This year, for the first time, the Leinster Society of Chartered Accountants (LSCA) Published Accounts Awards included an award for effective use of corporate websites for financial reporting purposes. Barry Smith and Denise Peppard took the opportunity to examine the Internet financial reporting practices of PLCs quoted on the Irish Stock Exchange and to benchmark them against international 'best' practices.
Using a corporate website to disclose financial and business information has become commonplace for most plcs. Communication possibilities that go far beyond that achievable by traditional means is the advantage offered by web-based corporate reporting. However, the mere existence of a corporate website does not automatically mean that the quantity and quality of information available is of a uniform high standard. In many ways, the development of internet financial reporting (IFR) during the last decade mirrors the development of accounting practice up to the 1960s in that, over time, common practices have emerged, have become the norm, and are underpinned by an assumption that the 'best' practices survive. IFR continues to evolve based on common practices rather than prescribed standards.
The objective of the LSCA PAA IT Award is to encourage Irish organisations to incorporate best practice into their own IFR. This study selected a number of criteria from international best practice guides and assessed the IFR of plcs quoted on the Irish Stock Exchange. The criteria against which the IFR practices of these companies were benchmarked were categorised under the headings of (i) website accessibility (ii) investor relations site navigability and (iii) investor relations content.
Sample
This study selected those companies whose ordinary shares are traded on the Irish Stock Exchange. Companies listed on the IEX were specifically excluded. Of the remainder, there were:
42 companies for which no website could be found,
41 company for which the website did not disclose financial information,
41 company for which the website was under construction and
41 company for which the website could not be downloaded despite repeated attempts.
The final sample comprised 43 plcs.
ACCESSIBILITY & NAVIGABILITY - CRITERIA & RESULTS
In general, the websites of Irish PLCs were easily located using Google, MSN and Yahoo search engines and were easily loaded using either the Internet Explorer or Mozilla Firefox browsers. Only one website was not compatible with the Mozilla Firefox browser.
The results listed in Table 1 highlight the extent to which Irish PLCs currently fall short of best practice. In particular, navigation tracking and identification of visited links, which help to provide assurance to site visitors that they have accessed all relevant information, are not yet widely used by Irish PLCs.
An important aspect of accessibility is download time. Notwithstanding the existence of broadband, those responsible for website content need to remember that many website visitors may continue to use slower connections for some time to come. Smaller rather than larger PDF files, removing unnecessary graphical content from PDF files and avoiding the use of images to display text all contribute to faster download times.
Links to third party sites can provide a wider context for information located on a corporate website. Relevant links to industry bodies, regulators or trading partners help keep visitors up to date with news about the broader financial and operating environment in which the company operates. In the cases of Irish PLCs, links to third party sites from investor relations webpages were found to be the exception rather than the norm. Of those that did include third party links, the sites most frequently linked were the Irish Stock Exchange, Companies Registration Office, other group companies, independent financial information providers, financial advisors, trading partners and industry associations.
CONTENT - CRITERIA & RESULTS
Ultimately, the usefulness of the investor relations section of a corporate website is determined by its content. Content should be unambiguous, timely and relevant to the needs of existing and potential users. It should comprise financial and non-financial information, clearly distinguish between current and historical information, and should provide a comprehensive explanation of the governance and market frameworks within which the company operates. Current best practice stipulates that the website should be regarded as a primary means of communication and as the definitive rather than secondary source of information about the company.
Table 2 highlights the fact that while statutory historical information is commonly reproduced on corporate websites, information concerning future developments and events is less commonplace. Comparatively few PLCs provided any commentary on the changeover to IFRS and only 12% restated 2004 financial statements to illustrate the impact of applying IFRS.
98% of companies used PDF files to disclose annual and interim reports and 33% made them additionally available in HTML. Where appropriate, companies should provide information in downloadable dynamic files such as Excel or XBRL to allow users to analyse or re-format information according to their own particular needs. Webcasts should also be considered as a standard means of corporate communication, particularly in relation to AGMs and presentations to analysts. Relatively few Irish PLCs currently make use of webcast technology, preferring, in the case of presentations to analysts, to disclose the relevant Powerpoint slides.
The timeliness and currency of information affect the quality of investor relations webpages. Investor relations content should be regularly reviewed and updated. The currency of information disclosed should be clearly indicated, not least by classifying it as ‘current’ or ‘archive’ material. Where appropriate, information should be dated so that users can ascertain its continuing relevance.
Although corporate governance was not the main focus of this study, a corporate website is an ideal location for information about how a company is managed on behalf of its shareholders. Table 3 illustrates the extent to which further information on committee responsibilities, social and environmental policies could be provided by many plcs. In the case of corporate social and environmental policies, only 7% of companies in the sample provided any quantitative information.
Apart from the criteria listed in Table 3, companies should take the opportunity afforded by websites to demonstrate how the Combined Code is specifically applied.
As is the case for important financial information, the principles of corporate governance that underpin organisational management should not be buried in an annual report.
Other best practice considerations include a corporate profile detailing the history of the company and the sectors in which it operates, and a statement of strategy and vision for the company. Thus, visitors are provided with a useful historical backdrop to current activities and an understanding of likely future direction.
Whereas Table 2 criteria focus on the timeliness and currency of recent information, Table 4 criteria focus on what may be regarded as permanent records that further elaborate on the historical development of the organisation and provide easy access to publicly available historical information. As is evident from Table 4, press releases apart, the average quantity of archive material provided by plcs falls short of current best practice.
CONCLUSION
The objective of this study was to benchmark internet financial reporting practices of plcs against international best practice. No single plc quoted on the Irish Stock Exchange met all the criteria listed and many have room for improvement. The best practice criteria listed therefore provide a useful framework to facilitate improved quality of Irish investor relations webpages. Furthermore, they may be regarded as a source of guidance for all organisations, not just plcs, seeking to improve online communications with constituents. Going forward, the 2006 LSCA Published Accounts Awards will provide an ideal opportunity for Irish organisations to demonstrate that internet financial reporting in Ireland measures up to best international practice.
[Tables have been omitted from the online version of this article.
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Investor Relations Society (2005), 'IR Best Practice Website Guidance Criteria', www.ir-soc.org.uk
Canadian Institute of Chartered Accountants (2005), 'Excellence in Electronic Disclosure - Judging Criteria', CICA Corporate Reporting Awards, www.cica.ca
Barry Smith is a lecturer in accounting and finance at Dublin City University. Email: barry.smith@dcu.ie
Denise Peppard recently commenced work with KPMG. This article is based on her MBS in Accounting dissertation completed at Dublin City University. Email: Denise.peppard@kpmg.ie