IASB member discusses benefits and costs of digital reporting

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07 Jul 2020

On 7 July 2020, IASB member Ann Tarca delivered a speech at the virtual annual conference of the Accounting & Finance Association of Australia and New Zealand (AFAANZ). She discussed digital reporting and included questions for practitioners, standard-setters and researchers.

Ms Tarca began her speech by talking about what XBRL is and who uses it. She explained about tagging financial statements, the different versions of XBRL, and gave examples of different uses in the US, in the EU, in the UK, in Japan, in Denmark and in Australia.

This led her to four questions:

  • Why have we been slow to embrace digital financial reporting, when the benefits of technological innovation have been profound in other areas of accounting and finance?
  • What does research tell us about the US experience from a company preparer/auditor perspective?
  • Do investors want digital reporting?
  • Are there benefits for capital markets?

On the first question, Ms Tarca explained tat when lodging annual reports in XBRL format is not mandatory, listed companies need a compelling case to take on an activity that consumes resources as tagging financial statements will involve software, systems, expertise, staff and consultants.

On the second question, Ms Tarca mentioned experiences at the SEC pointing to some significant problems relating to the accuracy of tagging and excessive or erroneous use of extensions. However, later errors became less prevalent and some ‘learning’ took place.

Turning to the third question, Ms Tarca pointed at the fact that there seems to be low demand from investors for regulators to make tagged data mandatory as the financial data investors use is already digital in many cases as they get it from database providers. Tagging of data would, therefore, likely help the database providers, who could then focus more on ‘standardising’ and ‘normalising’ data and providing their various other value-adding activities for their clients.

Finally, in discussing the fourth question, Ms Tarca noted research that concluded that XBRL has the potential to decrease information risk and information asymmetry through greater transparency and leads to reduced information processing costs. However, she warned that because of limited use of XBRL data by financial statement users research in this area is still in its early stages.

Ms Tarca concluded her speech mentioning some opportunities for further research around comparability, quality, financial statement presentation, and disclosures.

Please click to access the transcript of her speech on the IASB website.

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