Published in September 2004, Digital reporting: a progress report, sets out to provide an analysis of the extent to which technology can be an instrument of change in the way financial reports are prepared and used. The report also deals with the resolution of digital reporting issues and problems and the progress of initiatives to develop and implement digital reporting tools.

About the report

Standards for the electronic recording, processing and distribution of financial and other business reports ("digital reporting") can bring benefits both for external regulation and investor relations and for financial management and decision-making within companies.

The report makes a distinction between 3 levels of digital reporting:

• Level 1 is simply a means of publishing and disseminating reports more widely and more efficiently but in essentially the same formats as at present (using pdf for example).Reporting at this level is essentially standard practice already.
• Level 2 is a means of making the underlying information available in a more effective form for analysis and interoperability with other systems, through standardisation of the framework within which the information is stored, processed and presented for reporting purposes.
• A theoretically possible Level 3 would integrate all aspects of financial and management accounting and reporting. Full drill-down by external users of an organisation's reports to the underlying detail would become possible. But it seems unlikely that businesses actually want to be this transparent. If not, who is going to press for compulsion?

Widespread adoption of Level 1 digital reporting in a matter of a few years has had little impact on fundamental reporting issues related to the needs of different stakeholders for different information, improving the quality of investors' decisions or increasing transparency, though it is an interesting example of a significant improvement in business reporting with negligible regulatory intervention.

By contrast, a widely accepted digital reporting standard at Level 2 is capable of delivering real benefits in respect of data reliability and relevance, as well as data being more readily understandable on the basis of greater consistency of interpretation. Level 2 digital reporting thus opens up entirely new possibilities and also raises fundamental issues in relation to serving multiple stakeholders, meeting decision-making needs and achieving transparency.

So an effective digital reporting standard is relevant to decision-makers at all stages of the business reporting "supply chain", such as the producers of business reports, software vendors, accountants, auditors, financial analysts, investors and creditors.

Despite the huge theoretical benefits of Level 2 digital reporting, there is a need to take a disciplined view of the benefits that it can bring. There are still issues, particularly security and audit reporting issues, associated with digital reporting. There are also limits to what is likely to be achieved by digital reporting standards in respect of matters, such as environmental or management accountability reporting, that cannot always or easily be quantified.

Digital reporting standard contributes directly to four of the main qualitative characteristics, as recognised in the relevant IASB Framework, of financial information that is useful for decision-making. These characteristics are:

• "understandability"
• relevance
• reliability
• comparability

Digital reporting standards are thus a strong element in the technical dimension of achieving better financial markets.

This is the third report in our information for better markets campaign following on from Prospective financial information: guidance for UK directors, published in September 2003 and New reporting models for business published in December 2003.

Download the full report (PDF 301 kb/52 pages)

An Executive summary is also available (PDF 64 kb/4 pages)

For further information on the report, or for printed copies, please email bettermarkets@icaew.com