, allowing assurance to be provided on much more timely and customised information than currently available. This could be a different level of assurance in both nature and extent to that contemplated in today’s reports and auditing standards. It is positive to note that XBRL and integrated reporting are firmly on the agenda of the International and Australian Auditing and Assurance Standards Boards.
Luca Pacioli, one of the forebears of the accounting profession, explained some of the fundamentals of accounting with a wide scientific context in his fifth-century book, Everything about Arithmetic, Geometry, and Proportions. There remain opportunities for our profession to connect with leading science, engineering and mathematics technologies in delivering on our core purpose: genuinely valuable information for decision making.
Amir Ghandar is CPA Australia's policy adviser, audit and assurance.
Speak my language
eXtensible Business Reporting Language (XBRL) is a standardised reporting protocol where the information can be easily customised to suit different purposes.
XBRL classifies each piece of information such as an account balance or disclosure so that it can be drawn automatically into a predetermined format. See www.xbrl.org for details.