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COMPANY ACCOUNTING

ACC

SEMESTER 2 – 2022

GROUP MEMBERS

TEAM 7

MUHAMMAD TALHA

MALINDU UMAYANGA PATHIRANA

THUSHAN RODRIGO

Financial Reporting has been a core process of today’s dynamic business industry, which includes a vast number of domestic and international markets, with a range of mechanisms that vary from region to region. Financial reporting is a vital procedure in every market, where any amendments in it may not lead to fair and appropriate regulation, thus, to cope with this the Companies Act 1961 was introduced in Australia. This appeared as an initial initiative which insured transparency and liquidity for the stake holders (ASIC 2022). Moreover in 2004, the Australian Accounting Standards Board launched the financial reporting framework, which has been outlined to replace the International Accounting Standards structure to encourage the Australian Publicly listed companies to compete globally and ensure continuity amongst the global accounting bodies, furthermore, inclining the quality of financial reports being produced in Australia (IAS Plus 2022). As we progress into time, the world has drastically changed, the technological advancements have been drastic compared to when the Companies Act 1961 was initially created. In this digital era and the emergence of ‘big data’, data in the form of information has unprecedently become one of the most important assets available to businesses (Troshani & Rowbottom 2021). However, the use of this data across various business information system platforms would result in problems such as comparability, transparency, and efficiency problems. Therefore, the use of eXtensible Business Reporting Language (XBRL) provides a wide spectrum of opportunities and more potential advantages for organizations and regulating authorities across the globe in relation to financial reporting (ASIC 2022). The XBRL Digital financial reporting has been adapted by the first world countries such as US, UK, Singapore, and Japan since 2005, and available to Australia since 2010. This technology should be more popular from which there is more to benefit. The financial reporting sector has remained stationary where a majority still produces it in the PDF format reports. Consequently, the cost of using the technology (XBRL) and limited infrastructure, has been blamed of its reluctant use by companies in Australia to produce reports. These issues which surround the structure of XBRL has made it challenging to implement, as well as data tagging problems has been linked towards the hesitated response of using Digital Financial Reporting, whereas in other parts of the world these issues have been appropriately addressed. Moreover, it is worth considering that the benefit of using Digital Financial Reporting exceeds its cost if it were to be undertaken by the Australian Organisations (Troshani and Rowbotton 2022). The ease of implementing the method solely lies directly proportionate to easing the delivery medium for XBRL reports, by making it mandatory of all companies to listed on the ASX. Thus, will make it more accessible which would significantly contribute towards its widespread use. This will also allow an easier understanding of the company’s financial position to its stakeholders and much smoother for Australia to align with the overseas aspect. Moving on to a summary of incidents which took place in XBRL, and its rise began in April 1988, where CPA Charles Hoffman, in collaboration to Knight, Gregory and Vale located in Tacoma, Washington investigated on using XML on electronically using financial reporting data. This is, Charles began constructing prototypes of audit programmes and financial statements through XML, then reporting to Wayne Harding who was the chairman of AICPA High Tech Task Force in July of 1998, educating on the potential use of XML in the reporting of financial information. After a successful briefing by Wayne Hoffman on the potential benefits of using XML in the future led to the funding by AICPA to create a pattern of financial statements using XML (Xbrleducation 2022). Whereas of 31 December 1998, in co-ordinance of Mark Jewett, Charles finally finished developing prototype to which the knight vale and Gregory has expected it to be the half the development cost. Thus, leading the business model to be established by 15 June 1999 by Charles Hoffman and Wayne Harding at

mandatory, the timeliness of digital reporting improved, where the audit report lag decreased from 0.4% to 3.4% in the US (Troshani and Rowbottom 2021). Furthermore, DFR provides meaningful and customized reports for better decision-making, which is beneficial to investors and analysts, and it has also been agreed in the Parliamentary Joint Committee (2020). It can be converted to PDF or html, thus providing greater transparency and consistency (Chang, Kaszak, Kipp, & Robertson, 2021). It is most useful for stock exchanges and investment analysts/brokers. It can provide investors, stockbrokers with better data products for comparisons and benchmarks (Ramin & Reiman 2013). An increase in information efficiency, a decrease in changes in event return volatility, a decrease in the change in stock return volatility were found due to increased transparency 1 year after the XBRL mandate in the United States (Tarca 2012). Early adoption of XBRL reduced market liquidity and increased information asymmetry among US listed companies. The reason for that is the limited organizational learning and organizational information infrastructure required for XBRL. However, DFR suggested that as XBRL matures, research evidence should be used to improve capital market efficiency and reduce information processing costs. (Troshani & Rowbottom 2021). Also, Japan, Belgium and China use XBRL and various research monitoring institutions in those countries have also reduced information asymmetry (Tarca 2020). When DFR is widely used, it is possible to access digital financial information in one platform and accurately extract data electronically. It benefits regulators and standard setters. Thus, they can successfully focus on inequities and make decisions faster with better confidence (Shan & Troshani 2014). For example, using the ability to digitally extract risk assessment data for ASICs can be used to target areas of risk more effectively. The AASB has recognized that using digital financial information can facilitate standard setting through DFR by assessing the potential consequences of proposed standard changes. ASIC can easily detect inconsistencies and anomalies in order to achieve monitoring objectives, saving huge costs through software so that all records are in a single standard format (PJC 2020). Currently, banks are using XBRL to efficiently compare and analyze data within their credit management departments. It reduces banks' operational costs and increases their ability to respond to customers in a timely manner by making quick decisions. (Ramin & Reiman

While the world has embraced the digital path and demonstrated its benefits, Australia remains inactive. Digital reporting is voluntary in Australia and ASIC has not intervened well (Parker 2020). Also, companies are reluctant to use the information if they do not have the necessary infrastructure to use the information effectively. Financial data analysis software does not have an update to process and analyze XBRL formatted data. Also, there is no demand for software data analysis that does not provide integration with XBRL and it is difficult to develop. Only through the involvement of Australian government agencies can Australia enjoy the benefits of digital reporting (Wells 2020). Based on the importance of global uniformity, the IFRS labeling system is updated by the IASB. But these have problems such as inconsistent tagging of technical errors (Wells 2020). To solve these problems, the innovations of developed countries should be adopted. Research has been conducted in the year since the introduction of XBRL in the United States and the voluntary filing of XBRL with the SEC. But arithmetic and data filing errors have occurred over time (Bartolacci et al 2020). Detailed tagging of notes and specific disclosures

i.e. extended usage of companies in their unique circumstances is permitted. But problems with accuracy and inconsistency due to excessive or incorrect use of extensions have occurred since the SEC introduced tagged financial statement filing (Tarca 2020). From April 2009 to June 2010, 40% of extensions (used by 67 filers) were identified as unnecessary extensions. But they have led to extended use to increase transparency and affect comparability and consistency to prevent information loss. It has also been questioned by critics (Troshani & Rowbottom 2021). ASIC has introduced a central repository with components to download annual reports and tagged data to support these issues. It can update financial reporting like CaseWare with tags to reduce costs and reduce errors, and automatically tag software solution reports (Wells 2020). Digital reporting enables access to limited resources through software and tools (Parker 2020). XBRL enforcement in Australia is emerging as a huge challenge, reflecting the cost of implementing it. But Professor Wells points out that current software can be compiled at low cost, and that XBRL opponents have overestimated its cost. There are many countries that use XBRL for this study. With an active and competitive market, suitable compatible options are available for the ESEF electronic model, which is widely used in Europe. Furthermore, since 2007, the Accounting and Corporate Regulatory Authority of Singapore has required filing through XBRL, and for that they have even provided detailed guidance for successful DFR implementation (Parker 2020). Also, it is stated in the PJC 2020 report, which regulates Australian audits, that the cost of digital reporting can be reduced through measures such as preparing standards by the IASB, providing solutions with existing software and collecting them. Australia has not adopted XBRL due to ASIC's laxity. Until now, DFRs have not been filed with ASIC when there was a background to accept the XBRL format by 2010. In 2009, the US SEC made it a legal requirement to submit financial reports in the XBRL format, leading them to use XBRL. CPA Australia has even informed the Corporations and Financial Services Scrutiny Parliamentary Committee, which regulates Australian auditing, that the XBRL format is mandatory (Parker 2020). And PJC has discovered that using XBRL enables better decision making and more meaningful reporting (Wells 2020). Effective measures related to XBRL digital reporting are by making it a legal requirement for ASX listed companies to submit DFRs to ASIC. It will be entrusted to the Australian financial services sector to take the next steps to use the information properly by providing the necessary infrastructure. Nevertheless, there should be a formal discussion mandating the use of XBRL to all stakeholders, from regulators to reporting companies. Also, various groups in Australia are looking forward to this and the PJC further emphasizes that the Australian Government should take appropriate measures to implement the DFR standard in Australia (PJC 2020). In conclusion, digital financial reporting in XBRL format offers advantages to stakeholders and users in many financial reporting sectors. It can be understood from the DFR implemented in other countries that there are no barriers to adopting DFR (PJC 2020). Furthermore, Australia needs digital financial reporting in terms of increasing capital market efficiency, reducing processing costs, increasing the accuracy of forecasts, and transparency in the business sector. Can be completed. Financial reporting reform can only be achieved through the intervention of the Australian Government. That is, technical solutions and support can be made more widely available through legal coercion (Parker 2020). CPAs and

References

What is the History of XBRL? Xbrleducation.com. (2022). Retrieved 30 September 2022, from http://www.xbrleducation.com/edu/history.htm. Ramin, K., & Reiman, C. (2013). IFRS and XBRL. John Wiley & Sons, Incorporated. Filing XBRL Interactive Data on SEC EDGAR. Newsfilecorp.com. (2022). Retrieved 30 September 2022, from https://www.newsfilecorp.com/xbrl/understandingxbrl.php. Wells, P. (2020). The Future of Financial Reporting. CAANZ. Retrieved October 1, 2022. Digital financial reports | ASIC. Asic.gov.au. (2022). Retrieved 1 October 2022, from https://asic.gov.au/regulatory-resources/financial-reporting-and-audit/preparers-of-financial- reports/digital-financial-reports/. Troshani, I., & Rowbottom, N. (2022). Digital Corporate Reporting: Global Experiences from the G20 and implications for policy formulation. CPA Australia. Retrieved August 18, 2022. Troshani, I., & Rowbottom, N. (2021). Digital Corporate Reporting: Research Developments and Implications. Australian Accounting Review, 31(3), 213-

Financial reporting framework in Australia. IAS Plus. (2022). Retrieved 1 October 2022, from https://www.iasplus.com/en/jurisdictions/oceania/australia. An Introduction to XBRL | XBRL. Xbrl.org. (2022). Retrieved 1 October 2022, from https://www.xbrl.org/the-standard/what/an-introduction-to-xbrl/. Walton, P. (2015) IFRS in Europe – An observer’s perspective of the next 10 years. Accounting in Europe, 12(2), 135–151. Parker, D, 2020, Digital reporting: The way forward for financial reports, InTheBlack, viewed 30 October 2022, <https://intheblack.cpaaustralia.com.au/accounting/digital- reporting-way-forward-for-financial-reports> Bartolacci, F, Caputo, A, Fradeani, A & Soverchia, M 2020, ‘Twenty years of XBRL: what we know and where we are going’, Meditari Accountancy Research, Vol. 29, no. 5 XBRL: The Language of Accounting in a Digital World. PWC.com. (2022). Retrieved 1 October 2022, from https://www.pwc.com/gx/en/xbrl/pdf/pwc_xbrl_willis.pdf. Tarca, A 2020, ‘Digital reporting—questions for practitioners, standard-setters and researchers’, IFRS, 7 July, viewed 1 October 2022