Does Search-Facilitating Technology Improve the Transparency of Financial Reporting?

Abstract

XBRL (eXtensible Business Reporting Language) is an emerging technology that facilitates directed searches and simultaneous presentation of related financial statement and footnote information. We investigate whether using an XBRL-enhanced search engine helps nonprofessional financial statement users acquire and integrate related financial information when making an investment decision. We conduct our investigation in the context of recognition versus disclosure of stock option compensation. Our results reveal that many users do not access the technology, but those who do use it are better able to acquire and integrate information. Specifically, we find that when stock option accounting varies between firms, the use of an XBRL-enhanced search engine increases the likelihood that individuals acquire information about stock option compensation disclosed in the footnotes. We also find that XBRL helps individuals integrate the implications of this information, resulting in different investment decisions between individuals who use and do not use the search engine. Our results suggest that search-facilitating technologies, such as XBRL, aid financial statement users by improving the transparency of firms' financial statement information and managers' choices for reporting that information. Our results also reveal that wide publicity about the benefits of using search-facilitating technology may be needed to induce financial statement users to access the technology.

The Association between Information Technology Investments and Audit Risk

“…The use of IT provides complete, transparent, and timely information for managerial decision making (Klaus et al 2000;Hendricks et al 2007;Bendoly et al 2009). For example, an empirical study by Hodge et al (2004) shows that companies that implement search-facilitating technologies (e.g., XBRL) improve the transparency of their financial statements. Another study by Choi et al (2010b) finds that IT investments can improve information sharing among employees.…”

Digitizing Financial Reporting: A Profile of Early Hospitality Industry XBRL Adopters and Implications for the Industry

“…XBRL, as a search facilitating technology overcomes this shortcoming by increasing transparency and reducing the likelihood that information contained in footnotes is overlooked (Hodge et al, 2004). Further, the range of information and speed of data extraction is greatly improved over other types of report formats (Lester, 2007).…”

“…According to XBRL International (XBRL International, n.d.), companies can achieve cost savings through reduction in capital costs due to the availability of timely, real-time, transparent disclosures in XBRL format. Cost savings are also achieved through reduction in costs associated with information gathering, analyzing, report production, data re-entry and report dissemination since XBRL eliminates the need for incompatible report formats (Hodge et al, 2004).…”

“…In this regard, XBRL is similar in concept to bar-coding, since it is open and not owned by any particular entity. Additionally, like barcodes, tags found on XBRL financial statements are unique to each piece of financial data or other disclosed information (Hodge, Kennedy, & Maines, 2004).…”

“…They can be language and jurisdictional specific, meaning that it can be modified to meet and satisfy specific accounting and reporting standards (Lester, 2007 (Farewell & Pinsker, 2005). The search facilitating capability of XBRL enhances transparency of recognition and disclosure of information due to error reduction and omissions since users can utilize this capability to perform more rigorous and targeted searches and analysis of financial statements (Hodge, Kennedy, & Maines, 2004). Tags also help non-financial professionals to acquire and use financial statements to make better decisions, since they are able to utilize information contained in the financial statements in conjunction with the footnotes as well as discussion and analysis by the firm's management and the auditor's report (Hodge et al, 2004).…”