Global Web Auditing Standards: Time for a Change?

• Published date: 01 September 2014
• Date: 01 September 2014
• DOI: http://doi.org/10.1002/jcaf.21984
• Author: John A. Pendley,Jerrell W. Habegger

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© 2014 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com).

DOI 10.1002/jcaf.21984

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John A. Pendley and Jerrell W. Habegger

The current audit guidance for web-based finan-

cial information was devised at the beginning of

the Internet era, but it hasn’t been revised since.

However, companies have adapted their business

reporting to take advantage of modern web report-

ing options—including using financial intermedi-

aries and investor relations specialists. So despite

the technological advancements in digital financial

reporting, auditing standards have not kept pace.

Isn’t it time for a change? The authors review

the outdated auditing standards for web-based

accounting reports and compare them to the state

of modern website management.

© 2014 Wiley Periodicals, Inc.

G lobal Web Auditing Standards:

Time for a Change?

INTRODUCTION

In late 2012, the

International Audit-

ing and Assurance

Standards Board

(IAASB) issued an

exposure draft to revise

International Standard

on Auditing (ISA) 720,

“The Auditor’s Respon-

sibilities Relating to

Other Information in

Documents Contain-

ing Audited Financial

Statements.” The

standard on “Other

Information” provides

guidance to auditors on their

responsibilities for information

presented in the same document

with audited financial state-

ments. Such “other information”

is not under direct purview of

the auditor, but could under-

mine credibility if it conflicts

with the audited financial state-

ments. Of interest in this paper

is information (other than the

audited financial statements)

that is maintained on com-

panies’ websites. The “Other

Information” auditing standards

covers website data, and these

regulations have not changed

since the beginning of the Inter-

net era. Thus, the 2012 IAASB

exposure draft was significant

because it is the first attempt of

a standard setter (internationally

or U.S.) to propose changes in

the auditor’s responsibilities for

web-based information.

The profession’s reluctance

to revise auditing standards for

Internet reporting is surprising

since the Internet has altered the

financial reporting environment

in fundamental ways. Compa-

nies are scaling back on the pro-

duction of paper reports, and

regulators are allowing website

communication to

fulfill legal require-

ments. In the past

decade, elaborate

third-party data-

bases have arisen in

the market for digital

financial data. These

third-party services

provide access to

annual reports and

SEC filings for

company websites,

creating an altered

value chain that

involves not only

the reporting com-

pany but also inves-

tor relation consultants, data

aggregators, and website design

and hosting services. To further

complicate the issue, it appears

that much of the increase in data

available online is of the partial

or summary variety (Pendley &

Allport, 2012 ). These summary

and abbreviated reports portray

historical accounting data, but

lack footnotes and auditor’s

opinions, making them incom-

plete representations of the

reported information.

In this altered reporting

environment, the auditor’s

responsibility has changed little.