The need to reengineer the business reporting process
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Michael G. Alles is an associate professor in the Department of Accounting, Business Ethics and Information Systems at Rutgers Business School and an associate editor of the Journal. Miklos A. Vasarhelyi is KPMG Professor of Accounting Information Systems in the Department of Accounting, Business Ethics and Information Systems at Rutgers Business School and Director of the KPMG Continuous Assurance and Reporting Laboratory.
taking place at the boundary between the firm and its users. The degree of pre-processing of information to the point of handover is an opportunity for lack of transparency and reporting fraud. Given these underlying changes, it is time to ask whether the location of that handover boundary point is still appropriate: whether the firm should continue to aggregate and condense information to the same extent before releasing it, or whether sophisticated users would prefer to have access to more information in closer to its raw format so that they can manipulate and aggregate it as they see fit.
International Journal of Disclosure and Governance (2007) 4, 204–216. doi:10.1057/palgrave.jdg.2050060 ABSTRACT KEYWORDS: enhanced business reporting, accounting information systems This paper examines the forces that are shaping and changing the environment within which business reporting takes place. The starting point of our analysis is the perspective that if the financial reporting system was being built from scratch today, it would look very different, taking into account fundamental changes in the two drivers of financial reporting: first, the reduction in the variable costs of disclosures to technology-enabled firms; secondly, the dominance of market making by professional investors, which includes such intermediaries as pension and mutual funds, which is how most ordinary individuals interact with the market. Taken together, the consequence of these two changes is that a system being designed today has to rethink the entire process by which financial data held by the firm is translated into decision-relevant information by users. This process takes place both within the firm and outside of it, with a handover of financial statements
INTRODUCTION
This paper examines the technological and economic forces that have fundamentally changed the environment within which business measurement and reporting takes place, but have yet to materially impact the process of reporting itself. Ultimately, if business reporting is to retain its relevance to financial markets, that process has to be reengineered to better reflect the changes that have taken place in the economy since modern financial reporting began in the first half of the 20th century.1,2 Ours is hardly the first attempt to rethink the drivers of business reporting. Throughout the history of accounting, there have been initiatives to update or change the basis of financial accounting, no more so than in the last few years, after scandals such as those at Enron and WorldCom shook public confidence
204 International Journal of Disclosure and Govern
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